fin_07_soln - * WRITE YOUR NAME AND COHORT (BLUE OR GOLD)...

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*** WRITE YOUR NAME AND COHORT (BLUE OR GOLD) ONLY ON THE BACK OF THE LAST PAGE *** UNIVERSITY OF CALIFORNIA HAAS SCHOOL OF BUSINESS EWMBA 201A—Economic Analysis for Business Decisions Fall 2007 Professor Catherine Wolfram FINAL EXAM - SOLUTIONS Instructions: The number in brackets ( e.g., [5]) indicates the points for each question. Total: 180 points. Note that you have 210 minutes to do the exam, so if you spend no more than 1 minute per point, you will have plenty of time to check over your work. Please Write Legibly. Briefly explain your answers (that is, don’t just write “yes” or “no” and don’t just write down a numerical answer without showing how you derived it). Write only on this exam. Short answer questions The following three questions require only short answers (1-3 sentences) or short calculations. Use any graphs that will help your explanation. Be sure to label graphs clearly. Question 1 [10 points total] Describe three things that would shift the demand for the Pindyck and Rubinfeld Microeconomics textbook. Full credit will be given for answers that discuss factors that affect potential customers’ income (e.g. the financial health of the schools if they’re buying the texts or students’ income if they are), demographics (e.g. baby bust hitting the age of a typical student, causing demand to shift in), tastes (e.g. microeconomics no longer required in the core, causing demand to shift in) or the price or availability of substitutes (e.g. competing micro texts). Points will most likely be taken off for factors related to the supply (e.g. the publisher’s costs) or for discussions of the price, since this affects the quantity demanded and not the demand.
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EWMBA 201a Fall 2007—Prof. Wolfram Question 2 [10 points total] Radiohead has decided to distribute its new album over the web. Customers will be asked to “name their price,” and will be able to download the album as long as they name a price greater than or equal to $.02. Assuming that Radiohead’s marginal cost of producing each album is $.02, will this lead to an economically efficient allocation of their music? Why or why not? The allocation is economically efficient as long as everyone who values the album above its marginal cost is able to buy it. This will most likely occur under Radiohead’s distribution mechanism. Recording labels might argue that without their marketing campaigns, some consumers who value it more than $.02 will not know about the album (imperfect information). Note that it is not economically inefficient for people to pay more than $.02 if they value the album more than $.02. 2
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EWMBA 201a Fall 2007—Prof. Wolfram Question 3 [15 points total] The Cal Student Store is the monopoly seller of children’s sized Cal cheerleader outfits. They incur both fixed and variable costs selling the outfits.
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fin_07_soln - * WRITE YOUR NAME AND COHORT (BLUE OR GOLD)...

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