midterm2-key

midterm2-key - ECON lOOA 2ND MIDTERM 2 1 C ONSUMER T HEORY...

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ECON lOOA - 2ND MIDTERM 2 1. CONSUMER THEORY In 2007, a small town in America consumed 500 hamburgers at a price of $5 each. Suppose a consulting firm estimated the price elasticity of demand to be -0.5 at the 2007 market equilib- rium. They also determined that the supply was fixed at 500. a. Derive the linear demand curve for the hamburger market (use point elasticity). [10] ~~ P , EO p - - - . '--- Ill) {4iS C~~t - 0, C; - - !::J(Q ~ '1'\ 6P Q - 6:.(> '-' ~OU We- c rA.(\ ~olVt {C) ~r l:i~ Q,,01 jr£ - 6Q - -~D DP .... IJf ~ is ~t 41ft (k) :" 4he ~ tl\'\ W\ J 6P L"'t sr ~,~.{,'(}n OQ ::: ct+ b.p , "Nt t;f\ ( C!A(\ ~ @ ~j r l", ~ j: ") ,'" Q /P ~j (0 11\ t~t <l ~ 4 '" tdlllJ : [,00 2 CL -~D· S -:-> £l,:: tS 0 ~'> Q~ ~ tSD -~ 0 p b. What is the new equilibrium price and quantity if the supply increases by 10%? [10] SUfPS II) ll'tlt,\-L\' from ~oo to \.1'SOD~SSO Vt -L~ J {~t YH,W' fr \'c. { ~j Se tl:!j o, .; Q~ t~O-Sof - ~ ~ 0 ~> f 4- . \l L \ 'l. ll ll H J IS sSO
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3 ECON lOOA - 2ND MIDTERM 2. COPPER MONKEY Suppose you manage a plant that produces monkeys made out of copper. The plant requires two workers to operate each piece of machinery and each group of two workers and one piece of machinery produces 10 copper monkeys. a. Graph the isoquant if output is set at 140 units. [6] \~i) ;~ C\. . ·txe i - fnyor- t'OI1 ~ ('oj v( i /lJlI t: ( f /(),/I w:ti L - StfA.PiJ ; <:> (J , Itt """ +~ : K \'YIin (S.L , lOok) ~ ~ - . . - - . ., ~ ,. l ~ \¥O 1<r L b. Suppose wage w = 10 and the rental rate of capital r = 400. What are the cost minimizing amounts of capital and labor which will produce an output of 180 copper monkeys? Find the plant's new total cost. [6] l~"t w;t -M;Ij,t», ";'J ''''''""{~ of Otp/'L. . l !VI) fr()J\ALt. ~~I~o ct,( L~5b It'\ J k ~ I ~ ~ L 0 ~ t :: \ 0 ~ ") b + lrOo . I ~ :: '1- S G U f c. Now suppose that the firm is producing at the cost minimizing level of capital and labor that will produce 180 copper monkeys. You receive a letter from headquarters to increase
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midterm2-key - ECON lOOA 2ND MIDTERM 2 1 C ONSUMER T HEORY...

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