# Test22005 - Page 1 of 5 Last Name: _ First Name: _ Student...

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Page 1 of 5 Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Professor James E. Pesando Term Test 2 – December 9, 2005 Length: 55 minutes Answer ALL questions in the space provided Aids: Pen/ Pencil and non-programmable calculator ______________________________________________ please enter the multiple choice answers in the box below : 1 2 3 4 5 6 7 8 examiner’s report: question points 1 2 3 4 5 total

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Page 2 of 5 Part I (18 points) The licorice industry is perfectly competitive. Each firm produces 2 million strings of licorice per year. The strings have an average total cost of \$0.20 each, and they sell for \$0.30. a) What is the marginal cost of a string of licorice? Explain your answer. b) What is the level of economic profits of each firm? c) Will price remain at \$0.30 in the long-term? Explain your answer. Part II (24 points) A monopolist is in long-run equilibrium and earning an economic profit. a) In an appropriate diagram, show the monopolist’s output, price and level of profits.
Page 3 of 5 b) The monopolist’s economic profit is \$50 million per year. If the government imposes a lump sum tax of \$50 million on the monopolist, what will happen to the monopolist’s price and output? Why? (Note: a lump sum tax is a tax the monopolist must pay regardless of its level of output). c)

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## This note was uploaded on 12/22/2009 for the course BIGBOOK_01 Bigbook_01 taught by Professor Bigbook_01 during the Spring '09 term at University of Toronto- Toronto.

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Test22005 - Page 1 of 5 Last Name: _ First Name: _ Student...

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