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Page 1 of 6 Last Name: ____________________ First Name: ____________________ Student Number: ________________ Economics 100 Professor James E. Pesando Term Test 2 – December 7, 2007 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 examiner’s report: question points 1 2 3 4 5 total
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Part I (22 points) The market for widgets is perfectly competitive. At present, the representative firm is earning economic profits. The cost curves have their usual slopes, and are unaffected by the entry or exit of firms from the industry (so this is a constant cost industry). a) In appropriate diagrams, show the market price and quantity as well as the output and the level of profits of a representative firm. b) For a representative firm, marginal cost equals average total cost at a level of output where average total cost equals 10 and average variable cost equals 8. The minimum of average variable cost is 7. What will the market price be in the long run ? Why? c) Assume that the industry is in long-term equilibrium. If the government decides to provide a grant (subsidy) to one firm, so that the firm’s fixed costs are reduced to zero, what happens to: (i) the market price? (ii)
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Test22007 - Page 1 of 6 Last Name: _ First Name: _ Student...

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