MT2 Review - ECO 304K: INTRODUCTION TO MICROECONOMICS...

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1 ECO 304K: INTRODUCTION TO MICROECONOMICS Unique # 33645 Fall 2009 Prof. Wiseman Practice Questions for Midterm 2 1. Understand all the material for Midterm 1. 2. Review the questions and study problems at the end of your textbook chapters. 3. A monopolist is currently selling 90 units of output at a price of $20 per unit. It could sell one additional unit of output if it reduced its price to $19.95 per unit. What would be the marginal revenue generated by this additional unit of output? 4. The Paramount movie theatre has a seating capacity of 270. On any given night, there are 180 people who would potentially attend a movie at the Paramount. There are 80 people who are willing to pay up to $15 to attend a movie at the Paramount, and there are an additional 100 people who are willing to pay up to $5 to attend a movie at the Paramount. The total cost (including movie rental, labor, and rent on the theatre) to the theatre owners of showing a movie at the Paramount is $800 per night. This cost is the same no matter how many people watch the movie. If they must charge the same price to all buyers, what price should the owners of the Paramount charge for movie tickets in order to maximize their profits? THE NEXT FIVE QUESTIONS ARE BASED ON THE FOLLOWING SITUATION: A monopolist faces a demand curve described by the equation P=505-15Q, where P is the price that the monopolist charges for each unit of output and Q is the number of units of output that the monopolist can sell at that price. The monopolist's total costs are 25Q, and the monopolist is unable to price discriminate. 5. Which of the following equations describes the monopolist's profits as a function of the amount of output that he sells? (Hint: Profits equal revenues minus total costs.) a) 505-15Q-25 b) 505-30Q c) 480Q-15Q 2 d) 505Q-15Q 2 -15 e) None of the above. 6. Which of the following equations describes the monopolist's marginal revenue (MR) curve? a) MR=505-15Q b) MR=505-25Q c) MR=520+25Q d) MR=505-30Q e) MR=530-40Q 7. On a graph where the vertical axis represents dollars and the horizontal axis represents units of output, the monopolist’s marginal cost curve is: a) an upward-sloping line through the origin with slope 25. b) a horizontal line at a height of $25.
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2 c) a vertical line at a quantity of 21. d) an upward-sloping line through the origin with slope 50. e) a vertical line at quantity 16. 8. In order to maximize his profits, how many units of output should the monopolist sell? (Hint: For what quantity does marginal revenue equal marginal cost?) a) 32 b) 16 c) 166.67 d) 83.33 e) 40 9. What is the deadweight loss associated with the monopolist’s profit-maximizing output level? a)$880 b)$1050 c)$1920 d)$2500 e)$3625 10. At his current level of production, a monopolist’s revenues will rise by $25 if he sells one less unit of output. This implies that the monopolist: a) can increase his profits by increasing output. b) can increase his profits by decreasing output.
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This note was uploaded on 02/14/2010 for the course ECO 304K taught by Professor Hickenbottom during the Spring '10 term at University of Texas at Austin.

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MT2 Review - ECO 304K: INTRODUCTION TO MICROECONOMICS...

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