vKeyMverD - Econ 10 UCLA Winter 2007.Name i1 i é VersiorD...

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Unformatted text preview: Econ 10] UCLA Winter 2007 .Name: i1 i; / é VersiorD Midterm I Wednesday February 7 PRINT CLEARLY — This exam consists of 25 multiple choice questions (50 points) and 10 short answer/graphical questions (50 points) - Clearly mark your answers to the multiple choice questions on your scantron form and on this exam. — Clearly write answers to the ten short answer/ graphical questions on this exam. - Students may use an ordinary calculator (but nothing that can access the internet). Part I. 25 Multiple Choice -— mark the best answer on your scantron form ess defense spending and less social spending . more defense spending and less social spending 0. more defense spending and more social spending d. less defense spending and more social spending l : a “classical liberal or “European liberal” would favor 2) Which of the following is true? a. Keynesian economists think markets work well and government should be smalls .7 . .. _ ., Classical economists think markets often fail (do not work well) and government should be small. c ‘Keynesian economists think markets often fail (do not work well) and government should be large and active. d. Classical economists think markets work well and government should be large and active. 3) Suppose the demand curve for a good is expressed as Q = 50 — 2J3? Ifthe good currently sells for $3, then the point elasticity of demand is __ ) (a) —3 (2/50). Z [a (b) -2 50/3). (1c aim (d)-3 (44/2). 4) Ifthe demand equation is expressed as Q = 10,000/P = 10,000P" then demand has a unitary elasticity (a) only when p = 10000. (b) only when p = 100. ( never. e average productivity of labor is at a maximum. b)the marginal productivity of labor is at a maximum. (c) Both A and B above. (d)Neither A nor B above. we average productivity of labor equals the marginal productivity of labor, then 6. A price-discriminating monopolist should divide sales among markets so that A) average cost is less than average revenue in each market. marginal revenue is the same in all markets. C) price is the same in all markets. D) output is the same in all markets. 7. When a profit—maximizing monopolist sells output in two distinct markets, which of the following is true? A Price will be higher in the market in which demand is unit-elastic. ‘ Price will be lower in the more elastic market. Price will be equal in each market, as long as there is a constant marginal cost. D) Price will be lower in the market for which there are fewer substitute goods. : .* erfect price discriminator ( that uses first degree price discrimination) arges each buyer the maximum price they would be willing to pay. (b) charges different prices to each customer based upon different costs of delivery. (c) generates a deadweight loss to society. (d) charges lower prices to customers who buy greater quantities. 9 Coupons represent a form of price discrimination because they offer a low-cost way for firms to ‘entify customers with more elastic demand and offer them a lower price. (b) retain loyal customers who are not price sensitive. (c) offer discounts to consumers who buy larger quantities. (d) perfectly price discriminate. 10) For a unit elastic demand curve: A) marginal revenue is down-ward sloping. B) marginal revenue is constant positive value. C marginal revenue is a straight line out of the origin. @ marginal revenue is zero. 11) Total fixed cost is the same regardless of how much A) money a firm borrows. B) labor a firm hires. C) capital 3 firm rents. @ output the firm produces. 12. If the monopolist is operating in the elastic portion of its demand curve, then A an increase in price will increase total revenues. i an increase in price will decrease total revenues. C) marginal revenue is negative. , D) an increase in price will leave total revenue unchanged. 13. Marginal revenue is negative when A) the demand curve is downward—sloping. B) demand is elastic. ' demand is inelastic. ) demand is unit—elastic. 14. All of the following are sources of monopoly power except A) patents. B) control of inputs. C economies of scale. high prices. 15. The negative of the reciprocal of demand elasticity: 'l/CQJ) is equal to: A (P-ATC)/P. éP-MCVP. ) (P-ATC)/ATC. D) (P-MC)/MC. 16. Compared to a competitive industry, ceteris paribus, a monopoly (that can not price discriminate) A) sells more units and charges a higher price. B) sells the same amount of units but at a higher price. C) does not try to maximize profits as do firms in competitive industries. .reduces output and charges a higher price. 17. A price ceiling on a theoretical monopoly, not below its average total cost but below the unregulated monopolists 1' . ce: . (\Aflcauses the monopolist to produce more output B) causes the monopolist to produce less output C) will not change the amount the monopolist produces D) can increase the profit for the monopolist. 3 A an efficient amount of output and consumer surplus is zero. ) an efficient amount of output and consumer surplus is larger than with a monopolist that can not price discriminate. C) less than the efficient amount of output and consumer surplus is zero. D) less than the efficient amount of output and consumer surplus is larger than with a monopolist that can not price discriminate. § In theory, with perfect price discrimination a monopolist produces 19) A restaurant sells salads an entrees to two types of customers. The maximum A-type are willing to pay for salads and entrées is: 5$ and 10$, and for B-type 10$ and 15$ respectively. ,._ revenue can be increased by selling dinners as a bundle of salad and entrée, and NOT individual salads and entrees. _ m evenue can ringe increased by selling dinners as a bundle of salad and entrée,rand7NOT individual salads and entrees. c) revenue can be increased by selling only salads. d) revenue can be increased by selling only dinners. Supply 15 2O 24 q 15K 20K Q Above shows one of 1000 identical firms to the left, and the market to the right, use it for the following two questions: 20) If all firms collude their economic profit will be: y‘alg‘ero ‘6) $30 c 48 (1) $40 21) One firm that cheats on the cartel will have an incentive to sell a) fewer than 15 units b) 15 units c) 20 units 24 units 22) The deadweight loss of from a single price monopolist is the result of a) the lower quality of a monopolists product compared to with competition @he inefficiently low Quantity supplied to the market t he inefficiently high quantity supplied to the market d) the cost of a monopolist creating excess capacity to deter entry of potential competitors. 23) The Nicholson text considers a firm with total cost: TC = g(q) + z with firm demand qd = q(p,z) where 2 represents the . . z e I . _ I dollar amount spent on advertismg and presents the formula: —— = —i Which of the followmg statements is true? Pg 9” a) If elasticityflof demand is greater, firms will spend more on adverting b) If the elasticity of demand with respect to advertising spending is smaller, the firm will spend more on advertising. c) As total revenue decreases, the dollar amount spent on advertising will increase. @he formula above only holds ifthe elasticity of demand is in the range: - 00 < eq,p < -1 2a Pq value of this index for an industry with three firms, one with half of market sales and the other two with one quarter of market sales each? 2 24) The Nicholson text mentions the Herfindahl Index of market concentration, H = 2a,? = 2[ j . What is the am twp/He‘s b).50 LI ’5‘ /5 )3 ‘ E c)l.0 e) none of the above 25) In the model of monopolistic competition: a) each firm makes economic profit in the long run b) each firm faces a horizontal demand curve c the product is assumed to be homogenous, or non—differentiated. we ch firm’s demand curve shifts leftward (and/or downward) if other firms which make similar products lower their r ces 1) A theoretical monOpolist firm that can not price discriminate has the following cost function: - TC (in $)— — 100 + Q2 and demand. QD = 60- P. Find the P, Q combination that maximizes its profit. What 15 the level of profit? ’W Lmverée llamanol '- l5=60“Qb g W? = UO-QQ Alda‘b [gays {mtg‘fi-ZQ 21157 H r, —\\1\> U m m ”My“ he government imposes a tax of 100 $ peri firm which 1ncreases cost to: TC (in $)= 200 + Q27 (Em the P, Q combination that maximizes its profit and level of profit, after tax. .. 7 11 ~ , 1171+ ’1 1 / 9. 5 46 =283 (We: :2& [VHLL’éb 2Q /Ji(\‘&;}g’ bacUo 1 111121 1:11; 11> 2 s1> ' \\ r"... c.\ 3) Again consider a theoretical monopolist firm that can not price discriminate, with cost function: TC (in $) = 100 + Q2 and demand: QD = 60-P./ P: 1110/ Regulators impose a price contro- Find the P, Q and maximized level of profit. Is there a shortage?- if so >221 it. R 1 .. If E,’ 122M112 : E1111"? > M! e ,: €1.77 ~2 7 / $15.23;- W“ -—~..--..W...__.,,........,_.-’ - 4) All firms 1n a competitive industry have the production function. Q = 2K 5'5L §Wage to labor 1s 5 and return to capital 15 10 per unit. Each firm always uses___ 25 units of capital. 52; .§ at is the Total Cost function for each firm? 2 (7>i 5) 2 : / 0 LS "‘ A) L' 00! hat IS the long run equilibrium price in this industry? ‘55 , ._ __ , ,WMVJC NC: 7.30“; SAM-is 7127/: 25—0 l 757/ ” 7517/ ?0 2(4me \ZEP+_§_:0 .: Z.§Lll3ing W” ($2 ’20 q ‘ QZJ’UMZCCA: 50% K; 5) If the price in this industry were P— — 10 (perhaps because of collusion) and one firm maximized its profit (assume its behavior does not affect price) what would be its level of output and profit? ,n/"m‘ \ , \ WWW: as 41832» A TC} 26‘0 100 \ 6) Assume a market with two firms where entry of other firms is impossible, with inverse market demand: 6411151 v P— — 100- 0 1(q1+q2) and costs ofthe two firms: TC1— — 10q1 and TC2— — 5q2 Suppose each firm assumes the level of 1011117 output is unaffected by its own output. Write two profit functions one for each firm and take the first derivative of each to 1 dthe reaction functions for each firm: q1= g(q2) for firm 1 and q2=h(q1) for firm2. .. 2 [7‘ W H‘ Ni ' i111: ” “117%“Wf1 ‘6”?! Mil 111,412 Terah-sz : W; -1201“ 11:11: - 372 1 y a 2 if I :2g $2 I ’9<2%1_’1 1111 _ 1 111:421 1» 11:21.11 41> M 01111 :._qu:__m 1111111 7) Use the reaction functions to find output of each firm. Use inverse market demand: P=l 00-0.](q1+q2) to find price. ~ ' the level of profit for each firm. {A ' 7 ,2 n \ >100“1i 23.343231 fl (11:1150 - Léng— 24,) i (2 a) 1 11:0 , 737. s 111611 L1 Cit we»; .1 11111121., 23 22;, 3) M/ M .. w... 11. MN. MN _ ”jumw‘” 8) Consider the firms 1n the previous problem: P— — 100- 0.1(q1+q2); TC1 — qu1 and TC2 = 5q2 Firm 1 behaves as a Stackelberg leader. Find P q1 q2 and profits of each firm. 7:: \ 11 7112 1:105}! 1,11; 1111;; 10;/w—,I {123 1212.51) 2 [-00 61? z) 111,- 111,2 « 1111517514] CE - QUQQ— .l9-1?- ‘5/7egcc‘1‘l—fls‘f1f‘ H2301, ~ ,0551,1 ATc’/%‘a‘42§ -10 //[1{(g1, 25 ~11)“, L12: 1111: 1 s g fi1:@1,19-§\32625 > bSQDob> (/2 ' 9) Consider the Price—leader; competitive fringe model (note this differs from the Stackelberg leader situation). The diagram below shows the Marginal Cost of the “competitive fringe” firms MC}: , for the price leader MCL, and the ;‘ linear market demand. On the graph show the level of output of the price leader, and of the group of competitiVe firms. Be sure to show the residual demand and its associated marginal revenue curve. Show the market price and shade in the profit (if any) of the price leader M93 {4.4.2 10) A firm sells its good to two distinct groups of consumers; A and B, and is able to separate them into two groups and prevent resale between them. Demands for the two groups are given by: qA = 20 — 1 1/2 {PA and QB = 40 — PB So inverse demands are PA = 40 — 2qA and PB = 40 — ClB- Total cost for this firm is‘ TC = 2(QA+QB) = 2Q _ Find the marginal revenue for each market and set altomaromal cost to get thbmmmbination of qA; qB- PA; and PB. fl \ g - ’ _ za _ _ : MFaeL/U'LMM -2 : a. L, 41,5) Manage '21 p HQ > 1w - 2:; = 2 c) “QA\ g B ‘3‘?” \, Pe‘Ll‘)’ 693. av - What is the elasticity of demand for each group at the profit maximizing qA; qB; PA; and PB? “fit“: PA, , 2| \ h _ 1“ mm; a ‘a 91—51»le l _ 211, , 'C‘al- ’le — Does this firm earn higher profit as a result of being able to price discriminate? A] O ...
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