Exam2_example_soln

Exam2_example_soln - Loonomics 1 _ Professor Scott Carrel]...

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Unformatted text preview: Loonomics 1 _ Professor Scott Carrel] Feb 22, 2005 There are two parts to this exam. Part I is made up of 12 multiple choice problems, and is worth 36 points. Part II is made up of 10 short answer problems, and is worth 64 points. Be sure to read each questionlcarefully before answering. Do not use any books or notes. You have 65 minutes to complete 1116 full 100 point exam. Be sure to budget your time. NAME: PART I - MULTIPLE CHOICE PROBLEMS _ Read each of the following questions carefiilly and circle the letter of the one best answer. Note that diagrams are ofi‘en heipfid in determining the correct answer. ‘ - 1) The output at which average product is a maximum is the same output at which is a A) average fixed cost 22 t , B) average total cost a j C) average variable cost D) marginal cost 2) If as output increasesmarginal cost exceeds average variable cost but is less than atrerage total ' cost, average total cost and average variable cost ' A) decreases; increases m L < M {34:70:} B) increases; decreases J V C) decreases; decreases ‘ m C 714‘ c At ‘ W D) increases; increases - . '3) If the long-run industry supply curve in a perfectly competitive industry is downward sloping, then the industry experiences _ and as the industry expands the price __. A) external economies; falls ‘ B) external diseconomies; falls C) external diseconornies; rises D) external economies; rises 4) The perfectly competitive industry that produces .zangs is in long—run equilibrium. Then the .wdemand zangs increases permanently. Asa result, firms'will ____. Some firms will __ the H u ‘ industry supply curve will shift ___. ' ‘ ' harm” {fifprofitg exit; leftward ' ' B) ifi‘bur economic'losses; exit; rightward C) incur economic losses; exit; leftward D) make economic profits; enter; rightward 5) Tris owns the only auto repair shop on Lonely Island. Tris is a single—price monopoly, so Tris ‘operates on the __ part of the ___- curve; A) elastic; supply _ '7 B) elastic; demand C) inelastic; supply 'D) inelastic; demand ‘ 6) In the long-run; a firm in monopolistic competition produces where the slope of the average total cost curve is i ' A) zero. B) equal to the marginal cost. '0) positive. D) negative 7) A monopolistically competitive firm in the long run ___ A) has a positive mark-up but makes zero economic profit B) produces a profit-maximizing output that is greater than capacity output C) is efficient because it makes zero economic profit ' ' ' D) sets its price equal to its marginal cost -- 8) In the dominant firm model of oligopoly, the dominant A) has lower costs than the smaller firms. B) has higher costs than the smaller firms. C) charges a lower price than the smaller firms. 'D) Charges a higher price than the smaller firms. . decides to issue market-able ‘9). There are two industries that emit sulfur diox—ide. The government ulfur dioxide thandoes Joe’s . . permits. IfHarry’s industry has a higher marginal cost of reducing 5 industry, ____. ' ' - ' A) marketable permits will not make the amount of pollution efficient B) J oe’s industry will sell marketable permits to Harry’s industry - C) Harry’ 5 industry will sell marketable permits to Joe’ 5 industry - D) Harry’s industry and Joe’s industry will emit the same quantity of sulfur dioxide .r Price [cents per boflle] 0 1 2 3 A ' O \‘P 10) Mountain Water is an unregulated natural monopoly that bottles fresh spring water. The figure above shews the demand for Mountain Water. Marginal cost is $0.20 per bottle. What is the price of a bottle of Mountain Water? - A) $1.00 B) $0.80 C) $0.60 D) $0.20 11) The figure above shows the demand curve for Mountain Water, a natural monopoly. .The government decides to regulate Mountain Water by imposing an average cost pricing rule. Marginal cost is $0.20 per bottle and the total fixed cost per month is $600. The price of a bottle 0 Mountain Water is _and it sells _ thousand bottles a month. ' ‘ A) $0.40; 3,000 B) $0.80; 1,000 C) $0.60; 2,000 D) $0.40; 4,000 12) The table above shows four methods for producing 10 computer desks a day. If the cost of a worker is $25 a day and the cost of capital is $50 a day, the method that is economically efficient is ' . PART II - SHORT ANSWER QUESTIONS 1. (4 Pointsfln the context of the film, what is the difference between the long—run and the short-run? Explain.- 7 , $1”); w. L.” \l Mia-50' 55 3 .‘ (4 Points) Explain gLaphically an in words, how effective advertising caInpaign can IQWer ' average total costs per unit sold even thOugh it'inereases fixed costs? ' " 4. (4 points) Why does the government provide subsidized loans to college students? Briefly Explain. ya; wit” m€3>m8 2 KO MWWW ‘5' ‘ co 5. (4 points) What are two different methods to correct for a negative emernality. Briefly explain one method. ' ‘ ' " " “Wee PM MM"? - - 6. (15 points) Use the following supply and demand equations to answer the below questions. D: Q=18~2P P: 9'9562 s: Q = 2P 3 " 5 ' a) (3 points) What is the perfectly competitive price and quantity? Is this outcome efficient? Why? Show all work. ' b) (3 points) If instead, this were a single price monopoly, what is the equation for the MR curve? How did you get this equation? _ g .. . .-. w m'fl. z. 61""- Q Mfg ‘g 73(2) 0L9 ' (MM . A _ q - e) (3 points) Solve for the single price monopoly price and quantity. Is this outcome efficient? Why? Showallwork.' 9 Q ’2 ' g 6? I / 16:95”? i d) (3 points) If the monopolist could perfectly price discriminate, What would be the quantity soid‘?.Is this efficient? Why? 8).: ‘ W /No Daub ed firms control the market. Ifthey collude to e) (3 points) Instead; now suppose three equafly siz for each firm? Is this efficient? Why? Show all maximize total profits, what is the price and quantity work. i _ .‘ ivl [2: 0 i . 1 " [IMO (I)wa ‘ ,j‘ %M%%*fiéfififi% 7; (15 points) Suppose that com is produced in a perfectly competitive constant cost industry. The diagram on the left below shows the market demand and short—run supply for corn. The diagram on the right shows the marginal cost curve for a representative corn producer. I IIIIlIIIIII . III-III.- 10 15 20 25 30 35 40-45 ’50 Millions of Bushels of Corn " 10 15 20 25 30 35 40 45 50 Hundreds of millions of Bushels of Corn . a) (5 points) To the firm diagram, add and clearly label the demand curve faced by the firm. What is the firm’s profit maidmizing price and output 1eVel? If the film’s minimum ATC is $5briefly explain whether this is a short—run or long—run equilibrium. Label the long-run industry supply curve LJZIS ) Zeno 4910545] We {ml-’43 h%+- b) (5 points) Suppose industry demand increases by 10 one-hundred bushels of corn. What is industry agdhgrm output in the short~run and long—run equilibrium? Clearly graph and explain. ’Ft‘rhn SRP=_\L (p ‘ SRQ=Z_S 7’5 firms, MO’ Newflrmg M )I m Wm) (M W» Ms ‘ w . LRQ=1Q ‘ ’ M _ c) (5-points) How would your answers in part b) change (up, down or same) if this were an increasing cost industry? ExPlain. ' . 51113:}?! @\ SRQ=LW ® ' LRP=L LRQ=,\;l/_. Demmmes ,Arle WIS 7‘ WC? l“ 8. (15 pts) Consider the following payoff matrix for two players. Player 1’s payoff is the first number apd Player 2’s payoff is the second number. - ' - Player 2 Mtd- Ie ‘ PIEWer 1 Center Down. a) (3 points) What are each playersdshfategies? _ ' ' - ' ' "Dow n _ I lVW‘OI C356" (3 ZTI‘me-VL - b) (6-points). Does either‘player have a strictly dominated strategy? If so, which strategy is dominated? Explain. - - ' , u _ . P \ up ibow W 1 age map- -- : - ) (6 points) In equilibrium,'what is Player 1’s strategy and payoff? What is Player 2‘s strategy and ‘ .- payoff‘? Briefly explain how-yOwobtained your answer. .. ' ' ‘ ‘ _ ‘ (it: .._a I ' P \I '* Mp; i ...
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This note was uploaded on 04/03/2010 for the course ECN 1A ECN 1A taught by Professor Jayhelms during the Winter '09 term at UC Davis.

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Exam2_example_soln - Loonomics 1 _ Professor Scott Carrel]...

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