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Unformatted text preview: Stanford University Department of Management Science and Engineering MS&E 241 Economic Analysis Final Exam Winter 2009 Wednesday, March 18, 2009 This is a closed-book exam . You will have 3 hours to complete it. Use the point totals listed below to allocate your time appropriately. Please write all answers and supporting work in your answer booklet. The only aids allowed are three double-sided sheets of letter-size paper with your own notes and a stan- dard financial calculator. You must return the question sheet with the answer booklets. The distribution of points for the three questions in this exam is as follows: Problem 1: 35 points (+5 bonus points) Problem 2: 30 points (+5 bonus points) Problem 3: 35 points Total: 100 points (+10 bonus points) Good luck! I hereby certify that this exam is based solely on my own efforts, and is otherwise also in accordance with the Stanford Honor Code . Name: ................................................. Signature: ........................................... 1 Problem 1 (35 Points) Ralf owns a coffee shop, called Caf e del Sol. He knows that he serves two types of customers, low-volume coffee drinkers (of type L ) and high-volume coffee drinkers (of type H ), where L = 1 / 2 and H = 1. The net utility of a cup of size q 0 (quantity of coffee measured in liters) of a type- consumer at a price p is u ( q, )- p , where u ( q, ) = 2 q, and > 0. Consumers buy only if their net utility is nonnegative. Ralf believes that he serves about 100 customers a day and that about 40 percent of them are high-volume coffee drinkers. His cost of providing one liter of coffee is c = 1. We initially neglect the cost of the (disposable) cups (relaxed in the bonus part)....
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