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exam1_key - Exam 1- Fall 2008 TrylFalse (lpt each=8): 1. If...

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Unformatted text preview: Exam 1- Fall 2008 TrylFalse (lpt each=8): 1. If the firm is experiencing diminishing marginal returns to labor then some inputs are fixed indicating that the firm is operating in the short run. E 2. Conservative economists tend to support the notion that market failures are present and as a result the government should be engaged in some market interventions aimed at correcting these shortcoming. / 3. Firms can sustain profits in the long run in oligopolies and monopolies because of iers to entry and exit. " 4. An optimal external balance is one of the goals of government. For all countries th s ould involve a trade surplus and capital outflow. 5. The ability to set price is the result of product differentiation and firm size; this 'ns why all perfectly competitive firms are price takers. / 6. The stimulus checks that the public received this spring were a monetary policy ini iative designed to offset the downturn in the business cycle which has resulted in longer durations of unemployment. 7. The inflation which characterized the economy in 2007 is primarily of the dc nd pull variety. 8. When economists talk about break-even they mean that revenues just cover all accounting costs. MC(2pts each=22): 1.) When an economist notes that a firm is efficient .. they mean that it is producing the most that it can. hey mean that it is producing the most it can at the least cost. 0. they mean that is it using more capital and less labor. d. they mean that the firm must be operating in a perfectly competitive market. 2.) When economists make the assumption that expectations are formed rationally a. they mean that all economic agents incorporate only past experience into their decision making b. they assume this is only for firms as opposed to consumers @they mean that all economic agents incorporate all available information about he future and the past at the time of the decision. d. they mean there is no risk. 3.) We have noted that firms structure themselves as proprietorships, partnerships or corporations. a. Large firms choose to be corporations because the owners want to shield ,— themselves from unlimited liability. ‘ b. The largest number chose proprietorships because of the ease with which they / can be established. I c. Proprietorships and partnerships are typically much smaller, in part, because 1/ l ancing options are limited to bank loans and owners equity. @all of the above e. A and B only. 4. Assume the government confronts the PPC depicted below with current production at point B. Jet fighters 120 Education services 100 300 700 900 1000 a. If the economy moves to output combination D due to a draw down in Iraq ,_ then the marginal cost of educational services is .55 of ajet. l b. If the government reintroduces the draft the economy is likely to move to an F_ output combination such as that given by point X. f c. If the economy moves to output combination D due to a draw down in Iraq the @opportunity cost of the additional education services is 120 jet fighters. I A and B only. e. A and C only. 5.) When the duration of unemployment as well as the number of unemployed rises a. cyclical unemployment has clearly risen. b. structural unemployment may also be a problem. Othe business cycle is J{uttering a recession or trough d . all of the above {MM e. A and C only. (a. 6.) When the government uses discretionary policy to manipulate the economy a. the Federal Reserve actively manipulates the exchange rate to help encourage imports. b. the Federal Reserve manipulates the money supply and interest rates to execute monetary policy. (3. the executive and legislative braches of government change taxes and spending to try to smooth out swings in the business cycle. d. A and B only and C only. 7.) Risk a. is present when markets are not transparent so that some uncertainty exists. b. can be quantified by multiplying the cost and probability of a “bad” event. c. is typically compensated for with higher returns ll of the above e. A and C only. 8.) Ann has a job as a waitress. On a typical night she earns approximately $200 in tips and wages. She has decided to take next Saturday off to attend a music concert. The tickets cost $65ea., parking is $5, gas to and from the concert is $10 and the 2 beers she plans to drink while there will be $8ea. a. the opportunity costs of the concert are $200. b. The transaction costs associated with attending the concert are $15. . The transaction costs of attending the concert are $23. A and B only. e. A and C only. 9.) The production function a. embodies technology. b. defines how capital, labor and raw materials are combined to produce output. c. exhibits decreasing returns to scale at the output level where the law of diminishing returns sets in. ‘ d. all of the above and B only. 10.) We calculate GDP by the expenditure approach or the income approach, considering only the expenditure approach, a. the consumption component is critical because consumption spending is the largest spending component of GDP by the expenditure approach. b. the investment component is also critical because fixed investment is the primary source of capital accumulation and inventory investment is used to resolved disequilibrium in an economy. c. When total spending is above the trend line of GDP the economy is producing eyond its PPC. 0:11 of the above. e. A and B only 1 I.) If u inal GDP is rising e economy could be in a recession or an expansion. . the economy is producing at potential GDP. c. it is clear that worker productivity is on the rise. d. investment is clearly rising. Essay/ Short Answer: 1.)In this first section of the course we developed the underpinnings of the demand curve for labor. (1 Opts) A.) Drawing on what you know concerning the underpinnings of labor demand explain I, . 111-1715!) 3" mmmmmm-e — “n_. mmsmr. .1‘ B.)Consider the following input/output table for production of legal services (consulting hours per week). Qty L output/wk price labor/wk MP MC MRP 1 36 $2000 -------------- «an -------- 3365-3? ------------ 2 54 $4200 l ‘3 1'3 1 1013-” HOOD 3 78 $6600 354 erg-Ezgmo fl fit) 30 0 it 108 $9200 30 gg/gl: 3H0!» 11(02)er 5 132 $12000 1% 35$ bz‘fllllmbé 2? W500 6 152 $15000 a 0 gay/@3157) an] DOD 7 168 $18200 l b 531%, = 930 $5330 8 180 $21600 l c?— 3‘409/12—3333531-‘55 1100 9 182 $25200 9‘. yoyffilcfim @700 i.) If each hour of advice can be sold for $200 fill in the table above. (6pts) 9 “Ch fi" y ii.) At what output and ivt level is the marginal cost minimized? Explain why this is so. (FML: £11 9111' 112m A m 11.1% C.) If the maximum wage the firm would ever . - Wage f: an . 3' art-‘12.: S I A WALL aria-0 W 11-..__,.n'f'_ ' M '1... 219,; ’4': 'lling to pay is SSOOO/Wk draw the marginal revenue product curve and demand curve for labor in this market. (Zpts) D.) i.If the weekly wage is $3200 per lawyer what is the optimal amount of labor to hire :2 gm =b [Q gyfias) and output to produce. Explain. Qty L: a I I 7 do you know. . e product market? He L" .. J! . I" a. ll 1134 )1?) -1: ~ A A 1‘ - :---_"-!‘_'-Al.d‘ 11.51. a WI. 9.0 I g- 7 . ., ‘3'“ b v m ‘i'QTi'O _ a. I ‘ 13.). 1.In class we also dlicussed the fact tht lahemand may sh I‘ . s in Ei.to good deflatio u' ematic (that is, use to explain why good _deflation is no a problem; 4pts). informat'on .4431; .01.;15 9 'l “J u! 1; Wm" 11‘ l .594 the Wars—MP itanmgifl'l 1r .4 ..J 5.3..- Vum.I=ML-m2fl¢m. ;__ \ pimgmzmmcmne. I ACME; -fl_._ is. 3.11: D , . autism I. [militant-“Emma ————--—-—-. _‘ 2.) In class we also spoke about inflation and deflation more general y “ ~ a. What is the mo t likely cause of bad deflation? (1 pt) W b. List the pnce indicefie spoke about in class and relate them to the different types of inflation that they . a I h -.. % .4 94 : I ) 3.) In order to discuss the: pricing and output decision of the firm we started with a discussion of the production function. A.. Draw one on the graph below which is characterized by first increasing (to Q1), then constant (Qt to Q2), then decreasing returns to scale (beyond Q2) and on the graph below relate it to the long run average cost curve for this firm. LL!!! . t “I” l . I ‘ 4.. l. , _ .._.+ y “ ../- IWAA 5H _ A sea, I Q] Q2 B. Relate the concept of returns to s ale to the optimal 4 'ndustry structures defining 4 features of each. ’5‘ § ‘1“- m , \. Perfect Competition: E— W “no; 1 A. “in A ‘ A s o ;_1‘muh “mm!” "'- Monopolistic Competition : .1 I :14. u e!‘ :.A ., .mmumm '7 “mam g. . .mufimmm‘, x» hfiflim . __ Jamming. 91min "- mm o .. p “madam a. 92' '4- Oligopoly: Monopoly: ‘2‘ A I :1 I L - ammo .4... _mm.u Egaliflgetofi-d—QD ME-i was ijbnm “39 all $1M o I rag—1- . 3,4710 A ydMfi'mm ' - M) ’IWI' i A A A I, r "a"; "‘ 4.) a. Over the last year we have seen again and again that many of the financial institutions have been forced to write down assets, slash dividends and increase their capital (which increases their costs). This has meant that these firms have been operating at a loss in the short run. Using what you know about costs, graphically and verbally explain why a firm would continue to operate in the short run in such an environment (assume the financial industry is monopolistically competitive.) ‘2‘ MC/ ’5 D = 055 /(’ UL yol K1 mega}: (07? Mob e- m m an 0L1“ . , ' 1&0. ce amt“ ‘wu‘ mm It! \ - ‘ ‘1 . W) In. 7, . 00th In pug) «r = i I Indicate below the 2'wyst at the ind overge tqalo grun equilibrium. 2g ' “m . mild '4.a.,arum 9. Mafia ____ "in c.) In the 19605 the concept of leasing was introduced. How did the conce t o leasing affct the costs for transpo ation and shippln ‘ ‘ B.A\V W It'd, “ J . ‘L -' 5.) In class we have discussed the fact that while perfect competition does not exist it is the theoretical ideal for a number of reasons. Below graphically and verbally explain why below. (a complete answer will have some verbal comparison to other markets) “C L15 b c, uit I6 - H ‘ , PMMPQU); W 4' c.»- 54.3, _ )‘H-C, SW% ,‘ "‘ 3 L ‘1?“ "’1' :«t a... ’6‘... alive. ; a ‘ m .{m 'u. gym-marMJIW. _ .' ‘9' I En, w Mm .soti'w- "' ‘ {M O 1 I. U A" .J._ .‘_.l . ‘ .- w Mum Alum -1 1 m: ' or nfig W237; $96; fi'PHtT99 6.) On the graph be ow draw a business cyc e. Note the p ases on your graph. Link them each to the goals of government and how the economy is p rformi on each goal in each different phase. u / H‘PV‘ 60E EC: 1.) i.) About 2 weeks ago the government published the latest unemployment statistics. What is the current unemployment rate? . é I z lpt 2.) i.What is currently happenin to commodity prices globally? ‘ OUUL 3: Hum. 1 pt ii. With respect to the 4 goals of government e discu 's it. ' ssed wh fiis t K, D '4‘ AA...— unemployment rose- facts which seem to be at odds with our discussion of the business c cle. What explains this ombination of events? (2 things=2pts) n ! HE). A 4.) The Federl Reserve met yesterday. What did they - ‘ cide to do about interest rates? (Ipt) Q'i 5.) i. Approximately how much bigger I the federal budget deficit “be this year (2008) when compared taast (2007)? lpt. c 4% ' ‘ c. ii. Why? (2reasons=2pts) ‘ , 03°» - '1 4t \ ode . "a WFDIC Evalhfll (JG/ML?) Q52; ...
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exam1_key - Exam 1- Fall 2008 TrylFalse (lpt each=8): 1. If...

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