test2_july19 - Department of Economics University of...

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Page 1 of 13 Department of Economics Prof. Gustavo Indart University of Toronto July 19, 2007 ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 2 LAST NAME FIRST NAME STUDENT NUMBER SECTION (“Morning” or “Evening”): INSTRUCTIONS : 1. The total time for this test is 1 hour and 45 minutes. 2. This exam consists of three parts. 4. Aids allowed: a simple calculator. 5. Write with pen instead of pencil. DO NOT WRITE IN THIS SPACE Part I 1. /6 2. /6 3. /6 4. /6 5. /6 Part II 1. /12 2. /10 2. /8 Part III /20 TOTAL /80
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Page 2 of 13 PART I (30 marks) Instructions : Indicate your position regarding the following statements and explain your answers in the space provided (if space is not sufficient, continue on the back of the previous page). Each question is worth 6 (six) marks. 1. Statement: Anastasia argues that the cost of a monopoly to society arises because of the excess profits earned by the monopolist. She believes that if the government imposed a lump-sum tax to eliminate these profits, then a monopoly would impose no cost to society. Position: Do you agree with Anastasia’s view? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Anastasia’s view.
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Page 3 of 13 2. The following data pertains to a perfectly competitive firm in short-run equilibrium: industry price is $18; average total cost is $24; average fixed cost is $10; and marginal cost is $18. Statement: From this information, Akber concludes that the firm is making economic losses and should shut down production right away. Position: Do you agree with Akber’s conclusion? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Akber’s conclusion.
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Page 4 of 13 3. A perfectly competitive industry is in long-run equilibrium. Property taxes increase by $500 for each firm in the industry. Statement: Andrej concludes that the short-run impact of this tax increase will be an increase in the industry price and a decrease in the industry output. Position: Do you agree with Andrej’s conclusion? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Andrej.
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Page 5 of 13 4. Pacific Hydro, an unregulated monopoly, charges its residential customers less per kilowatt/hour than it charges its business customers. Statement: Given the above, Kristi is convinced that Pacific Hydro is not maximizing profits. Position: Do you agree with Kristi’s view? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Kristi’s view.
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Page 6 of 13 5. Feliesha’s firm produced goods worth $100,000 in 2006 while Nikola’s firm only produced goods worth $50,000 in 2006. Statement:
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test2_july19 - Department of Economics University of...

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