test3_solns - Department of Economics University of Toronto...

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Page 1 of 8 Department of Economics Prof. Gustavo Indart University of Toronto February 11, 2005 ECO 100Y – L0101 INTRODUCTION TO ECONOMICS Midterm Test 3 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. This exam consists of three questions. 3. This question booklet has 8 (eight) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Question 1 /25 Question 2 /10 Question 3 /15 T O T A L /50 /100 SOLUTIONS
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Page 2 of 8 10 20 30 40 100 200 300 400 500 Question 1 (25 marks) Consider an industry with a demand curve (D) and a marginal cost curve (MC) shown in the diagram below. If the industry is a single-price monopoly, the monopolist’s marginal revenue curve would be MR. Answer the following questions and show all your work . (Note: In all cases, you must provide numerical values for the areas representing the consumer and producer surpluses.) P MC ATC MR D Q a) If the industry is perfectly competitive, what will be the total quantity produced? At what price? What will be the area representing the consumer surplus under perfect competition? And the area representing the producer surplus? (4 marks) Total Quantity: 225 Price: 27.5 Consumer Surplus: 2,531.25 Producer Surplus: 2,531.25 Total quantity and equilibrium price are determined by the intersection of the supply curve (or MC) and the demand curve Æ Q = 225 and P = 27.5. The consumer surplus is the area below the demand curve and above the price line, that is, the triangle given by the points (0, 50), (0, 27.5), and (225, 27.5). The area of this triangle is: (50 – 27.5) * 225/2 = 2,531.25. The producer surplus is the area below the price line and above the MC curve, that is, the triangle given by the points (0, 5), (0, 27.5), and (225, 27.5). The area of this triangle is: (27.5 – 5)*225/2 = 2,531.25.
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Page 3 of 8 b) If the industry is a single-price monopoly, what quantity will the monopolist produce? Which
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This note was uploaded on 06/09/2010 for the course ECO ECO100 taught by Professor Inheart during the Spring '09 term at University of Toronto.

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test3_solns - Department of Economics University of Toronto...

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