test2_dec07 - Department of Economics University of Toronto...

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Page 1 of 8 Department of Economics Prof. Gustavo Indart University of Toronto December 7, 2007 ECO 100Y – L0201 INTRODUCTION TO ECONOMICS Midterm Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. This question booklet has 8 (eight) pages. 3. Answer all questions in the space provided. If space is not sufficient, continue on the back of the page. 4. Aids allowed: a simple, non-programmable calculator only. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE Part I 1. /10 4. /15 2. /10 5. /15 3. /10 TOTAL /60
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Page 2 of 8 Question 1 (10 marks) Tasfia is the proud owner of a small firm in a perfectly competitive market. Her firm generates the following short-run information: the market price is $9; the average total cost is $12; the marginal cost is $9; and the average fixed cost is $5. Statement: Kinlam — a friend of Tasfia’s and an economics student from another university — advises Tasfia to shut down production to minimize her economic losses. Position: Do you agree with Kinlam’s advice? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Kinlam’s advice.
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Page 3 of 8 Question 2 (10 marks) Consider the situation described in the previous question, but suppose now that Tasfia’s landlord wins the lottery and decides to reduce Tasfia’s rent. As a result, her average fixed cost falls from $5 to $1 at
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test2_dec07 - Department of Economics University of Toronto...

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