Sample Final Exam Answer Key

Sample Final Exam Answer Key - Economics 148 Sample Final...

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Economics 148 Sample Final Solution Directions: You have 3 hours to complete the exam (although it should not take 3 hours). Please place your final answer in the space provided below. Partial credit will be given for work that is both carefully done and legible. Problem A (20 points) – Rent-seeking Consider a perfectly competitive market with the following supply and demand curves Q d = 30 2P d Q s = P s 3 1) Find the equilibrium price and quantity and show them on the following graph: P d = 0.5 Q d +15 P s = Q s + 3 P s = P d 0.5 Q+15= Q + 3 Q=8, P=11 PRICE ___11_________________________ QUANTITY _8___________________________
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Price S 15 12 11 9 MR 3 D 6 8 Quantity 2) Suppose now that the firms in this market could collude and charge the monopoly price. Find the new price and quantity and show these in the graph. MR=15-Q MC=Q+3 MR=MC 15-Q=Q+3 Q=6, P=12 PRICE ___12_________________________ QUANTITY _____6_______________________
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3) How much would the firms be willing to pay for a restriction on entry, which would allow for the industry to set the cartel price? How much would consumers be willing to pay to avoid this restriction on entry? Perfect Competition Monopoly Consumer Surplus 0.5*4*8=16 0.5*6*3=9 Producer Surplus 0.5*8*8=32 0.5*6*6+3*6=36 FIRMS’ WILLINGNESS TO PAY ___________________4_________________ CONSUMERS’ WILLINGNESS TO PAY_____________7__________________
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Problem B ( 20 points)---Externalities A doctor in village A is trying to decide how many residents to vaccinate. The marginal private benefit of a vaccination to community A is 20-0.5N, where N is the number of residents vaccinated. Assume that the marginal cost of a vaccination is 10. In addition to benefiting village A, a nearby village B would also benefit due to the lessened chance of the spread of disease. In particular, the external marginal benefit of vaccination is 0.1N up to 10 residents and an additional 0.2N-2 beyond 10 residents. Assume that the doctor does not internalize this external effect on village B. 1) Is an externality present here? If so, is this positive or negative externality? Yes, positive.
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This note was uploaded on 07/22/2010 for the course ECON 1480 taught by Professor Knight during the Spring '10 term at Brown.

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Sample Final Exam Answer Key - Economics 148 Sample Final...

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