Answers to Final Exam A-fall 2007

Answers to Final Exam A-fall 2007 - Answers to Final Exam(A...

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Answers to Final Exam (A) Intermediate Microeconomics January, 2007 You have 2 hours to solve the exam set. The whole exam set is worth 100 points: (1)Notice how many points each question is worth and allocate your time appropriately. (2)To get full credit on answers, you must be clear and rigorous: Define your variables, thoroughly label any graph, and interpret your graph or math in words. I. True-False (2 points each) !. In a Dutch auction with rational bidders, it sometimes happens that the object being sold goes to someone whose value for the object is not as high as that of some other bidder(s). Correct Answer: True 2. If there are constant returns to scale, then doubling the amount of any input will exactly double the amount of output. Correct Answer: False 3. If the value of the marginal product of labor exceeds the wage rate, then a competitive, profit-maximizing firm would want to hire less labor. Correct Answer: False 4. The area under the marginal cost curve measures total variable costs. Correct Answer: True 5. The possibility of more firms entering an industry in the long run tends to make long run industry supply more price elastic than short run industry supply. Correct Answer: True 6. A discriminating monopolist is able to charge different prices in two different markets. If when the same price is charged in both markets, the quantity demanded in market 1 is always greater than the quantity demanded in market 2, then in order to maximize profits, the monopolist should charge a higher price in market 1 than in market 2. Correct Answer: False 7. A monopolist who is able to practice third degree price discrimination charges a higher price in the market that is more elastic. Correct Answer: False 8. In the Cournot model, each firm chooses its actions on the assumption that its rivals
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will react by changing their quantities in such a way as to maximize their own profits. Correct Answer: False 9. In the Bertrand model of duopoly, each firm sets its price, believing that the other's price will not change. When both firms have identical production functions and produce with constant returns to scale, the Bertrand equilibrium price is equal to marginal cost. Correct Answer: True 10. A life insurance company must be concerned about the possibility that the people who buy life insurance may tend to be less healthy than those who do not. This is an example of adverse selection. Correct Answer: True II. Multiple Choice (3 points each) 1. The demand function for corn is q = 200 - p and the supply function is q = 50+0.5p. The government sets the price of corn at 150 and agrees to purchase and destroy any excess supply of corn at that price. How much money does it cost the government to buy this corn? (a) 11,250
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Answers to Final Exam A-fall 2007 - Answers to Final Exam(A...

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