p2k sp03 - 3a 1 Get BL 1 B and IC 1 2 New Bundle “B” is...

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4 lratc $ x $ X 500 1000 100 800 SRS 100 aog Education 20,000 100,000 500 1000 IC 1 BL 1 IC 0 F A B G 400 BL 0 Econ 101 – Wissink – Spring 2003 – Exam 2 – KEY Part1 1. D 2. C 3. C 4.E 5. A 6. D 7. D 8. C 9. B 10. C 11. C 12. D 13. D 14. A Part II. 1a) D – srtc E – sravc F – sratc G – srmc b) x = 7. Profit = TR – TC = price 7 – Total cost at 7 units = 25 7 – 109 = 66. c) x = 3. Profit = Total revenue – total cost = price 3 – total cost at 3 units = 6.50 3 – 51 = -31.50. Since the profit is lower than Betsy’s Bowties fixed cost of $30, the firm should shut down. Hence output is 0 and the profit is $-30. d) For b) there is no change in the answer. However, for c), again the firm should shut down and the output is 0 and the profit is $-5. 2. 1. 4 ties (need to be a min of lratc) 2. Price is $100 per tie 3. Since X D = 1000 – 2P* => X * = 1000 – 200 = 800. 4. N* = 800/4 = 200 5. Since we are at a LR equilibrium, profit = $0.
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Unformatted text preview: 3a. 1. Get BL 1 , B and IC 1 . 2. New Bundle “B” is on BL 1 , between F and G somewhere. Could do more or less education. 3. Yes. The Quinns are better off. D $ SRS 0 D 0 P* Market A $ srmc sratc lratc A* a* Firm a lratc Market $ SRS (N* ) SRS 1 (N* 1 ) D 1 D A A C B A* 0 A’ A* 1 P* = P* 1 P’ P B srmc sratc Π >0 a=c a* 0 = a* 1 a’ b LRS a $ firm Part III. a) b) See Graph above. Get SR: p’ => A’ = (a’)(N* ) and Π >0. So entry occurs. Get LR: p* = p* 1 , a* = a* 1 , A* 1 = (N* 1 )( a* 1 ) with N* 1 > N* , A* 1 > A* so Π = 0 again. c) With a rent ceiling, the price cannot increase to p’ to get rid of the shortage equal to A* 1- A* . Get permanent or persistent shortage of A* 1- A* . Could get black market prices of P B . Local residents are not helped. Apartments are more scarce as P B > P* o or there are waiting lists, lines etc....
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p2k sp03 - 3a 1 Get BL 1 B and IC 1 2 New Bundle “B” is...

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