102%20MID%20Fall%2009 - Midterm Exam for Economics 102...

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Midterm Exam for Economics 102 October 22, 2009 Professor Fred Gottheil Use graphs wherever possible to aid discussion. Label fully. Define each of the concepts you use to answer the questions 1. Explain how and why firms follow the MC=MR rule? 2. Define and illustrate: MU/P; price floor; economies of scale; unlimited liability in business organization; consumer surplus 3. Define and illustrate the difference between (i) price elasticity of demand, (ii) cross elasticity, and (iii) income elasticity. 4 (a) Reproduce the diagram below in your exam booklet and identity the market structure. (b) Explain how that firm arrives at the equilibrium price, P. (c) Identify the firm’s economic profit, if any profit exists? [You can make up other notations to show the firm’s economic profit, if indeed there is profit.] . 5. (a) What would be American Airlines’ marginal cost of flying an additional passenger on its 747 flight from Chicago to Seattle? Explain. (b) The average fixed cost curve is downward sloping approaching zero. Why?
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102%20MID%20Fall%2009 - Midterm Exam for Economics 102...

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