ECN100 MT2 SS2-09 Key Parman

ECN100 MT2 SS2-09 Key Parman - Ecn 100 Intermediate...

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Ecn 100 - Intermediate Microeconomic Theory University of California - Davis August 26, 2009 Instructor: John Parman Midterm 2 - Solutions You have until 1:50pm to complete this exam. Be certain to put your name, id number and section on both the exam and your scantron sheet and fill in test form A on the scantron. Answer all multiple choice questions on your scantron sheet. Choose the single best answer for each question; if you fill in multiple answers for a question you will be marked wrong. Answer the long answer questions directly on the exam. You must show your work for full credit. Answers may be left as fractions. Please place a box around final answers when appropriate. Good luck! Name: ID Number: Section: SECTION I: MULTIPLE CHOICE (60 points) 1. If the market demand curve is downward sloping and the market supply curve is upward sloping, a quantity tax placed on producers will: (a) Increase the price paid by consumers by the amount of the tax. (b) Increase the price received by producers by the amount of the tax. (c) Increase the price paid by consumers by an amount less than the tax. (d) Increase the price received by producers by an amount less than the tax. (c) The price consumers pay will go up but not by the full amount of the tax. Some of the tax burden is shared by producers who receive a lower price than they did before the tax. 2. Suppose a firm produces chairs using an increasing returns to scale technology for which wood is the only input. Suppose it takes 10 units of wood to produce 10 chairs. It will take: (c) Since the firm has increasing returns to scale, using four times as much wood would lead to more than four times as many chairs. To firm will be able to produce 40 chairs with fewer than 40 units of wood. 3. Suppose that the demand curve for toys is linear and downward sloping. At the current price, the price elasticity of demand for toys is - 2. If toystores raise their prices by a small amount: (c) With a downward sloping demand curve, any increase in price will lead to a decrease in the quantity sold. Because demand is currently elastic, revenues will also fall (the loss in revenue from the drop in demand will be greater than the gain in revenue from charging more for the units that are still sold).
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2 Midterm 2 - Solutions
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