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Midterm 3 - solution

# Midterm 3 - solution - ECO303.02 Midterm 3 Fall 2010...

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ECO303.02 Midterm 3 Fall 2010 - Solutions Part I. Multiple-Choice Questions (4 pts per question) There is only one correct choice in the following questions. Scenario 1: A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: Q = 200 - 2P MR = 100 - Q TC = 5Q MC = 5 1) Refer to Scenario 1. What level of output maximizes total revenue? A) 0 B) 90 C) 95 D) 100 E) none of the above Answer: D 2) Refer to Scenario 1. What is the profit maximizing level of output? A) 0 B) 90 C) 95 D) 100 E) none of the above Answer: C 3) Refer to Scenario 1. What is the profit maximizing price? A) \$95.00 B) \$5.00 C) \$52.50 D) \$10.00 Answer: C 4) Refer to Scenario 1. How much profit does the monopolist earn? A) \$4512.50 B) \$4987.50 C) \$475.00 D) \$5.00 Answer: A 5) Refer to Scenario 1. Suppose that a tax of \$5 for each unit produced is imposed by state government. What is the profit maximizing level of output? A) 0

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ECO303.02 Midterm 3 Fall 2010 - Solutions B) 90 C) 95 D) 100 E) none of the above Answer: B 6) Refer to Scenario 1. Suppose that a tax of \$5 for each unit produced is imposed by state government. What is the profit maximizing price? A) \$90.00 B) \$10.00 C) \$55.00 D) \$52.50 Answer: C 7) DVDs can be produced at a constant marginal cost of \$10 per disk, and Roaring Lion Studios is releasing the DVDs for its last two major films. The DVD for Rambeau 17 is priced at \$20 per disk, and the DVD for Schreck 10 is priced at \$30 per disk. What are the Lerner indices for these two movies? A) Both equal one.
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Midterm 3 - solution - ECO303.02 Midterm 3 Fall 2010...

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