dec 2007 sol - UBC Commerce FRE 295 FINAL EXAM SOLUTIONS...

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1 UBC Commerce/ FRE 295 FINAL EXAM - SOLUTIONS December 13, 2007 NAME:__________________________ STUDENT NUMBER ________________ SECTION: _______________________ PROFESSOR’S NAME: _______________________ Instructions: This exam will be marked out of 100. You will have 2 hours to do the exam. There are two parts to this exam. The first part is true-false questions. Answer all of these questions. Part II consists of longer questions. You must choose 4 out of 5 of the longer questions in Part II . For all parts, provide your answers in the space provided. This exam has 22 pages. The last page is blank. Check now to make sure you have all pages and make sure your name, section, and student number are provided above. This is a closed-book exam. You may not use books or notes. You may use a non- graphing calculator. GRADES True/False ________ / 40 Long Answers: 1. ________ / 15 (answer 4 out of 5) 2. ________ / 15 3. ________ / 15 4. ________ / 15 5. ________ / 15 TOTAL ________ / 100 Section 101 MW 1:00 pm Veikko Thiele Section 102 MW 4:00 pm Veikko Thiele Section 103 Tu-Th 8:30 am Ratna Shrestha Section 104 Tu-Th 10:00 am James Vercammen Section 105 Tu-Th 11:30 am Veikko Thiele Section 106 Tu-Th 4:00 pm Ratna Shrestha E A G E R K E E N E R.C O M
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2 PART I TRUE-FALSE QUESTIONS: Mark each question as true or false, by putting an “X” in the appropriate box. There is one mark for each true-false question. 1. A competitive rental-housing market in Vancouver has a demand curve given by Q D = 50 – P, where Q = number of units of housing and P = rent per month. The supply is fixed at Q S = 25. To make housing affordable to lower income families, the government of BC sets a price ceiling P equal to $20 per month per unit of housing. True False This price ceiling causes economic inefficiency in Vancouver’s housing market. F The price elasticity of demand, measured at the equilibrium price and quantity, is zero because the supply is fixed. F The price ceiling imposes a negative externality on the landlords because the price ceiling reduces their surplus. F Now suppose there is no government regulation (i.e., no price ceiling). If the demand for housing in Vancouver increases due to the arrival of new immigrants (and as a result the demand curve shifts up in a parallel fashion), the price elasticity of demand at the new market equilibrium will be higher than that in the old equilibrium. T 2. ABC Corporation is a cost-minimizing firm with a production technology given by Q = K L, where K = capital units and L = labor hours. The prevailing market rates are w = $5/hour wage for labor and r = $ 10/unit rental for capital. True False ABC’s production technology exhibits constant returns to scale. F If the firm is currently using 2 units of capital, it must use 4 hours of labor to minimize the cost of production. T In this production function, labor and capital are perfect substitutes. F In this production function, average product of labor and marginal product of labor are equal. T E A G E R K E E N E R.C O M
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3 3. Emily receives two job offers: one from Unilever and the other from Proctor & Gamble . Unilever would pay a fixed salary of $30,000. In contrast, Proctor & Gamble
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