Exam2_W09_v1_key

Exam2_W09_v1_key - NAME k e ‘3 Section l PART I MULTIPLE...

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Unformatted text preview: NAME: k e ‘3 Section: l PART I - MULTIPLE CHOICE PROBLEMS Read each of the following questions carefully and circle the letter of the one best answer. Note that diagrams are often helpful in determining the correct answer. 1) At present output levels, a perfectly competitive firm is profit maximizing and producing 2000 units of output, selling for $2 each. Fixed costs are $2000, as are total variable costs. This firm should A) shut down immediately B) shut down in the long run *C) stay in business D) unable to determine due to insufficient information 2) and 3) Initially, a perfectly competitive, increasing cost industry, is in long run equilibrium. The industry demand curve shifts left and remains permanently at the new position. 2) In the short—run industry equilibrium following this decrease in demand A) both price and quantity are higher than they were initially. *B) both price and quantity are lower than they were initially. C) price is higher than it was initially, but the quantity sold is lower. D) price is lower than it was initially, and the quantity sold is higher. 3) When long-run industry equilibrium is restored following this decrease in demand A) both price and quantity are higher than they were initially. *B) both price and quantity are lower than they were initially. C) price is higher than it was initially, but the quantity sold is lower. D) price is lower than it was initially, and the quantity sold is higher. 4) A firm’s average total cost is $80, its average variable cost is $70, and its output is 50 units. Its total fixed cost is A) $100. B) $250. *C) $500 D) can’t determine. 5) For a single price monopolist, all of the following are TRUE except: *A) price equals marginal revenue B) there is deadweight loss C) marginal revenue is equal to marginal cost D) marginal cost is less than the price 6) If total fixed costs decrease, then the average total cost curve and the marginal cost curve A) does not shift; shifts downward B) shifts downward; shifts downward C) does not shift; does not shift *D) shifts downward; does not shift 7) In the long run, a monopoly's profits A) are positive. B) are zero. C) are negative. *D) both A) and B) are possible. 8) A competitive industry is in long-run equilibrium. Some firms adopt new technology that reduces the average total cost of producing the good. In the long run, the price is , firms with the new technology make __ economic profits, and firms with the old technology _. A) lower; positive; switch to the new technology or exit the industry B) constant; positive; make normal profit *C) lower; zero; switch to the new technology or exit the industry D) constant; zero; make economic losses 9) Price discrimination by a monopoly A) increases consumer surplus. *B) decreases consumer surplus. C) decreases the firm’s profit. D) Both answers B and C are correct. 10) A monopolistically competitive firm has _ power to set the price of its product because A) no; there are no barriers to entry B) some; there are barriers to entry C) no; of product differentiation *D) some; of product differentiation 11) In the long run, a monopolistically competitive firm’s average total cost equals A) the price and marginal cost. B) marginal cost but not the price. *C) the price but not marginal cost. D) neither marginal cost nor the price. 12) A firm might be tempted to cheat on a collusive price-fixing agreement by setting a A) lower price and quantity than agreed. B) higher price and quantity than agreed. C) higher price and lower quantity than agreed. *D) lower price and higher quantity than agreed. 13) Expenditures on advertising _. A) can lower the average total cost of the goods produced if the advertising increases the quantity sold by a large enough amount B) are fixed costs C) do not affect marginal costs *D) all of the above are true 14) Suppose a monopolistically competitive firm is producing 1000 units of output and has total revenues of $500,000. If this is a long run equilibrium, then it must be the case that *A) marginal cost is less than $500 B) minimum average total cost is $500 C) price is greater than $500 D) all of the above Quantity Quantity demanded, ' demanded, weekend weekday (movies per (movies per week) week) 15) Roxie's Movie Theatre has a monopoly and discovers that at $12 a movie, no one is buying movie tickets during weekdays. Roxie’s conducts a survey and the table above reveals the results of the survey. Roxie decides to price discriminate between weekend and weekday moviegoers. The marginal cost of a showing a movie is $2.50. Roxie’s charges on weekdays and __ on weekends. A) $9; $12 B) $6; $ 1 5 *0) $6; $9 D) $3; $12 PART II - SHORT ANSWER QUESTIONS 1. (20 Points) K-Mart and Sears are in competition with one another. High, Medium, and Low represent the respective prices each may choose. The dollar figures represent each firm’s respective profits. Use the below game to answer the following questions: K-Mart Sears Med . V/ a) (3 Points) at are Sears's strategies? 69 o GD Low b) (3 Points) What is Sears best strategy if K—Mart were to charge high prices? @ mam c) (4 points) Fill in the blanks in the w sentenc My.“ M w @ . . .0 0” 0.L . A, ~ 1‘ . For K-Mart, charging prices strictly dominates charging ‘ % prices. d) (10 points) What is the Nash Equilibrium of the game? What are each firm’s profits? @K-Mart charges Lb M-l prices. Lb vs) . Sears charges prices. @ K-Mart receives a profit of 0 . E Sears receives a profit of O 2) (20 Points) The below chart shows the daily labor productivity and variable costs for the production of leather jackets. Use this information to answer the following questions: a) (2 Points) If labor is the only variable cost, what is the wage rate for each employee? ¥$ Wagefi O b) (2 Points) Which worker is the most productive? @ Worker# 4 c) (8 Points) Fill in the table above by calculating the Marginal Product (MP) and Marginal Cost (MC) for each unit of output. d) (8 Points) If jackets sell for $75 and fixed costs are zero, how many jackets should the firm produce to maximize profits? How many workers are employed? What are the firm's profits? , . l/ £QC¢© #Jackets 7 \ S‘AC%¢ “0/ (:7? #Workers 5 53““ b “N 7 (DOC) I 9 x z (or @ Profits = ’ Mbflvw 3 lg ...
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This note was uploaded on 01/22/2011 for the course ECN 001A taught by Professor Helms during the Winter '07 term at UC Davis.

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Exam2_W09_v1_key - NAME k e ‘3 Section l PART I MULTIPLE...

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