Exam 1
Answers
I hope my descriptions of graphs will suffice. If you’d like a drawing, come by my office.
1. (a)
(8 points)
Demand consists of 3 steps down, 15 fish wide each, at $20, $15, and $10.
At
45 fish, demand curve is vertical down to the horizontal axis.
Technically, demand also lies
along the vertical axis (Q=0) above a price of $20.
Supply curves for each day run along the
horizontal axis to the total number of fish for the day, and then vertically up at that number of
fish.
The vertical portions of the supply curves should lie at 12 fish on Mon., 24 Tues., 36
Wed., and 48 Thurs.
Equilibrium (Q, P) for the 4 days are (12, $20), (24, $15), (36, $10), and
(45, $0) respectively.
(b)
(5 points) Seller profits:
Mon.: 12 x $20 –$120 = $120
Tues.: 24 x $15 -$120 = $240
Wed.: 36 x $10 - $120 = $240
Thurs.: 45 x $0 - $120 = - $120
(c)
(3 points) Buyer profits:
Mon.: 12($20 –$20) = $0
Thurs.: 15($20 - $) + 15($15 - $0) + 15($10 - $0) = $675
(d)
(2 points)
Given it’s a typical week, I should expect more or less the same next week.
I earned
$40 profit this week.
Since fishing is profitable, I should stick with it. (Note: fishermen have no
other costs than those described in the problem, thus it is fine to assume that the opportunity cost
of time is zero.)
2.
(6 points)
Graph # movies on one axis and # karate lessons on the other.
The budget
constraint is a straight line from 20 movies, 0 karate lessons to 0 movies, 10 karate lessons.
The time constraint is a straight line from 10 movies, 0 karate lessons to 0 movies, 20 karate
lessons.
The attainable points are those that lie under BOTH curves – only the overlap in the
two areas.
3.
(20 points total)
Market demand and supply for studio apartments in Manhattan (in
thousands) is given by the equations:
Demand:
Q = 600 – 0.1 P
Supply:
Q = 0.15 P
a)
(4 pts.)
Price is on the vertical and quantity of apartments (in thousands) is on the
horizontal.
Demand curve is a downward sloping straight line from P=600, Q=0 to P=0,
Q=600.
Supply is an upward sloping straight line from (0,0).
It passes through the points
(P=2000, Q=300) and (P=2400, Q=360), among others.
b)