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Midterm Practice Problems

Midterm Practice Problems - Midterm Preparation EconS...

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1 Midterm Preparation EconS 330/NATRS 330/ES/RP 311 Instructor: Ana Espinola, Hulbert 111C, [email protected] Office hours: Monday 10:30-11:30, or by appointment. This midterm preparation is a guide that will help you to study for Midterm #1. It does not imply that you will face the same questions during the exam. The midterm will be mainly focused on Chapters #3, 4, 5, 6 and 7. Exercises 1) Assume that the inverse demand function for the depletable resource is P = 10 0.2q and the marginal cost of supplying it is \$8. a. If 30 units are to be allocated between two periods, in a dynamic efficient allocation how much would be allocated to the first period and how much to the second period when the interest rate is 0.15? b. What would be the efficient price in the two periods? c. What would be the marginal user cost in each period? 2) Suppose the inverse demand function of a product is P= 40 - 5q , and the marginal cost of producing it is MC = 2q+3 , where P is the price of the good and q is the quantity demanded and/or supplied. a. Draw a graph showing the demand curve and the marginal cost curve. b. How much would be supplied in a static efficient allocation? c. What would be the magnitude of the net benefits 3) A chemical producer dumps toxic waste into a river. The waste reduces the population of fish, reducing profits for the local fishing industry by \$100,000 per year. The firm could eliminate the waste at a cost of \$60,000 per year. The local fishing industry consists of many small firms. Using the Coase Theorem, explain how costless bargaining will lead to a socially efficient outcome, regardless of whether the property rights are owned by the chemical firm or the fishing industry. Why bargaining not be costless? How would your answer to part (a) change if the waste reduces the profits for the fishing industry by \$40,000? (Assume, as before, that the firm could eliminate the waste at a cost of \$60,000 per year) 4) There are three consumers of a public good. The demands for the consumers are as follows: Consumer 1: P1 = 60 Q Consumer 2: P2 = 100 Q Consumer 3: P3 = 140 - Q Where Q measures the number of units of the good and P is the price in dollars. The Marginal Cost of the public good is \$180. What is the economically efficient level of production of the good? Illustrate your answer on a clearly labeled graph

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Midterm Practice Problems - Midterm Preparation EconS...

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