Midterm 2 - bt‘ijtmr'QUm flaws“ We; (Q D. Hamermesh...

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Unformatted text preview: bt‘ijtmr'QUm flaws“ We; (Q D. Hamermesh NAME AND UTEI ECONOMECS 304K, FALL 2009 AnSWer the essay questions in the spaCe provided on the test sheet or on the reverse side, and the muttiple choice questions on the scastron and on the test sheet. Write our name and TUNED!) on each a e of the essa uestions and code 01:? name and UTEID on the scantron. You have 80 minutes for the exam, and there are 36 total points, with questions listed on SIX SEPARATE PAGES. Suggested answers wiEI be posted on the website on Sunday, and tests wilt be handed back 1i / m sday, November 3,1731%} the meantime, please begin the readings for next week. , S sass v k v ms t ‘n W: s" MW. e is}! e . 3‘ it. Short-answer Questions w Average Variable Average Tomi Cost Cost AVC ATC - I? b 10 25 45 $3: m” 40 53.3 50 60 time; , . my” a, M up: L‘ .m‘ s .i n fixed costs”; VGhat is its marginai costetheegiteommtflrfihowryouFVvork'."' ' x.;-.J__..w.:..i,::m... .Num,i4.‘.Momma.u.i.‘—<Rv---:':‘WL-\x “WE?- ’ Li; R t‘ W. n 7‘ I w: I‘ I‘ n l K \hg‘fl X .. . l , j ‘ K t, vim?! . : t i" .‘ ofits? v Lemm- Mx‘i”; 1%.. st I, “M ii?” fflN 61” We» muff/MA“ MR v; ‘ W3 (Met em ‘ t. i" 3‘s "i In "':""“’r‘:':—;'P"é“ ‘ yaw? in? NEW- .w I. ,.~j a men. u ‘ e :5 5 “3...? .‘I -“4é~" :‘MF e>*\<5t-'~ fleet-‘31:“ Q2 W\"\'\Q‘v’\ \"h_ geese .Wétln WM: fig‘fethxit: \t avg" 5§§"\J”€3,€‘fa m, -- cm a i , ~ - «o. Wtil firms be entering or exztmg this Industry? Explain.“ {1N f M - '3 NE (M , ’ “Firms WM be .i i. tweet; whee .. if'fl K5; Magufefifi @9313 mi? with Pt: {3% fight. ts \\ p- 3K K" a V» \r a Yum x I r, fl _ if L e \g-szefi My Mtg": \‘E‘WQ/ ‘k .539 «m ‘1, .i.%\\fihfi - ‘_ - he; \ Ks}: _ d. if the ATC listed above becomes the tong-run average cost for firms in this industry, and the outputs iisted are the onty possible ones, what wit] be the equilibrium price? How much wit? the typioai firm produce? e52, “3:217 tie the “a g £54m? NAME AND UTEID i p we "3 i GM“ is?" 2. (6 points) A publisher faces the following demand scheduie to ~ next novel by one of her popular authors. The author is paid $2 miilion to write the book, and the marginal cost of publishing the book is a constant 3i 5 per book. 100,000 200,000 300,000 a. Compute total revenue and marginai revenue at each quantity. b. What quantity will the profit—maximizing publisher choose? What price would she charge? K; ‘3‘}? c. If the author insists on receiving $6 miilion instead of $2 miilio “to write the book, how would this affect the pubiisher’s profits and her decision about whether to publish the book, its price and quantity, and why? i “i. \. I» iii-nah.“ "WEI (“Q‘qu r M)“; : iwr‘ w“ r “’3‘ NAME, AND UTEID 3. (6 points) Davy Jones and Jack Sparrow have met in the ocean. Both pirates have a stash of rum. The pirates ar choosing whether or not to fire on the other, :0 my and stead the other pirate’s rum. The outcomes of th situatien are described as follows: - Fire Cannons Don’t Fire Jack Sparrow I k a MW Meme 2:: ’ ‘an % fem Eli. Mnltipie—choiee Questions l . “Too many cooks spoil the broth” impiies that the marginal product of the last cook is: a. Very low. {\ @flegative. d. Can only tell that the average cost is negative, can’t teli about the marginal product. e. Both 0 and d. " ./" 2. As production increases in a typical firm: otal fixed cost increases at a constant rate. / MW’Average fixed cost exceeds average variable cost. { / Average variable cost decreases and approaches zero. 1/ Average variable cost approaches average total cost. e. None of the above. 3. A positive economic profit occurs when a firm: a. Earns norinai returns. @Earns above~normal returns. /' c. Continues its production. 1 d. Total revenue equals total cost. e. b and d. Variable inputs are those inputs: fiZfiifiThat depend on the leveE of production. M hat are cheap enough to own rather than lease. fie? in which diminishing returns do not occur in short run. r f. dr’T hat can be stored for less than one year. {page and d. 5. Which ofthe following is true for production in the short-run? a. Average product will be at its maximum when marginal product is at the maximum. b. Average product will be at its maximum when marginal product is zero. / @«Average product will he at its maximum when marginal product equals average product. . Average product never reaches a maximum. e. Average product is negative when marginal product is negative. 6. A firm has choson its profit maximizing ievei of output. At this level of output, its price is $20 and its . “AWt‘ESflfi'fimefiWT ATC is $25. The firm: i made a mistake; it should have shut down :_ (Aka; : b. Making a loss of $20 per unit of output _ 0. Making a profit of $5 per unit of output P I m! ‘- 5-5“ {is \bl‘trlfilixm iiiEK‘Ni l2? 7. Chile has decreased copper exports, and that reduced the supply of cOpper worldwide. Assuming copper r is the main input into producing electronic devices, which is a competitive industry, what will occur in the it; electronic devices industry? "‘2. J" ,i Mflince it is extremely difficult to exit the industry, no companies will leave. ,sahtl’increased profits will cause new firms to enter the industry. or? WettSome companies will restrict production in order to manipulate the output price. Many companies will move to Chile to be closer to the input. l n .v t e‘igr‘fpecreased profits will cause firms to exit the industry. 1‘W”“""“””‘ 5 some 8. In a competitive industry in the long run: a. P=LRMC b. Each firm is earning the maximum profits possible. 0. szinimum LRAC -‘ / K' .. -:»-‘- .-"\ on 5"“ s .«nj‘é‘fi in" Wimpy} ff: gill“\‘2£"--=-:.i“wM la... is») the long run under perfect competition, accounting profits are positive. Choose the answer that best A n ains this statement. (Note: The firm also has other business opportunities). flag; :1: "{7}: :1? in...) {Til til”, " also, in the long run accounting profits must be zero. " True if economic profits 3 0, since accounting profits = economic profits + opportunity cost. We rue if economic profits > 0, since accounting profits 5 economic profits — opportunity cost. _ True if economic profits m 0, since accounting profits : eCOnomic profits + marginal cost. “r fleé’False; in the short run accounting profits must be zero. 10. The graph below illustrates the production decision of a monopoly. Which of the following statements is true? , fiafThe consumer surplus under monopoly is B 0C; geifii’The deadweight loss is A+B W L is the monopoly price - _ OnOpOly makes a profit of A. \i e. Both in and d 11. if publishers need to pay the considerable fixed costs, few books would ever get published without copyrights, because: gaff Absent copyrights, the reader is not willing to pay for the hook. aid? The marginal cost to the publisher is very high. @Compctition would drive the price down to marginal cost. grit Without copyrights, the price would be so high that no one could afford to buy the book. e. None of the above. y ‘y ‘5' duet“ “its 12. Book publishers self hardback and paperback editions of the same book. Hardback books are issued first and are sold at a far higher price than the paperback edition, which is not made availabie until at least six months later. Which of the statements is true? -v flatBook publishers can charge every potential buyer or" a book a different price. we? The seller charges those customers who have an elastic demand a higher price. selier charges those customers who have an inelastic demand a higher price. v‘ . The seller engages in first-degree price discrimination. ' e” None of the above if there are only two industries in an economy, one competitive (C) and one monopolized (M), we - find: ' Moo many resources in C and Price > Marginal Cost in C. I 00 many resources in M and Price > Marginal Cost in M. 1"” ,er'Toc few resources in C and Price < Marginai Cost in C. pd»? Too few resources in M and Price > Marginal Cost in M. Both b and c. 14. The foliowing statements are true for BOTH perfectly competitive and monopolisticaliy competitive markets EXCEPT: garlic long—run economic profits. \X’) tfibfljsome control over the price. 0. many sellersfiiew d. many buyersnrrt‘w e. no barriers to market entry or exiting???” 15. The auto industry is an example of a/an: iigopoiy. monopoly. are?” perfectly competitive market. d. monopolisticaliy competitive market. flcartel. 16. Telephone and airiine deregulation: a. Ended cross—subsidies. b. Raised prices paid by the consumer. c Reduced competition by ending subsidies to inefficient producers. - "b and c. c. All ofthe above. _ I 1' omparing government granting liccnscs to operate TV stations to its auctioning off those licenses: W 0th lead to the most efficient producer obtaining the iicense. @Q/Granting licenses leads to more efficient production, but doesn’t generate any revenue for the government. Granting licenses leads to less efficient production and doesn’t generate any revenue for the government. fl Neither tends to the most efficient producer obtaining the iicense. Wranting licenses ieads to more efficient production, and generates more revenue for the government. ...
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Midterm 2 - bt‘ijtmr'QUm flaws“ We; (Q D. Hamermesh...

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