Econ 1110 Sample Prelim 2 Q&A

Econ 1110 Sample Prelim 2 Q&A - Cornell University...

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Cornell University Professor R.H. Frank Economics 101 Sample Second Preliminary Examination Multiple Choice. Choose the best answer. Questions 1-5 refer to the diagram below. $/lesson D 24 MC 16 12 8 24 8 12 Lessons per week 6 18 6 1. Rebecca is a single-price, profit-maximizing monopolist in the sale of singing lessons. If her demand and marginal cost curves are as shown, how much will she charge for each lesson and how many lessons will she sell each week? a. $6 per lesson, 6 lessons per week. b. $8 per lesson, 8 lessons per week. c. $12 per lesson, 12 lessons per week. d. $16 per lesson, 8 lessons per week. e. $18 per lesson, 6 lessons per week. Answer: d, since MR=MC at Q=8. 2. In all, how much consumer surplus do buyers receive from their purchase of lessons at the monopoly price? a. $8 per week. b. $16 per week. c. $32 per week. d. $72 per week. e. None of the above. Answer: c. $/lesson D 24 MC 16 12 8 24 8 12 Lessons per week 6 18 6 3. By how much does total economic surplus fall short of the maximum achievable surplus in this market? a. $8 per week. b. $16 per week. c. $32 per week. d. $56 per week. e. None of the above. Answer: b $/lesson D 24 MC 16 12 8 24 8 12 Lessons per week 6 18 6 4. Suppose the government passes a law prohibiting the sale of singing lessons without a license. If the only costs Rebecca incurs in teaching lessons are the marginal costs shown in the diagram, what is the most she would be willing to pay for a singing teacher's license? a. $16 per week. b. $32 per week. c. $64 per week. d. $96 per week. e. None of the above. Answer: d $/lesson D 24 MC 16 12 8 24 8 12 Lessons per week 6 18 6 5. Suppose the government levies a $3 per week fixed license fee on Rebecca's teaching business. How will her profit-maximizing monopoly price and quantity be affected? a. Both output and price will rise. b. Price will rise and output will fall. c. Price and output will remain the same. d. Rebecca will go out of business. e. None of the above. Answer c. Since the tax has no effect on MC and is too small to wipe out Rebecca’s producer surplus, she will stay in business and charge the same price as before. 6. Suppose you are managing a firm. You incur costs of $3,000 now, and $660 at the end of one year. You collect revenues of $1000 now, and $3300 at the end of one year. If the interest rate is 10%, what is the present value of your profit? a. $300 b. $360 c. $400 d. $540 e. None of the above. Answer: c The present value of your costs is $3000 + ($660/1.1) = $3600. The present value of your revenue is $1000 + ($3300/1.1) = $4000. So the present value of your profit is $400.
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7. In Smalltown, a license is required to operate a taxi. A taxi driver can earn $80,000 per year in fares, and the total annual cost of operating a taxi, including all opportunity costs, but excluding the cost of the license, is $50,000. If the annual interest rate is 10%, and licenses can be traded in the open market, what will be the equilibrium price of a taxi license? a. $3,000.
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Econ 1110 Sample Prelim 2 Q&A - Cornell University...

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