midterm2_versionA_edwardthoughts

midterm2_versionA_edwardthoughts - Principles of...

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Principles of Microeconomics Professor Edward Morey ECON 2010-300 Midterm 2 October 1, 2008 Version A ? Edward’s comments on the midterm. These questions might not be word for word what you saw on your exam. Many of these questions and concepts will appear in one form or another on your final. I have decided to accept two answers to question 39, see your T.A. if this affects you. As a University of Colorado at Boulder student, I affirm that I have neither given nor received assistance on this exam. Name: ___________________________________ Date: ______________ Signature: ______________________________
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Use the following table to answer Question 1. Table: Willingness to Sell The table below shows the willingness to sell their tickets to the ballet The Nutty Nutcracker by five students who received those tickets as part of their student activity fees. Student Willingness to sell Cailin $1 Dudley $25 Evan $60 Francisco $90 Grace $100 1. (Table: Willingness to Sell) Each of these students could sell their ticket for $75. Dudley's producer surplus if he sells his ticket is : A) $15. B) $25. C) $50. D) $240. $50: Dudley gets $75, but would have sold it for $25 2. The widget industry is competitive. Assume all Widget producers are identical. Is the following statement True or False? A permanent increase in the demand for Widgets will cause a permanent increase in each firm’s profits. A) True and there will be more firms in the industry B) True and there will be the same number of firms in the industry C) False and there will be more firms in the industry D) False and there will be the same number of firms in the industry. Note that all firms are identical. In the new LR equilibrium the firms in the industry will just be making a normal rate of return, so there will not be a permanent increase in each firm’s profits. The increase in demand will cause entry until excess profits are eliminated. So the new LR equilibrium price will equal the original equilibrium price. Use the following graph to answer questions 3-4. Figure: Supply of Ice Cream Cones
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3. (Figure: Supply of Ice Cream Cones) If the price of ice cream cones is $2, producer surplus will equal: A) $20. B) $40. C) $60. D) $80. Producer surplus is the firm’s revenues for selling 20 units at $2 ($40), minus the minimum they would have to be paid to sell the 20 units. The minimum the firm would have to be paid to supply the first 20 units is $20 (the area under the supply curve up to 20 units). So the producer surplus is $20 the area above the supply curve and below $2 4. (Figure: Supply of Ice Cream Cones) If the price of the good increases from $3 to $4, producer surplus will increase by: A) $5. B)
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midterm2_versionA_edwardthoughts - Principles of...

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