Final_Exam_June_2006

Final_Exam_June_2006 - THE AUSTRALIAN NATIONAL UNIVERSITY...

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THE AUSTRALIAN NATIONAL UNIVERSITY First Semester Examination (2006) MICROECONOMICS 1 ( ECON1101 ) Writing period : 3 Hours duration Study period : 30 Minutes duration Permitted materials : Non-programmable Calculators Part A questions should be completed in the script “A” book provided. Part B questions should be completed in the script “B” book provided. ECON 1101, Page 1 of 5
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Section A. Section A is worth 60 marks in total. Answer six of the following eight questions in the script “A” book. Each question is worth 10 marks. A1. True or false? “If CD manufacturers want consumers to spend more money on CDs, they just need to come up with ways to produce CDs more cheaply.” A2. True or false? “As far as efficiency and tax revenue are concerned, the best goods to tax are those that have highly inelastic demand or highly inelastic supply. In any case, the higher the tax, the higher tax revenue will be.” A3. Suppose that the Vice Chancellor decides to impose a price ceiling on ANU student rental housing. Use the concepts of consumer and producer surplus to explain and illustrate how this improves the welfare of some students, but creates excess demand and reduces social welfare overall. Then illustrate how the government could subsidise student housing to eliminate the excess demand. Identify on your diagram the deadweight loss associated with this subsidy. A4. Suppose that you and your friend are thinking about setting up a business of your choice. Identify some of your implicit and explicit costs, and then some of your fixed costs and variable costs. Explain why your short-run marginal cost curve is (eventually) likely to slope upwards, why your average fixed cost curve will slope downwards and why your average total cost curve is likely to be U-shaped. A5. True or false? “Perfectly competitive firms always earn zero profits, monopolists never do.” A6. Consider a monopoly model summarized by the following three equations: 100 4 100 8 60 for all PA R Q MR Q M CA C Q = =− == a. Illustrate the monopoly equilibrium and determine the monopolist’s profit-maximising output, price and profit.
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Final_Exam_June_2006 - THE AUSTRALIAN NATIONAL UNIVERSITY...

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