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Comm 295 - 2009 mt solutions

# Comm 295 - 2009 mt solutions - UBC Commerce FRE 295 MIDTERM...

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1 UBC Commerce/ FRE 295 MIDTERM EXAM ANSWERS October 26, 2009 NAME:__________________________ STUDENT NUMBER ________________ SECTION: _______________________ PROFESSOR’S NAME: _______________________ Instructions: This exam will be marked out of 100. You will have 1 hr. and 45 minutes to do the exam. There are two parts to this exam. The first part is true-false questions. Answer all of these questions. Part II consists of longer questions. You must choose 4 out of 5 of the longer questions in Part II . This midterm has 16 pages. Check now to make sure you have all pages and make sure your name, section, and student number are provided above. This is a closed-book exam. You may not use books or notes. You may use a non-graphing, non- programmable calculator. GRADES True/False ________ / 40 Long Answers: 1. ________ / 15 (answer 4 out of 5) 2. ________ / 15 3. ________ / 15 4. ________ / 15 5. ________ / 15 TOTAL ________ / 100

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2 PART I TRUE-FALSE QUESTIONS Mark each question as true or false, by putting an “X” in the appropriate box. There is one mark for each true-false question. 1. In a perfectly competitive market for gasoline, determine which of the following statements are true and which are false. True False Assuming the supply of gasoline slopes upward, an increase in the price of electricity-based public transportation is likely to cause the price of gasoline to rise. If the demand for gasoline were linear, technological progress in gasoline production that shifts the market supply curve to the right is very likely to lead to higher industry-wide revenues. If gasoline is a normal good it follows that the supply curve would tend to shift in (left) during a recession. Suppose demand is linear and downward sloping and supply is perfectly elastic (flat). If demand were to make a parallel shift to the right, then demand would be less elastic at the new equilibrium point than at the old equilibrium point. 2. The company BC Bread has the production function q=KL, where K represents equipment and L represents labour (employees). The price of labour is \$w and the rental rate on equipment is \$ r. True False BC Bread’s production function has constant returns to scale. BC Bread ’s production exhibits a diminishing marginal product of labour. If the firm lays off workers it will increase the average product of labour. BC Bread has a U-shaped long run average cost curve.
3 3. Determine if the following statements about government intervention in a competitive market are true or false. True False If demand is perfectly elastic and the government imposes a per-unit tax, the price consumers pay will not be affected. Consumers will tend to bear more of the incidence of a per unit tax

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Comm 295 - 2009 mt solutions - UBC Commerce FRE 295 MIDTERM...

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