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ECO304K_Midterm 2_Practice

ECO304K_Midterm 2_Practice - Economics 304k Practice...

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Unformatted text preview: Economics 304k: Practice Questions October 28, 2011 Professor Sibley Directions: 1‘ Observe the Honor Code 2. Do not open the test until told to do so 3. Do any 5 out of the 6 questions in the test, Eon must do guestion 2. 1‘ Definitions and short answer questions. Use a diagram if it helps and explain your answers. QM (5‘1 9‘ “AYW Marginal revenue =- W aécgl‘ 4‘.“ng «- is; 5’}, sails W WW unit} a; @U'Peoof‘: Price-taking behavior g: ,9 {Tao 1‘22. i< Haj {Fm nglfi‘es’ ., $63,331:? mug/{A #11:) Fflfium {gasses} gages) FD {amalgam 1+3 ms; % aye ”My, egg) {is serfs/s)»; will mfgmi: W Hag dacfgfgmg Q. Esau/'3‘ a SS VW-r‘gs’f't‘o‘h 7%» True or False: even if the LRAC curve is flatMSMC and $6 curves need not be “7/ /£%’/§ L ‘lat.. TM AM a, :3 C i i J V in F AL ix True or False: a profit- maximizing firm should pick the output at which total revenue equals total cost. nggé- Té F’NC/é‘i‘ W 0U$fiwf Mi Law‘s/5% Viflgfifwaf Wags Wm§fiiaz€ oasis. If fixed cost rises, then a profit-maximizing firm should increase output so as to lowerATC. Saki}. Fiké Q, (Eff; Lam AW M7, €§€€C¢+ W W {infidga’twwfléerfl/HSJQWfi @Uffujf. This 0U+gwi "é W m 0,72; whim» Mg’Z‘tgle. U) 2. Suppose that the TPL curve is given by the equation: q = 6L. a. Draw the MPL and APL curves, labeling important parts, as well as the axes b. Assume that the wage rate is $6 and the fixed costs are $5. Draw AVC, ATC and SMC. Label all points carefully and. clearly. 3. Consider the table below. Assume that the wage rate is $5 per unit of labor. L g TVCLQ AVC {Q m (.9 Fixed cost 51$? 0 o 0 ”m“ M 4 1 3 g“ t 2;“; W3 4 2 ES 1’? 1.25 t “T 3 12 1 g 1 M 1‘1fo % 4 14 3,93 1.43 2.50 L? 5 15 2, g‘ a it; g: Q4 Li a. Fill in the blanks. b. Suppose that the price of output, q, is 552. What is the profit-maximizing output? Explain. g (.9 tax? if; Tax 31; fig Q mg 414, ##3th ma o1 sl as ti l asses to r 2 g g LE imam h; ®g+g{ $1.50). gall” Emit?» ME) $2 Cfiflfle «is 60% / Mg $59 W @441. (fax/4a fw&t’wfdvgifiij Pvflglté‘tfiééfi. 2:) ‘i 6. Suppose that the price of output, q, is $31.50. What is the profit—maximizing ,. %{3 f5 ‘i'DVfiiW TL! SML €3,315: wa+§$l Kg "Hate =§1“w'i“ umii unti“ 8'9?» UV“ PWfigt'i‘MQQ- HVWW‘ is“ ELM—s. §M£ a; unitwg; P's malts“ k} 2 Urgjééiég 2», §W¢ {M Fwagi'i“ met :14; per-t» 3 $4,452, tt-gowtazreté’mt- iv .wr git-air W; WW “#14 km m Spar WW ax wag.» % ,1. x21. d. Assume that the fixed cost falls from $4 to $0 What is the effect of this on the output? Explain. $ l’if'? 1 £42 profit-maximizing output (if any)? /l/t (EW' Extra work, if needed. 4. Draw a U—shaped LRAC curve below and then do the following. ll 5 Wmme mvmbm_mnmwm id” li/ a. Show the point on that curve that gives you the long run competitive . . . _ . . . A: b ‘ ‘W ., ‘gé‘ equilibrium price. Why 1s that the pomt‘! fl” ii“ «:5 E L. ti Avg 5 § 4m“ 5"“ “.5 fat/i m {Wig Way); Cémggfi+lm+lM PVQggurreg QPQ fifiw SVWVl‘V‘l‘Wfi Firm iv ”hm/2 {gallst- 5:22 @roéotfi. aijm Cg fee {Le gsh&WM (my «giwvfi Pmelvmv—j Wt“ rig]? b. Given the LRAC curve you drew, draw in the relevant SRATC, AVC and SMC curves that you would see in long run competitive equilibrium, labeling them each and showing their correct relationships with each other and with the LRAC curve. 3. Suppose that a firm can sell its output, q, for $5 per unit and that at its current output marginal cost is $3. If the firm is producing 100 units of output, is it maximizing profits? Explain. a??? f‘ 4» j‘ u \ a “ ”A. ”i” 5:; Wfi'i“ imfifliw‘Wzgmg {{Bpggzif. We ii Ema w “i"kffi; EQ€MQ REC in}; [hfit’faégg avii‘Pwir imp rm tit/“M in?) fig Mata rr‘§@:§ in? $2,. Hue/mu) . "\ . \3‘ i. . (€39 Uwii‘g WW magi“ gut/199%” Wax/Kim % w? 6. Sketch the LRAC curve if there are constant returns to scale. ,143‘ {g Q 3% {a fife/La W ’ 0k? Pm P m‘aém $52,431 a n a 5 M a ...
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