final2011springsoln

final2011springsoln - PADP 6950 Spring 2011 Fertig ‘ UGA...

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Unformatted text preview: PADP 6950 Spring 2011 Fertig ‘ UGA Name Final Exam 4:. [20 points] Use supply and demand analysis to show what happens to the equilibrium price and quantity of doughnuts in each of the following cases: a. Consumer income increases {assume doughnuts are normal goods) 1). The price ofcoffee decreases [assume coffee and doughnuts are complements] C. The minimum wage increases (assume many or most workers in doughnut shops earn the minimum wage] d. A new study indicates that doughnuts are less unhealthy than was previously believed; at the same time, the price ofsugar increases dramatically [assume sugar is an input in doughnut production) (d) PM flinch val/14565 mi D flwam AW“ u”- ? CM 6‘3 W S 1 M lat/dc Chewy- V’}( f 6% measure fig “Cg D 2. [15 points] To raise revenue, we decide to tax one of two goods; in each case, the price of the good is $3 and the quantity sold is 2,000. The market demand and supply curves for the goods are shown below (the supply curves are identical). Circle the best answer for parts a, b, and c below; answer part d. love 2,000 Good A a. Which tax wiil raise more revenu @ Good B No difference b. Which tax will create more deadweight loss? —--.. Good A No difference c. Which tax will consumers pay m Good A Good B No difference d. Now assume that the production of both goods results in external social costs associated with pollution such that the optimal level of production in both industries is 1000 units. Can the government impose a single tax rate (1:) on both goods to achieve the optimal level of production? Explain your reasoning. , ” .4“ch ‘ ,_ . . ' /Ug>, fiat/Lemme, 9295/ A m s30 fame/<1 /fl&(fl<¥fi¢/ flxe M waif ' 5: may ,Aéééytcc MWWfl/flflw 74> $55 git/71.x 7’3} MW Jrwa ‘W m% gov gnaw/5 Cfl/fl M mew. [mic/if fig JZC/M‘ért‘é $00 tun/("7’3 3. [15 points] Explain why public goods are not usually produced privately, and when they are, they are produced at a lower level than the socially optimal amount. In your answer, Clearly define a public g ood and the sociall o timal amount of the public good. fol/M” 4/0647 Mac/£55? flwz CL lob/Zia gang/fl k/a éWM fi/m/ cc, coweaiflgfi %- 0a £2144 M74 « . Mflz‘ofl” 2014mm 7‘4sz 36 [Mr / 1- -' Cfi/Z/M’Pf 7w. m/ 9? WV/%/ '79) 3745 flaw“ ' fig {M {6449744 Wow €546 ‘Lgmf/[t g! b[% a “WK/7Z5 i737”? f x i _ f fwwww “fa/[Men all/V. ’- p/i‘mfrfigfléffiwgmcmM/Qfle/>j w/é/ \ @g/mz pd/‘V/wxj 4? _ / mfl/ fl/mflygj W fl?“ 3% WW 7% WW- 4. [20 points] Assume that a pharmaceutical firm has decided to expand their sales to Mexico where they will offer a lower price for their blockbuster drug than the price in the U.S. The firm currently sells 7000 prescriptions per month at a per unit price of $200. The marginal cost of each prescription is $30. The demand curve and the marginal revenue curve in Mexico are given by the following equations: P : 200 — 1/10 Q MR : 200 - 1/5 Q a. Determine the profit maximizing price and quantity the firm will choose to Charge in Mexico. Show graphically and compute exact numbers. b. What will the profit from Mexico sales be? Compute the number and shade an area on the gm. “IT” '41" C Pea-7(1) a r ("5";3>_§?>W‘50 c. What does economic theory predict wiil happen to the firm’s overall profit [from saies in Mexico and the U.S.] and consumer surplus in Mexico and the U.S. if, bowing to pressure from voters, the U.S. permits its citizens to legaliy purchase this drug from Mexico? 4/»? or ‘% 72-65710 Cara-A 5 WE} Jig/w Wm Mag/w poi/fl b/a 4/ a M fly Waffle a)! ,, 2% A f f a MW/‘w [497121. 80 "IT "2* (PrAiCD‘GL M ét’ 4‘37M6/ 947/ za/M’I/i flwffl [3" 62 7» fi/a [MW 24 mm afgmjézéxéc / '74 WW MM?" W 0% haunt/WW? (j J (3Mmemgfia/zj/2/ofa n» 4%: M. 3 #12 mm flwgofié w/ a AU/fimdj a??? if? 4% i074 W iU/ZX 46 507/ t ,ég ML. MZ/W'w M /(M We Wm m 1 ’1 flag fi'WO/kfiél/e flip afl/ / M 527/6 # 5W % £07 My flaw/x WM)? /D 5/51 a-7’7'Z {9/10. S. [20 points) Consider the market for solar power. Assume the market is perfectly competitive and initially in long—run equilibrium; solar power sells for $.25 per kwh (kilowatt hour, a unit ofpower). a. Draw graphs to represent the market as well as a single firm. Qarreggagolm W4” Fir b. Next, to encourage conservation, Congress taxes all forms of energy EXCEPT solar power. Show what happens to the market and the firm in the short run; indicate clearly what happens to price, quantity, and profit. cm 659W pew ~43 D at met 3 will" F“? l3 T F“? fiat/h {Sh/m W QDFDdU/Lt/wxg, “Dcéf’l‘ it (1.; m c. What happens to the market and the firm in the long run? indicate clearly what happens to price, quantity, and profit. o’l’lwr @‘rms wilt rim/M ~ls> Lamar firm Mai/JQC/fi is WW... 956w“ "We pop-7L (so g MM shits and” “'4‘? Price ire/hams % Wu Li: @6an imam (1%. 26. v~—7 [gm/k {Sn/m tempt/la} “6i twith «tho/a 4m 68 VON/M a/ré prewar/mg ayl’ new» Na, so arms ram-ale WWW/Q tigers/t W5 Pal/Qt. G‘fmw/ 04/ 44W b-e.%a7~e “Ht? WC “Ham. 0po {new fi¢MS W H”- WW. 6. [10 points] Suppose that the Justice Department is considering whether to permit two large firms in an industry to merge into one firm. The industry currently is made up of 10 firms with the followin share sizes: Firms B and C are the firms who want to merge. Using the initial value and the change in the Herfindahl—l—lirschman index [formula for this case below] as evidence, make a recommendation about whether the two firms should be allowed to merge. til/lama r» 2501+ gaze 7 e (6;) 2: crow rage + 7 r25 CW M WW flM flue Médweég 75 s "(6 ...
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final2011springsoln - PADP 6950 Spring 2011 Fertig ‘ UGA...

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