3110 - Final Exam Practice

3110 - Final Exam Practice - [ Winners must have two...

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Unformatted text preview: [ Winners must have two things: definite goals and a burning desire to achieve them - Brad Burden] Georgia Institute of Technology School of Economics ECON 3110-JK Advanced Microeconomics Analysis FAll 2011 Instructor : Dr. Johnson Kakeu (johnson.kakeu @econ.gatech.edu) Prep _ Final ( Final Exam: December 13, 2011 from 8:00am - 10:50am ) Chapter 9: General Equilibrium: Consumption meets Production Chapter 11: Monopoly Chapter 13: Game Theory Chapter 14: Oligopoly and Monopolistic Competition Chapter 17: externalities, open access and public goods 1) Producer surplus is equal to A) the area under the supply curve. B) the difference between price and average cost for all units sold. C) the difference between price and marginal cost for all units sold. D) the firm's profit when fixed costs exist. Answer: C [ Winners must have two things: definite goals and a burning desire to achieve them - Brad Burden] 2) Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is A) $5,000. B) $15,000. C) $20,000. D) not able to be calculated from the information given. Answer: A 3) The difference between producer surplus and profit is always the associated A) opportunity costs. B) total costs. C) variable costs. D) fixed costs. Answer: D 4) When is the profit a firm earns equal to the producer surplus? Explain. Answer: Profit equals producer surplus when the firm has no fixed costs. Producer surplus can be thought of as the gains from trade. In the short run, if the firm produces any output, it earns profit equal to revenue minus variable costs minus fixed costs. If the firm shuts down, it loses the fixed costs. The producer surplus equals the profit from trading minus the profit or loss from not trading, revenue minus variable costs. If no fixed costs exist, then profit will equal the producer surplus. 5) Suppose the market supply curve for wheat is shown in the above figure. Calculate the producer surplus when price is $2 per bushel. If legislation mandates that the price be $1 per bushel, what is the resulting loss in producer surplus? Answer: At a price of $2, producer surplus equals ($1.50 ∗ 1200)/2 = $900. At a price of $1, producer surplus equals (50¢ ∗ 500)/2 = $125. The $1 decrease in prices results in a $775 decrease in producer surplus. 6) Explain why the competitive output maximizes welfare. Answer: If less output is produced, then the last unit that is consumed will be valued by consumers more than the cost of producing it. If output is increased to the competitive level, consumers will value those additional goods more than the cost of producing them, and welfare will increase. If output is greater than the competitive output level, then the cost of producing the units beyond the competitive level is greater than the value. At output levels greater than the competitive level, welfare is decreased. Thus the competitive output level [...
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This note was uploaded on 01/26/2012 for the course ECON 3110 taught by Professor Besedes during the Fall '07 term at Georgia Institute of Technology.

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3110 - Final Exam Practice - [ Winners must have two...

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