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Unformatted text preview: (l. n JLJU” ki Name:
Economics 100B
Microeconomics
Fall 2007
James Rauch
MIDTERM EXAM This exam is worth 160 points. Do all three problems. You will sometimes need to solve the
early parts of a problem in order to solve the later parts. If you cannot solve the early parts, you
can still get partial credit by indicating how you would solve the later parts. (40 points) 1. Consider a perfectly competitive industry consisting of identical ﬁrms, each with
technology (production function) q = L”, where L is labor units. The wage rate is $10
per unit, and each ﬁrm has a longterm lease of $4,000. Demand for industry output is
given by Q = 80,000  50p, where p = price. a. Find the short run supply function for an individual ﬁrm, that is, ﬁnd q as a
function of p. b. If there are 1000 ﬁrms in the short run, ﬁnd the market supply function and the
short run equilibrium p, Q, and q. c. Find the long run equilibrium q, and the long run equilibrium p and Q. (9 :MC.
l3 C. 2.. r.— C wL + #000 :‘l .. Qc\1+L{OOO ML: '3 @ 2 Name: C~ ‘0 (On? {an} {:Wms arc/«HI 0d” min AC (it/o f"sf‘ljrA/ MMAC, occwj ul’ure, MC‘AQ ML‘QOCI (proa far? A\, 5 (Oilf Lfogo @
‘: {01 4 L—foo% (f 101w; [0‘1 Hwoo m1: #000 1:20 1 ‘1 = +00 Q= 80,000«s’o.+oo ‘\ 30 
b ‘= $0,000 3 Name: (80 points) 2. Suppose that after the latest ﬁres in San Diego County many rural homeowners decide to
install sprinkler systems. Demand for sprinkler systems is given by Q = 10,000  50P,
where Q is the quantity of sprinkler systems and P is the price per system. Sprinkler
system supply is perfectly competitive. Each sprinkler system costs two hours of labor
and ﬁve meters of PVC pipe. (I admit these are pretty small systems.) The wage is $25
per hour. PV is the price of a meter of PVC pipe. a. Suppose PV = $10. Solve for P and Q. b. Now San Diego County takes advantage of the opportunity to raise revenue by
imposing a tax of $30 per sprinkler system. Solve for Q, for the price PD paid by
homeowners, and for the price PS received by suppliers. 0. Using your answers to parts a and b, describe the incidence of the per unit tax:
what percentages of the tax are paid by homeowners and suppliers? (1. Using your answers to parts a and b, ﬁnd the tax revenue collected, the consumer
surplus lost (if any), the producer surplus lost (if any), and the deadweight loss (if
any). (It might be useful to remember that the area of a triangle equals one—half
times the height times the base.) e. Now suppose PV = 0.002Q. Solve for P and Q. f. Again, San Diego County takes advantage of the opportunity to raise revenue by
imposing a tax of $30 per sprinkler system. Solve for Q, for the price PD paid by
homeowners, and for the price PS received by suppliers. g. Using your answers to parts e and f, describe the incidence of the per unit tax. h. Using your answers to parts e and f, ﬁnd the tax revenue collected, the consumer
surplus lost (if any), the producer surplus lost (if any), and the deadweight loss (if
any). i. Compare your answers to parts c and g, and provide the economic intuition for any difference. j. Compare your answers to parts (1 and h, and provide the economic intuition for
any difference. 4 Name: (I?) (JumL‘OvIn{f) ) Suy 1’ liir’ [7‘] 00/6 (L Ox‘K {(uQ/‘ue, '1 t ‘— 3’ 5/00 c “MT/00°
(0/?)umL/ JJ'PVLAJ [03+ = Lina/.4): m Mm “43k,” (lbw\an Lian/2. :1 CLL’I3K in P011. 'X Q + LAO/~31. FKIUL x (jut/1ij . 30. {5/00 (3/ I14”) 500 (éé£€L/t/\LL 5LT‘A’LM C's/“Jqu Jul/flu) [Mr Mi 'hx 12/5” (QUL/‘utl.\ / @e V” Qw’rbpv "‘ 2w*5“0.002<l* §O+0.0IQ 5‘ Q: (000“ 50(g°*'0'93 "= 75002572 /.§Q='7§OO Q=§2ﬁ0 (Hg/00 Noh +La+ +14 Joluh‘aa 1’) 44¢ Jame u; Pant 0k, 5 Name: / j
ISQ= £3000 Q= #00 D: 304‘7‘0 = I20
(5 V ® Homeow«Lf} {It} 1/?! Auff’atfj F09 1/3’, (3 ® fax rtvanu‘z— : %000' 3O @ 9’1”?
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V/DLHLL’ Maw/'9‘“) [03+ 3 51°00 [0+ 210‘ luOO @ Amway» my if?» @ x
‘ 15am) i. In fur} L) Plokuur) «fay Zqo [gamut Jujjjylj (‘2 faxPuH7 dunIL. la PM 3, JUN!) w M) ‘H'woA Vifklbjrlj quJ‘hC J19 Junzllirj you) jomf cl “Fax” 3. 1L!» $tMLdHDL‘l ’05) (a) 1519‘ Jmane‘r [A ’0 TIM) is jgccauue, Jun?!) i) (a!) L’GHPL J9 Hg +k>§ Lid) 2(1) (M?eb{» (94 anAhﬁ +fﬁﬂJﬂlL‘LLA4‘ ‘ 6 Name: (40 points) 3. Consider a country that exports corn, taking the world price of corn as given. In other
words, at the world price the country supplies more com than it demands. Domestic corn
supply is perfectly competitive and the supply curve is upwardsloping. Domestic
demand for corn is downward—sloping. a. Show the gains from trade in corn in a diagram, that is, show the increase in the
sum of consumer and producer surplus that results from exporting corn at the
world price compared to the equilibrium where domestic supply equals domestic
demand. Now suppose the government provides a per unit subsidy s to corn exports. This raises
the price received by domestic farmers and paid by domestic consumers by s. b. In a new diagram, show the change in producer surplus, change in consumer
surplus, and the sum of the two changes. c. In a third diagram, show the subsidy expenditure by the government, and the
deadweight loss to society (if any). (This cannot be shown in the part b diagram without getting too messy.) _ ﬂat/DJ Fro," +0, it 5 // Tim W ‘r—~—~u—~~’i r
D L a “I J Wu if J.” u
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This note was uploaded on 04/07/2008 for the course ECON 100B taught by Professor Rauch during the Fall '07 term at UCSD.
 Fall '07
 RAUCH

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