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Page
1
of
18
NAME:
EC
131
-‐
Principles
of
Microeconomics
Fall
2012
FINAL
EXAM
All
ques?ons
should
be
answered
in
the
following
pages.
Nothing
here
requires
a
very
long
answer.
Graphs
many
;mes
help,
as
does
neatness.
You
have
75
minutes
to
complete
this
exam.
Mark
clearly
your
answers
for
the
mul;ple
choice
ques;ons
in
their
respec;ve
leEers.
If
more
than
one
alterna;ve
is
marked
you
will
not
get
any
point
from
that
ques;on.
You
can
use
pencil,
though
if
you
do
so
you
won’t
be
able
to
dispute
the
grading
for
that
ques;on
aIerwards.
You
MUST
return
this
exam.
Each
ques;on
clearly
states
how
many
points
it
is
worth.
The
exam
is
worth
220
points.
The
following
defini;ons
may
be
used
throughout
the
exam:
ATC
-‐
Average
Total
Cost
AFC
-‐
Average
Fixed
Cost
AVC
-‐
Average
Variable
Cost
MC
-‐
Marginal
Cost
MR
-‐
Marginal
Revenue
Q
-‐
Quan;ty
Marginal
Cost
(MC)
is
the
deriva;ve
of
the
total
cost
(TC)
with
respect
to
quan;ty
(Q).
Example:
2
TC
=
300
+
5Q
+
10Q
then:
MC=
5
+
20Q
Marginal
Revenue
(MR)
is
the
deriva;ve
of
the
total
revenue
with
respect
to
quan;ty
(Q).
Example:
2
TR
=
100Q
-‐
Q
then:
MR=
100
-‐
2Q
Use
your
)me
wisely.
Page
2
of
18
Consider
the
following
produc)vi)es
for
Orhan
and
Samson
in
producing
Corn
and
Pork
for
ques)ons
1
and
2:
MiMinnuutetess nneeeeddeedd toto mmaakkee 11
Bushel of Corn Pound of Pork
Samson 20 12
Orhan 15 10
Ques?on
1
-‐
(10
points)
Suppose
that
Samson
can
work
6h
per
day
and
Orhan
can
work
8h
per
day.
Fill
the
blank
spaces
below
with
an
example
of
an
efficient
produc;on
for
each
worker:
Bushels of Corn Pounds of Pork
Samson 9 15
Orhan 16 24
Ques?on
2
-‐
(10
points)
Fill
the
following
blank
spaces:
Samson
has
compara?ve
advantage
in
the
produc;on
of
____Pork________________
Orhan
has
compara?ve
advantage
in
the
produc;on
of
____Corn______________
In
order
to
trade
to
be
beneficial
for
both,
the
traded
price
of
pork
must
be
between:
___3/5____________
and
________2/3_______
bushels
of
corn.
Ques?on
3
-‐
(5
points)
Suppose
that
the
equilibrium
price
of
French
fries
rises
while
the
equilibrium
quan;ty
falls.
The
most
consistent
explana;on
for
these
observa;ons
is
(mark
the
correct
item):
a
-‐
An
increase
in
the
price
of
onion
rings
(a
subs?tute
to
french
fries)
b
-‐
A
decrease
in
the
price
of
onion
rings
c
-‐
An
increase
in
the
price
of
potato
bread
(a
subs?tute
in
produc?on
to
french
fries)
d
-‐
A
decrease
in
the
price
of
potato
bread
Page
3
of
18
Ques?on
4
-‐
(5
points)
The
price
elas;city
of
demand
for
good
X
is
0.3.
Mark
the
correct
alterna;ve:
a. Good
X
may
be
a
diamond
ring
b. In
the
long-‐run
the
price
elas?city
of
good
X
could
be
0.5
c. The
price
elas;city
given
for
good
X
must
be
a
long-‐run
elas;city
d. None
of
the
above
is
correct
Ques?on
5
-‐
(5
points)
You
are
the
CEO
of
a
bagel
chain
store,
which
has
a
monopoly
in
the
sales
of
bagels,
and
your
marke;ng
department
comes
to
you
with
an
es;mate
of
1.3
for
the
price
elas?city
of
demand
for
bagels.
You
can,
based
only
on
that
informa?on,
conclude
that:
(Mark
the
correct
alterna;ve)
a. If
you
increase
the
unit
price
of
your
bagels,
your
total
revenue
will
decrease
b. If
you
increase
the
unit
price
of
your
bagels,
your
total
revenue
will
increase
c. If
you
increase
the
unit
price
of
your
bagels,
your
total
revenue
will
remain
the
same
d. We
don’t
have
enough
informa;on
to
answer
this
ques;on
Ques?on
6
-‐
(15
points)
Consider
the
US
market
of
donuts.
For
each
scenario
presented
below,
suppose
that
the
market
starts
from
the
long-‐run
equilibrium
price
and
quan;ty,
and
write
whether
the
price
and
quan;ty
change
will
be
INCREASE,
DECREASE
or
AMBIGUOUS
a.
An
european
chain
of
donuts
starts
its
opera;on
in
the
US
with
100
stores
Price:
DECREASE
Quan;ty:
INCREASE
b.
A
federal
law
mandates
the
reduc;on
of
use
of
fat
in
donuts.
As
a
consequence,
costs
of
produc;on
of
donuts
rise
and
many
consumers
subs;tute
donuts
for
bagels
Price:
AMBIGUOUS
Quan;ty: DECREASE
c.
The
canadian
government
gives
tax
incen;ves
for
donut
bakers
to
move
to
Canada,
and
as
a
result
many
leave
the
US
market.
(Hint:
what
will
happen
to
the
wage
paid
to
donut
bakers
in
the
US?)
Price:
INCREASE
Quan;ty: DECREASE
Page
4
of
18
Consider
the
following
demand
and
supply
curves
for
3
different
consumers
and
3
different
firms
in
the
market
of
iPhone
cases,
which
is
perfectly
compe11ve,
for
ques)ons
7
and
8.
Consumer
1 Firm
1
10 10
9 9
8 8
7 7
6 6
P 5 P 5
4 4
3 3
2 2
1 1
00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Q Q
Consumer
2 Firm
2
10 10
9 9
8 8
7 7
6 6
P 5 P 5
4 4
3 3
2 2
1 1
00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Q Q
Consumer
3 Firm
3
10 10
9 9
8 8
7 7
6 6
P 5 P 5
4 4
3 3
2 2
1 1
00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Q Q
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