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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 ...

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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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...Page of name ec principles microeconomics fall 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 minutes to complete this mark clearly your answers for mul ple choice their respec ve leeers if more than one alterna is marked will not get any point from that on can use pencil though do so won t able dispute grading aierwards must return each states how points it worth deni may used throughout atc average total cost afc fixed avc variable mc marginal mr revenue q quan ty deriva tc with respect example then tr me wisely consider produc vi es orhan and samson producing corn pork miminnuutetess nneeeeddeedd toto mmaakkee bushel pound suppose work h per day fill blank spaces below an ecient worker bushels pounds has compara advantage order trade benecial both traded price between equilibrium french fries rises while falls most consistent explana these observa correct item increase onion ri...

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