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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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