Final Exam 2 | Intermediate Microeconomics Theory | ECON 306, Exams of Microeconomics

Download Final Exam 2 | Intermediate Microeconomics Theory | ECON 306 and more Exams Microeconomics in PDF only on Docsity! Department of Economics Dr. Rachel Kranton University of Maryland ECON 306, Section 301, Spring 1995 FINAL EXAM VERSION H Section L MULTIPLE CHOICE (5 minutes each) EXPLAIN YOUR ANSWERS!!!! 1. The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility when purchasing lemonade <md popcorn, his marginal rate of substitution will be a) 2 lemonades for each popcorn b) 1 lemonade for each popcorn c) 1/2 lemonade for each popcorn d) not enough information to tell. 2. The average total cost to produce 100 cookies is $0.50 per cookie, and the marginal cost for all cookies produced is $0.10. The total cost of producing 100 cookies is then a) $0.50 b) $0.60 c) $50.00 d) $100.00 e) indeterminate 3. You are the monopoly producer of stereo components. There are two markets, domestic and foreign. The two groups of consumers cannot trade with one another. You will criarge a higher price in the market with a) the more inelastic demand. b) the more elastic demand c) lower quantity demanded at any price. d) higher quantity demand at any price. 4. A monopolist has set her level of output to maximize profits. The firm's marginal revenue is $20 and the price elasticity of demand is -2.0. The firm's profit-maximizing price is approximately: a)$0 b)$10 c)$20 d)$40 e) cannot tell without additional information. 9. A firm's profits in the coming year will depend on the strength of the world economy as well as on the performance of the firm's managers. The owners of this firm can overcame any principal-agent problem by paying a bonus to managers who perform well. 10. Every point on the contract curve represents an efficient and equitable allocation of goods between two individuals. Section ffl. LONG PROBLEMS (15 minutes each) IF YOU GET STUCK ON THE MATH, EXPLAIN THE ANSWER WTIH GRAPHS, ETC 11. The market for all-leather men's shoes is served by both domestic (U.S.) and foreign (F) producers. The domestic producers have been complaining that foreign producers are dumping shoes onto the U.S. market. As a result, Congress is very close to enacting a policy that would completely prohibit sales by foreign manufacturers of leather shoes in the U.S. market. The demand curve for shoes is QD = 50,000 - 500P. The supply curves for domestic and foreign producers are, respectively, Qus = 6,000 + 150P and Q, = 2000 + 50P. a) Currently there are no restrictions covering shoes. What are the current equilibrium, values of price and quantity? b) Calculate the price and quantity that would prevail if the proposed policy is enacted c) Using a diagram, describe the implications for economic welfare of such a policy. 12. In the market for natural gas, there are two identical firms (A and B). The marginal cost of producing natural gas is zero and there are no fixed costs. The market demand for natural gas is P = 50 - l/Q where Q is the total supply (Q = q^ + %). a) Suppose the two firms simultaneously set output; i.e., they play a Cournot quantity-setting game. Find the Nash equilibrium quantities and the price that would prevail in the market. b) Suppose the two firms can successfully collude. Find the quantity each firm would produce and the price that would prevail in the market assuming they share profit equally. c) Suppose the two firms cannot legally collude but interact repeatedly in this market. Under what conditions can they tacitly collude; i.e., collude without a legally-binding contract?