Download Final Exam - Intermediate Microeconomic Theory | ECON 306 and more Exams Microeconomics in PDF only on Docsity! Name_____ I.D. No._ University of Maryland Economics Department D. Primont Economics 306 December 17, 1988 Section 0701 Intermediate Microeconomic Theory Final Exam This exam has 9 pages. Make sure that you have all 9 pages. Write organized, legible answers to all questions in the space provided. Point values are given in parentheses. Total points = 100. Total time 2 hours. (10) 1. Some price - consumption data are listed below for a consumer. Month Prices Quantities PI P2 xl X2 May 34 14 June 43 32 Is this behavior consistent with the model of utility maximization? Explain your answer. Page 2 (42)(7 points per part) 2. Indicate whether each of the following statements is true or false and justify your answer. Unjustified answers receive no credit. (a) A competitive firm will shut down if the output price falls below average cost. (b) A profit maximizing competitive firm that is making positive profits in the short run must be on the upward sloping portion of its average cost curve. Page 5 (20) 3. The competitive model is based on the following assumptions: I. There are many firms in the industry. II. Firms maximize profit. III. Firms produce an identical product. IV. There is free entry and exit in the long run. Explain why each of the following are consequences of the model.. In your answers, explicitly mention which assumption (or assumptions) is (are) needed in each case. (a) Firms are price takers. (b) Firms equate marginal cost to price. Page 6 (c) Firms all charge the same price. (d) In the long run, marginal cost equals average cost, i.e. average cost is at its minimum. Page 7 (10) 4. A monopolist faces a demand curve given by D(p) '= 100 - 2p. The marginal cost of production is constant at $6 per unit of output. In addition the firm pays a quantity tax of $4 per unit of output. (a) Show that the marginal revenue function is MR = 50 - q (b) What output maximizes profit? What price will buyers pay for this output level? Show your work.
