Final Exam Review Sheet Solution - Introduction to Microeconomics | ECON, Study notes of Microeconomics

Download Final Exam Review Sheet Solution - Introduction to Microeconomics | ECON and more Study notes Microeconomics in PDF only on Docsity! BLC Spring 2010 E201 Final Exam Review — Monday Packet eo 1. Fred and Alma are motor mechanics, It takes AlmaJ2hours to replace a clutch and 6 hours to replace a set of brakes. It takes Ered. to replace a clutch and 4 hours to replace a set of brakes. We know that Alma has a comparative advantage in the production of 2 © Gporake replacement, while Fred has an absolute advantage in brake replacement u B. neither brake replacement nor clutch replacement 4 C. both brake replacement and clutch replacement D. brake replacement, and neither Alma nor Fred has a comparative advantage in clutch tt 72 _ replacement. @ E, clutch replacement, while Fred has a comparative advantage in brake replacement. 44 - | a &. 245 1% 2. Ifa perfectly competitive industry were initially in a long-run equilibrium and experiences a permanent increase in demand, we would expect to see, initially, a higher market price emerge and firms making an economic . Eventually, some firms will and the price will until the market is back in a long-run equilibrium. A. loss; exit the industry; increase Mo(be* Lafter Segreaae 1A demand 5 ‘ofit, enter into the industry; decrease C. profit, exit the industry; decrease 3S D. profit, exit the industry; increase E. loss; enter into the industry; increase Snew tity of Pizza's per hour | Average Variable Costs |_| VC oO z 16 46 f Uk 3. The above table provides some data for Jenny’s Pizza. If the market price in this competitive pizza market is $11, we know that Jenny’s Pizza would maximize her profits by producing pizzas per hour? You should assume that Jenny’s Pizza can only produce and sell whole pizzas. - _ Se _ Swe 1 2. .3 4 5 m@q p> 9 4. Suppose a country is initially operating at a point that is efficient in production. An economic downturn ‘ ‘ occurs resulting in high levels of unemployed labor. Considering country’s Production Possibility Frontier (or Production Possibility Curve) with the country’s production broken into consumption and capital e goods, which of the following would happen? ® The country will move from a point on its Production Possibility Frontier to a point inside its Production Possibility Frontier B. The country will move to the left along its Production Possibility Frontier C. The country will move to the right along its Production Possibility Frontier D. The country will move from a point inside its Production Possibility Frontier to a point closer to its Production Possibility Frontier E. The country’s position in relation to its Production Possibility Frontier will not change Resarce® Tech nology 500 650 = =©750 Pretzels 5. In the production possibilities frontier above, what is the opportunity cost to society of the movement from point D to point B? A. 250 potato chips B. 600 potato chips 50 pretzels . 750 pretzels E. 500 pretzels A : : $ per bushel : : MC ATC 5 ‘AVC 4 fon 3 i i_____p 50 100 150 200 250 300 350 400 Quantity (thousands of bushels per year) 9, The figure above shows a typical perfectly competitive corn farm, whose marginal cost curve is MC and average total cost curve is ATC. The market is initially in a long run equilibrium, where the price is $3.00 per bushel. Then, the market demand for corn decreases and, in the short run, the price falls to $2.50 per bushel. Corn production is a constant-cost industry. In the new equilibrium, the farm Po WG creecte A. incurs an economic loss and shuts down ® incurs an economic Joss and continues to operate C. receives zero economic profit D. exits the corn industry 10, In the setting of problem 9, suppose the ethanol industry becomes heavily subsidized and demands large quantities of corn, resulting in an equilibrium price of $5 per bushel. In the new equilibrium, the farm & has profits of approximately $500,000 Z,600,900 has profits of approximately $400,000 0,000 T has profits of $2,000,000 R- Dx Q 5,00 « 109 D. has zero profits - yoo, © E. has losses Te: y + Y00,00° 4,008 Q-Te~ p MQ= 5 e-nQ=D ihe 2 WE Whee operat 9 Tina’s Crafts Price t MC 20 ATC 13 oo AVC 11 _ 6 > 40 50 70 Quantity per week 11. Tina’s average fixed cost at a production level of 50 units is (rounded to the nearest whole number) A. $0 oe be determined — average fixed cost is not on the graph a) D, $2 i bFC E. $11 AT¢c = Ave | | - 6 $x 12, Christmas Average Wwe 5 Trees Variable per year Cost (in dollars) 100,000 110,000 $2.50 120,000 $3.00 130,000 $3.70 Bill is a profit maximizing Christmas tree farmer in a perfectly competitive market. He is currently planning on producing 110,000 trees. However, he does have some choice as to how many trees he will harvest each year. If the above table represents his average variable costs for the indicated quantities, what is his marginal cost for going from 110,000 trees to 120,000 trees? AVC | TVC{ MC BRS Tees . } C. $0.50 110,000 | 2.5 D. $2.76 $5,000 BE. $7.50 120,000 ? Bloomington Apartments Pt oe ($/month} S= 500 + .05q 2000 i 2S wy [500 | — Bom 1000 500 D=2000 - .05q *Q 13. Which of the following is true about the market for apartments in Bloomington as Illustrated above? 3 A. aprice ceiling of $1000 would lead to 20,000 apartments being rented in Bloomington.. a price ceiling of $1000 would lead toa deadweight loss, but would increase consumer surplus to $7,500,000. C. aprice floor of $1500 would lead to a shortage of 10,000 units in Bloomington but would raise producer surplus from to $7,500,000. aprice floor of $1500 would lead to total surplus of $10,000,000 and 10,000 total apartments being rented. @ both more than one of the above are correct. Pe fee Cal ng = S veply F. none of the above are correct ol Peoree Fieer - Demon Aug te checS 14, Suppose the market for apartments in Bloomington (as shown in the graph above) is perfectly competitive. Burnham rentals, an individual firm in the market, is currently operating with economic losses. Which of the following justifications for remaining in the market would be acceptable to economists? . Burnham rentals plans a price increase beginning in August 2009. Living in apartments is being seen is more and more “cool” by college students at TU. ~ An upcoming ad campaign will tout Burnham properties as superior to the competition. The weak economy will soon force other renters to exit the industry. L E. All of the above are acceptable justifications, ache ®only B and D are acceptable justifications. S G. None of the above are acceptable justifications.