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This 0 page Class Notes was uploaded by Solon Dooley on Sunday November 1, 2015. The Class Notes belongs to ECON at Indiana University taught by Staff in Fall. Since its upload, it has received 15 views. For similar materials see /class/233475/econ-indiana-university in Economcs at Indiana University.
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Date Created: 11/01/15
BLC Spring 2010 E201 Final Exam Review Monday Packet 0 1 Fred and Alma are motor mechanics It takes W3 to replace a clutch and 6 hours to replace a set of brakes It takes Fred 4 hours 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 1 brake replacement while Fred has an absolute advantage in brake replacement if B neither brake replacement nor clutch replacement Ll C both brake replacement and clutch replacement n D brake replacement and neither Ahna nor Fred has a comparative advantage in clutch g replacement a E clutch replacement while Fred has a comparative advantage in brake replacement 1 l q p I 2 If a perfectly competitive industry were initially in a longrun equilibrium and experiences a permanent increase in demand we would expect to see initially a higher market price emerge and rms making an economic Eventually some rms will and the price will until the market is back in a longrun equilibrium A loss exit the industry increase MoknsC l ct Her logeage n ch Wth d gt pro t enter into the industry decrease C pro t exit the industry decrease o D pro t exit the industry increase E loss enter into the industry increase She of Pizza hour A Variable Costs C Z 6 b I 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 J enny s Pizza would maximize her pro ts by producing pizzas per hour You should assume that Jenny s Pizza can only produce and sell whole pizzas 5T9 B TVC L f 39 f 9 H M la he w owgt UlgMNi I 4 Suppose a country is initially operating at a point that is ef cient 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 3 production broken into consumption and capital goods which of the following would happen 29 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 Re Sour C O S Tack no l Potato Chips A3qB 900 600 C 300 E D 500 650 750 Pretzels 5 In the production possibilities frontier above what is the opportunity cost to society of the movement from point D Q point B A 250 potato chips B 600 potato chips 50 pretzels 750 pretzels E 500 pretzels I Market Price per Cost yzb H bfo 12039 lzo 40 80 120 160 200 240 280 320 360 Q millions of reams 6 The gure above depicts the market for paper In the process of producing paper there is a constant marginal external cost of 6 due to water pollution In the paper market society would incur a deadweight loss of A 720 million B 240 million C 50 million D 0 120 million Price I Quantity w r 7 Consider a monopoly rm with the above cost curves and market demand that is currently producing at a quantity where its average total cost equals its marginal cost If the rm moves to an output level where its marginal costs equal its marginal revenue the lm s economic pro t would and deadweight loss would A decrease decrease B increase decrease C remain unchanged remain unchanged D decrease increase increase increase 8 The state of Indiana has started the construction of a new terrain portion of 169 from Indianapolis to Evansville through the southwest portion of the state The estimated economic bene t of the project once its completed is 4 million When the project began in early June 2008 the estimated construction costs were 26 million The state has already spent 18 million on permits studies land acquisition and construction of the rst 10 miles of the proposed route Recently the estimated completion cost of the road has been upwardly revised to 3 2 million What should the state of Indiana do A Because the remaining cost of the project 32 million is less than the projected bene t they should continue with construction B Because they have already spent 18 million they should continue with construction C Because projected bene ts are less than projected costs they should stop construction D Because it would be embarrassing to have a highway dead end in a corn eld and indicate clear incompetence on the part of state of cials they should cover continue with constructlon 4 per bushel tMC ATC AVC 4s 3 N 3 Max g d Z 2 fcdeZD NC MVC See om 3 l L V 400 50 100 150 200 250 300 350 Quantity thousands of bushels per year 9 The gure 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 300 per bushel Then the market demand for corn decreases and in the short run the price falls to 250 per bushel Corn production is a constantcost industry In the new equilibrium the farm P 7 Ave be A incurs an economic loss and shuts down incurs an economic loss and continues to operate C receives zero economic pro t 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 A has pro ts of approximately 500000 1 o o O 0 o O has pro ts of approximately 400000 R p X Q 0000 C has pro ts of2000000 500 X qo Tc H New D has zero pro ts 00 000 Ll E has losses i 00 x Ric P Tina s Crafts A M C ATC AVC 40 50 70 Quantity per week 11 Tina s average xed cost at a production level of 50 units is rounded to the nearest whole number 12 A 0 bfannot be determined average xed cost is not on the graph 5 D 2 J P3 1 C E 11 0139 L i 392 L I l I 1 X Christmas Average V o 3 Trees Variable per year Cost in dollars 100000 210 1 10000 250 120000 300 130000 370 Bill is a pro t maximizing Christmas tree farmer in a perfectly competitive market He is currently planning on producing 110000 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 110000 trees to 120000 trees A 275 850 C 050 D 276 B 750 7 PA Bloomington Apartments 0 month S 500 05q 2000 1500 1000 500 D 2000 05q Q 13 Which of the following is true about the market for apartments in Bloomington as Illustrated above o a price ceiling of 1 000 would lead to 20000 apartments being rented in Bloomington a price ceiling of 1000 would lead to a deadweight loss but would increase consumer surplus to 7500000 C a price oor of 1500 would lead to a shortage of 10000 units in Bloomington but would raise producer surplus from to 7500000 a price oor of 1500 would lead to total smlus of 10000000 and 10000 total apartments being rented both more than one of the above are correct P 139 Ce C a39 l 30 2 3 we 9 F none of the above are correct J CQQ aOdr 7 Demon Pga h cbccb 14 Suppose the market for apartments in Bloomington as shown in the graph above is perfectly competitive Burnham rentals an individual rm in the market is currently operating with economic losses Which of the following justi cations for remaining in the market would be acceptable to economists XBurnham rentals plans a price increase beginning in August 2009 Living in apartments is being seen is more and more cool by college students at IU 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 4L E All of the above are acceptable justi cations Mame Only B and D are acceptable justi cations 3 G None of the above are acceptable justi cations 70 65 50 40 35 Comcast Digital Cable MC ATC V Demand MR 33 5 40 70 Quantity in thousar s 15 The above gure depicts the market for digital cable TV in Bloomington Comcast is a single price monopolist If Comcast maximizes pro ts we would expect them to earn pro ts of A 500000 2quot B 1050000 P 875000 a D 750000 2 2 Moo E pro ts cannot be determined from this graph F Comcast has unlimited pro t potential as a monopolist 16 Suppose that Comcast could perfectly price discriminate Which of the follong statements is true A Comcast will produce 40000 units of output increasing consumer surplus B Comcast will produce 40000 units of output diminishing consumer surplus Comcast will produce 70000 units of output reducing consumer surplus to zero D Comcast will produce 70000 units of output diminishing but not eliminating consumer surplus 9 E NoneoftheabOVe OCH O g ha MGMquot MR bego ms demar QV Thingies O P A SW p vate 1 b y 4 I chloa 2 I V 100 200 300 432 5005 600 700 800 900 Q o 8 Du 17 The market for Thingies is given in the graph above Which of the following statements is true K The market equilibrium quantity will be 400 units which will produce a deadweight loss of 100 due to underproduction of the good as compared to the socially optimal amount B The market equilibrium quantity will be 400 units which will produce no deadweight loss e market equilibrium quantity will be 500 units which will produce a deadweight loss of 100 due to overproduction of the good vs the socially optimal amount The market equilibrium quantity will be 500 units which will produce no deadweight loss E The market equilibrium quantity will be 500 units which will produce a deadweight loss of 100 due to underproduction of the good vs the socially optimal amount 18 In the setting of question 17 which of the following would best internalize the extemality Mrowde a 2 per Thmgy subs1dy to suppliers of Thingies 4 A l 2 CoS F lace a P1gov1an tax of 2 on the sale of Thingles 51 Pass a law limiting the production of Thingies XAll of the above would be equally effective 00 A OD x xz P as dashcwx o demonck 00 A P l 7 woo WIND2 61050 ICKSOLzo o xso zj TRZWQ 20 39 Maz 520 quot AC2 Q19 MRHWC TCpr MR4Mlt MVTEP MR S Maximized O 3 E Shw39cxowm P Rag Hum ATC Econom Loss TFC U3TVC Pgt 11 in rer momer 3 CURe a L P QVmequ ellmhq r EP 5 WWWG 33v Curvelt ND ecOmOmz c I085 ampcheos ii Nowadd go Pr 3o c Cm mid emcma Fncreqs e 95 quotacornctnqeosr 17 th 9060 A Song 1N whicm AHA100d Aechsgs agf pcmef
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