Economics 101 Professor Wallace December 19, 2003 Final Exam Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not have one you will need to borrow one from Professor Wallace or one of the TAs. Before you may begin the exam everyone must take the following steps. a) Use the #2 lead pencil to fill in your name on the answer sheet. b) Fill in your student ID number on the answer sheet. c) Fill in your exam version (printed on the upper right corner) in column B of the space allotted for “Special Codes” on the answer sheet. d) Fill in your TA code in column A of the space allotted for ``Special Codes” on the answer sheet. 1. If your TA is Sudip Gupta then your TA code is 1. 2. If your TA is Jiman Im then your TA code is 2. 3. If your TA is Yutaka Kagami then your TA code is 3. 4. If your TA is Jiyoung Kim then your TA code is 4. 5. If your TA is Matthew Lindsey then your TA code is 5.Version 1 1. The marginal revenue product equals a. total revenue divided by total product (output). b. marginal revenue divided by marginal product. c. total revenue multiplied by total product (output). d. marginal revenue multiplied by marginal product. Quantity of labor (workers) Total revenue (dollars) Total product (units of output) 0 0 0 1 20 5 2 36 9 3 48 12 4 56 14 5 60 15 2. In the table above, if the wage rate is $8.00 per hour, the profit-maximizing number of workers is a. 1. b. 2. c. 4. d. 5. 3. A firm in a competitive labor market will hire labor until the marginal revenue product of labor equals a. the firm’s marginal revenue. b. the firm’s marginal cost. c. the firm’s average cost. d. the wage rate. 4. The present value of $100 to be received in the year 2008 is a. less than the present value of $100 to be received in 2009. b. greater than the present value of $100 to be received in 2009. c. the same as the present value of $100 to be received in 2009. d. greater than the present value of $100 to be received in 2009 if the interest rate in 2009 exceeds that in 2008; otherwise, it is zero. 1Version 1 5. A fall in the interest rate a. shifts a firm’s demand curve for capital leftward. b. shifts a firm’s demand curve for capital rightward. c. results in a movement to the right and downward along a firm’s demand curve for capital. d. results in a movement to the left and upward along a firm’s demand curve for capital. 6. A monopoly is best defined as a. an industry with only one firm and in which the good produced has no close substitutes. b. a firm that purchases its resources from only one supplier. c. an industry that sells all its output to one buyer. d. a firm that sells all its output to one buyer. 2Version 1 Use the following information to solve the next 4 questions about a monopolistic market. The demand for a good is given by: P = 10 – Q. A monopolist’s costs are given by: TC = 2 + 4Q. 7. Suppose a single price monopolist controls the market for this good. The monopolist’s optimal price and quantity choice is: a. PM = $7, QM = 3. b. PM = $6, QM = 4 c. PM = $5, QM = 5. d. PM = $4, QM = 6. 8. Using your answer from the previous question, the single price monopolist’s profit is: a. $3. b. $7. c. $10. d. $13. 9. The deadweight loss from the monopoly is: a. $6. b. $4.5 c. $8. d. $12. 10. Now suppose that the market for this good is controlled by a perfectly price discriminating monopolist. What are the perfectly price discriminating monopolist’s profits? a. $14. b. $16. c. $18. d. $20 3Version 1 11. A major difference between a single-price monopolist and a perfectly competitive firm is that a. the monopolist can maximize profit by setting the price of the output with marginal cost. b. the monopolist can always increase its profits by increasing the price of its output. c. the monopolist’s marginal revenue is less than price. d. the monopolist is guaranteed to earn an economic profit. 12. If a monopolist lowers its price and its demand is inelastic, then its a. total revenue increases. b. total revenue decreases. c. total revenue does not change. d. total revenue is negative. 13. Which of the following is true for BOTH monopoly and perfect competition? a. The demand for the individual firm’s product is perfectly elastic. b. Economic profits can be sustained indefinitely over time. c. Marginal revenue is horizontal at the industry equilibrium price. d. Profits are maximized by producing at the level of output where marginal revenue is equal to marginal cost. 4Version 1 Price and costs (dollars per unit)Quantity (thousands of units per week)03145261020304050DabjhfgmdceMCMR 14. In the above figure, a single-price monopolist charges a price of ___ , resulting in total revenue equal to area ____. a. $10; hbcd. b. $20; fjem. c. $10; fbcg. d. $30; fbcg. 15. In the above figure, if the single-price monopolist charges a price that maximizes its profits, consumer surplus is a. area hacd. b. area bac. c. area jae. d. area jbce. 5Version 1 Price and costs (dollars per unit)Quantity (thousands of units per year)0DLKHEDBACFIJGMCMR 16. Which area(s) in the above figure indicates producer surplus at the price and quantity that would be set by a single-price monopoly? a. C + D b. C + D + E c. C + D + F + G d. C + D + F + G + I 17. In the above figure, if the market was a single-price monopoly rather than perfectly competitive, which area shows the transfer of surplus from consumers to producers as a result of the monopoly? a. A + B b. C + D c. C + D + E d. E + H 18. Price discrimination by a monopolist is less effective if a. the good can be resold. b. the good has no substitutes. c. the monopolist can identify buyers by willingness to pay. d. the good cannot be resold. 6Version 1 Price (dollars per inhaler)Quantity (in millions)041245MCMR3D8121620678910 19. Prime Pharmaceuticals has developed a new asthma medicine, for which they have a patent. An inhaler can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. If Prime Pharmaceuticals could practice perfect price discrimination, then which of the following is true? a. It would produce and sell 16 million inhalers. b. Inhalers would
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