NameTest Form AEconomics 1Final ExamJune 9, 2008True-False Questions: Fill in Bubble A for True, Bubble B for False.1. If the production and sale of a good imposes external costs on members of a community, thetotal profits of community members will be increased if trade in the good is banned.2. If the production of a good causes a positive externality, a competitive equilibrium in themarket for that good may be inefficient.3. If the cost of producing one more unit is lower than the price at which a monopolist is cur-rently selling its output, then the monopolist will increase its profits by selling one more unit.4. The sum of demanders’ profits and suppliers’ profits is lower under monopoly than undercompetition.5. If Person A has absolute advantage over Person B in the production of Good X, then PersonA must also have comparative advantage over Person B in the production of Good X.6. Consumer’s surplus is the difference between the number of units of a good demanded andthe number of units supplied.7. If the demand curve slopes down and the supply curve slopes up, then when the demandcurve shifts, the equilibrium price and quantity move in the same direction.8. Competitive equilibrium theory predicts that the number of transactions and the amount ofprofits for buyers and for sellers would be the same if a sales tax of $20 per unit were collectedfrom buyers as they would b e if a sales tax of $20 per unit were collected from sellers.9. A profit-maximizing firm will always want to hire the number of workers that gives it thehighest average profit per worker.Economics 1 210. In a short-run equilibrium, all firms make a positive profit.Multiple Choice Questions11. Side Hill Lie Golf Course gets regular play on weekdays (Monday through Friday) froma group of retired senior citizens. They only play on weekdays and never on the weekend(Saturday and Sunday). On the weekend, Side Hill gets play from residents of the communitywho have full-time jobs during the week. They only play on the Saturday and Sunday andnever during the rest of the week. If Side Hill charges $15 a round, 100 golfers will demand toplay on an average weekday, and 250 golfers will demand to play on an average Saturday orSunday. If it charges $20 per round, 80 will demand to play on an average weekday, and 150on an average Saturday or Sunday. If it charges $25 a round, 70 will demand to play on anaverage weekday, and 100 on an average Saturday or Sunday. Side Hill incurs a cost of $5 pergolfer per day. Suppose Side Hill must charge the same price on the weekend as during theweek. If Side Hill wishes to maximize its profits, what price should it charge? (Rememberthat a week almost always has 5 weekdays, one Saturday, and one Sunday.)(a) $15(b) $20(c) $2512. Suppose that the demand for and cost of golf at Side Hill Lie Golf Course is exactly asdepicted in the previous question. But, now suppose that the golf course can charge a priceon the weekend (Saturday and Sunday) that is different that the price it charges during theweek (Monday through Friday). If Side Hill wishes to maximize its profits, what prices shouldit charge?(a) $25 on the weekend and $25 during the week.(b) $20 on the weekend and $20 during the week.(c) $25 on the weekend and $15 during the week.(d) $15 on the weekend and $25 during the week.(e) $25 on the weekend and $20 during the week.13. A monopolist is currently selling 10 units of its product at $50 per unit. If it cuts its priceto $46, it will be able to sell 11 units. What is the firm’s marginal revenue from selling its11th unit?(a) $50(b) $6(c) $46(d) $4(e) $16Final Exam 314. Clearview, Texas, has 10 plants that generate electricity. Each plant can generate onemegawatt. For 3 of the plants, the cost of generating electricity is $10 per hour. For 5of the plants, that cost is $13 per hour. For 2 of the plants, the cost is $17 per hour. Thedemand curve for electricity is perfectly elastic at a price of $19 per megawatt hour. Whileoperating, each plant emits one pound per hour of sulfur dioxide into Clearview’s air. In anattempt to reduce this air pollution, Clearview has instituted a system of marketable pollu-tion permits. A permit allows a power plant to emit one pound of sulphur dioxide per hour.Clearview has issued 7 of these permits. Power plants may buy and sell the permits. Whatis the competitive equilibrium price of a permit?(a) $9(b) $11(c) $6(d) $7(e) $215. After Clearview’s plan described in the previous question has been implemented and pol-lution permits have been freely traded, which generating plants will continue to operate inClearview?(a) Both of the plants with a $17 cost, 4 of the plants with a $13 cost, and none of the plants witha $10 cost.(b) All of the plants with a $10 cost, 3 of the plants with a $13 cost, and none of the plants with a$17 cost.(c) Two of the plants with a $10 cost, 2 of the plants with a $13 cost, and both of the plants witha $17 cost.(d) All of the plants with a $17 cost and all of the plants with a $13 cost.16. In producing two goods (one with an external benefit and the other with an external cost),an unregulated competitive market would produce(a) too much of both goods.(b) too little of both goods.(c) too much of the good with the external benefit, and too little of the good with the externalcost.(d) too little of the goo d with the external benefit, and too much of the good with the externalcost.Economics 1 417. Robinson Crusoe lives alone on a tropical island. He spends 8 hours per day gathering co-conuts or catching fish. For every hour that he spends fishing, he catches 1 fish. For everyhour that he spends gathering coconuts, he gets 2 coconuts. Where F is the number of fish hecatches per day, and C is the number of coconuts he gathers per day, Robinson’s productionpossibility frontier can be describ ed by(a) a line with the equation F + (C/2) = 8.(b) a line with the equation F + 2C = 8.(c) two line segments; one extending from the point (0, 8) to the point(4, 4) and one extending fromthe point (4, 4) to the point (4, 0).(d) a line segment with the equation F = 2C + 8.(e) a line segment with the equation C = 2F .18. Suppose that Robinson Crusoe of the previous problem is regularly visited by an itineranttrader who is willing to trade fish for coconuts or coconuts for fish. The trader is willing totrade fish for coconuts or coconuts for fish at the rate of 1 fish per coconut. Robinson alwaysinsists on consuming one fish for every