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CSUN ECON 310 - Exam 1 - Version D

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ECON 310 – Fall 2006 (ticket #15622) Name: __A. Key___________________ Exam 1 - Version D Multiple Choice: (circle the letter of the best response; 2 points each) 1) Paula has income of 400=I , which she devotes to consumption of 1x and 2x. Each unit of 1x costs 21=p ; each unit of 2x costs 82=p . If her income were to increase to 500=I (with prices fixed), then her budget line would a. shift outward. 2) Consider a market in which Demand is given by ppD 100000,2)(−=. If price were to increase from 10=p to 12=p , the value of Consumers’ Surplus would decrease by c. 1,800. 3) Martin consumes only two goods: =1x(bubble bath) and =2x(Passion Fruit wine coolers). Both of these goods are normal goods for him. As a result, e. More than one of the above answers is correct. 4) Which of the following is NOT one of the “three basic analytical tools” (or “three key analytical tools”) upon which nearly all microeconomic analysis relies? b. The Law of Demand. 5) A ticket to see “We Are Marshall” at the Edward’s Cinema in Valencia costs a “student” $8.50, a “senior” $7.00, and an “adult” $9.50. This is an example of e. a firm engaging in Third Degree Price Discrimination. 6) Chad’s preferences over beer and pizza are “monotonic,” “transitive,” and “convex.” If he is indifferent between )4,10(=A and )8,6(=B (that is, BA~), then e. More than one of the above answers is correct. 7) When Jimmy produces 100 units of output his Average Variable Costs are AVC=$7.75 and his Average Total Costs are ATC=$9.25. It follows that his Average Fixed Costs of producing 300 units of output b. are $0.50. 8) A perfectly competitive market is characterized by c. many buyers and many sellers. 9) The value of Indirect Utility should e. All of the above answers are correct. For questions 10 and 11, consider a firm which produces output according to the production function )74(.)49(.),( KLKLF =. 10) This firm wants to produce 0>q units as inexpensively as possible. In the Long Run, e. More than one of the above answers is correct.11) This production process d. exhibits Increasing Returns to Scale. 12) Which of the following inequalities describes the “competitive budget set” (or “set of affordable bundles”) for a consumer? b. Ixpxp ≤+2211. 13) An Exogenous Variable a. is one whose value is taken as given when analyzing an economic system. 14) The price of bananas decreases from $0.54 per pound to $0.42 per pound. ___________ provides a “measure of how much money a consumer would be willing to give up after this price decrease in order to be exactly as well off as she was before the price decrease (with her actual income).” b. Compensating Variation (in income). 15) Consider a profit maximizing firm operating in a competitive market in the short run. For this firm, the minimum value of Average Variable Costs is 50.47min=AVC and the minimum value of Average Total Costs is 95.54min=ATC . If the current price per unit of output in this market is 20.56=p , then c. the maximum profit of the firm is positive. 16) As the price of DVDs decreases from $20 to $16, Scott’s Compensating Variation (in income) is 95.18$=CV and his Equivalent Variation (in income) is 17.24$=EV . From this information alone, we can infer that e. More than one of the above answers is correct. 17) Tracyann makes telephones. She wants to produce q units of output as inexpensively as possible. In the Short Run, b. her costs of producing a particular level of output are greater than the Long Run costs of producing the same level of output. 18) The income elasticity of demand for “Macaroni and Cheese” is 27.0−=Iε. If income increases (with all other factors fixed), then in the market for “Macaroni and Cheese” b. equilibrium price and quantity must both decrease. 19) Microeconomics d. examines the behavior of all types of individual decision makers, including consumers, households, managers, and firms. 20) Under current market conditions the Price Elasticity of Demand for Antelope Sausage is 78.0=pε. From this value we can infer that b. total consumer expenditures could be increased by increasing price. 21) Consider a market in which both the Law of Demand and Law of Supply hold, and further, 200,1)10( =D and 800)10(=S . It must be that: a. there is “excess demand” at a price of 8=p .22) The “Objective Function” in a “Constrained Optimization Problem” refers to d. the relationship that the decision maker wants to maximize or minimize. 23) The “Marginal Product of Labor” a. provides a measure of how output changes as more labor is hired (with the level of capital fixed). For questions 24 through 26, consider the following scenario: Qihong is a monopolist in a market in which qqPD20115)( −= . If he is not able to engage in Price Discrimination, then his marginal revenue is given by qqMR10115)(−=. His total costs of production are given by 8005)( += qqTC (from here it follows that 5)(=qMC ). 24) If Qihong is not able to engage in Price Discrimination, then he maximizes profit by charging a per unit price of b. 10*=p . 25) If Qihong is not able to engage in Price Discrimination, then he d. All of the above answers are correct. 26) If able to engage in Perfect (“First Degree”) Price Discrimination, then e. More than one of the above answers is correct. 27) Consider a firm operating in a competitive market with 000,420)(221++= qqqTC (for which qqMC += 20)( ). If the per unit price of output is 100=p , then this firm b. will want to produce 80*=q units of output in the short run. 28) In the Cournot model of Oligopoly, firms compete by b. simultaneously choosing levels of output. 29) The Cross-Price Elasticity of Demand for RC Cola with respect to the Price of Pepsi is (.52). This value implies that: c. A decrease in the price of Pepsi will lead to a decrease in demand for RC Cola. For questions 30 and 31, consider a market in which qqPD5112)(−= and qqPS52)( = . Note that without any intervention in this market, 20*=q units would be traded, each at a price of 8*=p . 30) Imposing a per unit tax of 3=T on sellers in this market will c. reduce the quantity traded to 15=Tq units. 31) If instead of imposing a per unit tax of 3=T on sellers, a per unit tax of 3=T is imposed on buyers, then e.


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