The following equations will be provided for you Exam 2 Practice ECON102 Instructor Dr Dave Brown 1 Fill out this table Q TFC TVC TC AFC AVC ATC MC 0 1 2 3 4 5 6 0 7 20 100 100 7 107 7 60 13 100 145 33 33 15 48 33 25 88 188 25 22 155 255 20 51 352 16 67 42 58 67 97 2 Peter is the manager of Waffle Shop a restaurant that serves breakfast Suppose the price of syrup increases Syrup is an input used in each output unit of breakfast you produce Thus it is associated with variable and marginal costs What happens to each of the following ceteris paribus You must write increase decrease or no change Total Variable Costs Total Fixed Costs Profits Marginal Costs Average Fixed Costs ECON102 Instructor Dr Dave Brown Elasticity 3 At a price of P1 15 Casey consumes Q1 8 pizzas per week When the price of pizza increased to P2 20 she reduced her consumption to Q2 4 pizzas per week Calculate Casey s price elasticity of demand for pizza Is it elastic inelastic or unit elastic 4 Suppose the price of cigarettes increases by 80 and in response firms produce 25 more cigarettes this year What is the supply elasticity of cigarettes 5 Suppose JoAnn s income increases by 50 and she decides to purchase 100 more salmon What is JoAnn s income elasticity for salmon Is salmon normal or inferior for her If salmon is a normal good is it a necessity or a luxury 6 The price of pork increases by 30 Because of this Mark decides to buy 30 more chicken What is Mark s cross price elasticity of chicken for pork Does Mark consider these goods to be substitutes or complements oldoldnew ECON102 Instructor Dr Dave Brown 7 Name a couple of reasons why healthcare is getting more expensive 8 Explain moral hazard and adverse selection in health care 9 Economically analyze the normative statement Everyone should be given free health care 10 See the two axes below On the left graph draw a relatively elastic demand curve On the right graph draw a relatively inelastic demand curve Label all axes and curves 11 List an example of a good with high demand elasticity and give a reason why you think the good has a very elastic price elasticity of demand ECON102 Instructor Dr Dave Brown 12 Graph the following demand function Be careful graphing Label the value of the vertical and horizontal intercepts Q 2000 0 5P Use point slope elasticity formula Point elasticity a Find the value of the first term in the point elasticity equation b Find the elasticity at the points where P 1 000 P 2 000 and P 2 400 Draw this on the graph c Over what price range is the demand elastic Over what price range is the demand inelastic QPPQ PQ ECON102 Instructor Dr Dave Brown 13 Explain the relationship between total utility TU and marginal utility MU 14 Could marginal utility MU ever be negative If so what are some situations that could cause this What can we say about negative MU and rationality 15 Income Elasticity Suppose the price of a pastry cake is 4 When Maxwell s income was 2000 per month his monthly demand for pastry cakes was Q 16 2P When Maxwell got a pay raise and began to earn 4000 per month his demand shifted to Q 40 2P Given this information find Maxwell s income elasticity for pastry cakes Show work Hint You ll first have to find the two quantities ECON102 Instructor Dr Dave Brown 16 Even though we still assume people are rational why might we end up making choices that do not maximize our well being 17 Intuitively explain the sunk cost fallacy What are the general results of this Give an example of someone considering sunk costs in their decision making 18 Intuitively explain loss aversion For a decision making person is the result of loss aversion 19 Find the expected value of these two games Game A 75 chance to win 60 and a 25 chance to win 200 Game B 90 chance to win 70 9 chance to win 200 and 1 chance to win 500 ECON102 Instructor Dr Dave Brown 1 Suppose input costs decrease What would happen to the firm s costs curves Multiple Choice Practice A The cost curves would shift up B The cost curves would shift down C The cost curves would get steeper D There would be no change to the cost curves 2 The standard theory of the firm used by economists is based on the following two key assumptions A Firms seek to become as large as possible and they seek to maximize total revenue B Each firm has a highly diversified product and this leads to profit maximization C Firms seek to maximize profits and the firm is a single decision making unit D Firms seek to maximize revenues and to minimize capital usage 3 Brian just consumed his 5th cinnamon roll which gave him a marginal utility of 8 utils What can we say about the marginal utility in utils Brian will receive if he eats a 6th cinnamon roll A It will be less than 8 B It will be more than 8 C It will be equal to 8 D It could be either of the above we need more information 4 If the total utility derived from consuming three oysters was 40 utils and the total utility derived from consuming four oysters was 52 utils what was the marginal utility derived from the consumption of the fourth oyster 5 Chad believes It s a Wonderful Life is the greatest movie of all time He only talk about the movie with people who agree with him and doesn t speak with people who have opinions in which another movie is better This is an example of A 92 utils B 52 utils C 12 utils D It is impossible to determine A Status quo bias B Confirmation bias C Post hoc ergo propter hoc D Framing effect 6 A firm trying to maximize its profits in the long run should A maximize the marginal product of all factors of production B charge the highest price C minimize the cost of producing the level of production it chooses D charge the lowest price possible given the minimum possible cost E produce the least amount of output possible so it won t have any costs ECON102 Instructor Dr Dave Brown 7 In economics how long is the long run A More than 12 months B 24 months or longer C 5 years or more D Whatever time it takes a firm to vary all inputs 8 Production functions indicate the relationship between A factor costs and output prices B factor inputs and the quantity of output C the value of inputs and average costs D factor inputs and factor prices 9 Changes in production functions are associated with changes in A the level of output B demand C the levels of costs D technology 10 Quagmire …