FINAL EXAMINATION Version A ECON 200 FALL 2002 STUDENT S NAME STUDENT S SOCIAL SECURITY NUMBER PLEASE CIRCLE YOUR TEACHING ASSISTANT S NAME Irani Arraiz Andri Chassamboulli Janet Hao Jeffrey Lewis Oleksandr Shepotilo Sarah Bohn Yan Chen Scott Imberman Ying Li Juan Trevino Alexandre Castro Naomi Griffin Anthony Leegwater Mingfeng Lin Your signature DAY AND TIME YOUR SECTION MEETS ENTER THE NUMBER 123456 UNDER SPECIAL CODES ON THE SCANTRON SHEET BEFORE YOU BEGIN PLEASE MAKE SURE THAT THIS EXAMINATION HAS BEEN DUPLICATED AND COLLATED CORRECTLY THERE SHOULD BE 40 MULTIPLE CHOICE QUESTIONS AND FIVE PROBLEMS THE EXAM HAS XXXXX PAGES INCLUDING THIS COVER PAGE ANSWER THE MULTIPLE CHOICE QUESTIONS ON THE SCANTRON SHEET ANSWER THE PROBLEMS IN THIS EXAMINATION BE SURE TO FILL IN YOUR NAME LAST NAME FIRST AT THE TOP OF THE SCANTRON FILL IN YOUR SOCIAL SECURITY NUMBER UNDER IDENTIFICATION NUMBER ON THE SCANTRON SHEET WRITE YOUR TA S NAME IN THE UPPER RIGHT HAND CORNER OF YOUR SCANTRON SHEET MULTIPLE CHOICE PROBLEM 1 PROBLEM 2 PROBLEM 3 PROBLEM 4 PROBLEM 5 TOTAL Problem 1 12 points A and B are going to play a game where they move sequentially A will move first When it is A s turn he will say either North or South when it is B s turn she will say either Up or Down The payoffs in this game are as follows A s first turn If A says North the game ends and A earns 0 and B earns 1 If A says South the game continues and it is now B s turn B s first turn If B says Down the game ends and A earns 5 and B earns 1 If B says Up the game continues and it is now A s turn A s second turn If A says North the game ends and A earns 2 and B earns 4 If A says South the game continues and it is now B s turn B s second turn If B says Down the game ends and A earns 3 and B earns 2 If B says Up the game ends and A earns 1 and B earns 0 a Draw the game tree for this game b Use backward induction to find each player s best strategy and each player s payoff Use your game tree to explain how you reached your answers Defend your answer carefully Problem 2 12 points Farmer Dan raises soybeans and will earn a profit of 200 if the rainfall is above average in 2003 but will earn only 60 if the rainfall is at or below average Winemaker Jacques who lives next to Farmer Dan does better in dry years His winery profits are 20 if the rainfall is above average but are 120 if the rainfall is at or below average The almanac predicts that there is a 25 chance that 2003 will bring above average rainfall and a 75 chance that it will have at or below average rainfall Defend all of your answers carefully Show all of your calculations a What is the expected value of Farmer Dan s profits What is the expected value of Winemaker Jacques s profits b If Farmer Dan and Winemaker Jacques decide to consolidate their operations and divide the total profits evenly what is the expected value of each person s profit c If Farmer Dan is risk averse would he prefer to operate on his own or to consolidate with Winemaker Jacques Why Problem 3 14 points Consider a monopolist who faces a demand curve that is neither perfectly elastic nor perfectly inelastic and who has an upward sloping marginal cost curve Present a single diagram for this question a Draw a diagram that includes the monopolist s demand curve marginal cost curve and marginal revenue curve b In your diagram label the profit maximizing level of output this monopolist would produce QM and the profit maximizing price the monopolist would charge PM c In your diagram identify the equilibrium price under perfect competition PC and the equilibrium quantity under perfect competition QM d Clearly label your diagram and complete the following table Perfect Competition Consumer surplus Producer surplus Total surplus Monopoly Change Problem 4 18 points a The short run total costs for a typical dairy farmer are shown in the first two columns in the table below Quantity in gallons 0 1 2 3 4 5 6 Total Cost 10 11 13 16 20 25 31 Total Fixed Cost Total Variable Cost Marginal Cost b Use the table above to complete the firm s short run supply schedule below Price per gallon 1 2 3 4 5 6 Quantity Supplied in gallons c Suppose there are 50 dairy farmers and they all act like perfect competitors Suppose further that the market demand for milk is shown in the first two columns in the table below Complete the third column of that table Price per gallon 1 2 3 4 5 6 Market Demand in gallons 450 400 350 300 250 200 Market Supply in gallons d Find the equilibrium price and quantity in this market Defend your answer carefully Problem 5 points Suppose the equilibrium price of some good rises and at the same time the equilibrium quantity falls Assume that the laws of supply and demand hold a Is it possible that this increase in the equilibrium price and decrease in equilibrium quantity are a result of an increase in income if this good is an inferior good b Is it possible that this increase in the equilibrium price and decrease in equilibrium quantity are a result of i the discovery of a new technology that allows firms to produce this good using fewer raw materials and ii an increase in the price of a complement c Is it possible that this increase in the equilibrium price and decrease in equilibrium quantity are a result of i an increase in the price of raw materials used in the production of this good and ii the publication of a new government study that shows that people who consume this good are more likely to suffer from heart disease In each case present and discuss a diagram as part of you answer Multiple Choice Each Question Is Worth 1 8 Points 1 A market is competitive if i each buyer is small compared to the market ii each seller is small compared to the market iii firms have the ability to determine the price their own product a i and ii only b i and iii only c ii and iii only d i ii and iii The graph shown depicts the short run costs for a firm in a competitive market Use the graph to answer the following two questions 2 When price is equal to P1 the firm will produce units of output a Q1 b Q2 c Q3 d Q4 e zero 3 When price is equal to P4 the firm will produce units of output a Q1 b Q2 c Q3 d Q4 e zero 4 Consider a perfectly competitive industry where all firms and potential firms in a market have the same …
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