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 Sarah Bohn Alexandre Castro Andri Chassamboulli, Yan Chen Naomi Griffin, Janet Hao Scott Imberman Anthony Leegwater, Jeffrey Lewis Ying Li Mingfeng Lin Oleksandr Shepotilo Juan Trevino 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 Monopoly Change Consumer surplus Producer surplus Total surplusProblem 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) Total Cost Total Fixed Cost Total Variable Cost Marginal Cost 0 $10 -- 1 11 2 13 3 16 4 20 5 25 6 31 (b) Use the table above to complete the firm’s short run supply schedule below: Price per gallon Quantity Supplied (in gallons) $1 $2 $3 $4 $5 $6 (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 Market Demand (in gallons) Market Supply (in gallons) $1 450 $2 400 $3 350 $4 300 $5 250 $6 200 (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)
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