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Econ 1110 - INTRODUCTORY MICROECONOMICSMAKUP PRELIM #2 – Wissink - S2018 – April 13________________________________________ ____________________________________Your LAST (FAMILY) NAME Your First (given) nameYour NetId:_________________ Your Student Number:________________________________Instructions and Exam Taking Policy:There are two sections in this exam. Answer all questions.Part I: 14 multiple choice/fill in the blank questions @ 3.5 points eachPart II: 2 problems @ 25 points and 26 points respectivelyTotal Points = 100, Total Time = 90 minutes.NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have, raise your hand and wait for the proctor to come to you. Only one person can be out of the examination room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR “APPS”.NO GRAPHING CALCULATORS.NO BOOKS. NO NOTES. NO HELP SHEETS.NO TALKING TO EACH OTHER.Check the TA’s name for the section you regularly attend (that is, where you will pick up your prelim): One more time, please…_____________________________________ _________________________________Your LAST (FAMILY) NAME Your First (given) nameYour NetId:_________________ Your Student Number:________________________________Max PointsYour ScorePart I49 pointsPart IIQ125 pointsQ226 pointsTotal Score left0Part I: Multiple Choice and Fill In The Blank Questions. Do them ALL.Circle the letter for your answer or fill in the answer in the blank provided.020000Part I: Multiple Choice and Fill In The Blank Questions. Do them ALL.Circle the letter for your answer or fill in the answer in the blank provided.. The price of butter goes up by 20%, causing the quantity demanded of margarine to go up by 15%.? Which one of the following is true?Butter and margarine are complementary goods.The own-price elasticity of butter is 0.75.The cross-price elasticity of butter with respect to margarine is negative.The cross-price elasticity of margarine with respect to butter is zero.The cross-price elasticity of margarine with respect to butter is positive.. Suppose you work for a mobile phone company in New York City. There are two types of customers of your phones: bankers and baristas. The local economy has been doing well over the last year and incomes have risen by 6% for bankers and by 2% for baristas. Consumer data shows that during this period quantity demanded by bankers increased by 3% as did quantity demanded by baristas. Based on this information, we can conclude thatphones are an inferior good for bankers and a luxury for baristas.phones are an inferior good for bankers and a necessity for baristas.phones are a necessity for bankers and a luxury for baristas.phones are a luxury for both groups.phones are a necessity for bankers and an inferior good for baristas.. Bob and Bill have the following (inverse) demand curves for cups coffee (for the entire year): PBob = 100 – 5Q andPBill = 100 – QGimme Coffee wants to know what total demand for these two consumers combined is. You tell them it isP = 200 – 4QP = 200 – 6QQ = 120 – 6PQ = 120 – 1.2PQ = 200 – 6P34213807620. Sarah tells us about her unusual indifference curves over wine and beer. Two of her indifference curves are illustrated in the graph. She considers wine and beer to be goods (not bads). Apparently, Sarah violates which axiom (or assumption) we placed on very nicely behaved preferences?Quantity of ice-cream (in pounds)Marginal utility of ice-cream (in utils)?Quantity of pizza (in slices)Marginal utility of pizza (in utils)00180110027026033033042042451052065616. The table above shows Maria’s marginal utilities at various quantities for pounds of ice-cream and pizza slices. Assume the utility that Maria gets from ice-cream is independent of the utility derived from pizzas and that Maria spends her full budget on these two goods. The current price of ice-cream is $2/pound and the price of pizza is $4/slice. What is Maria’s optimal bundle of ice-cream and pizzas if her total income for the two goods is $20?2 pounds of ice-cream and 4 slices of pizzas3 pounds of ice-cream and 4 slices of pizzas4 pounds of ice-cream and 5 slices of pizzas4 pounds of ice-cream and 3 slices of pizzas6 pounds of ice-cream and 1 slice of pizza. Maurice and Ed both decide to become tomato farmers, a perfectly competitive industry. They use identical technologies, have identical production functions, and hire labor at identical prices and amounts. The only difference is that Maurice knows the local machinery dealer, and is able to get his equipment - tractors and wagons (both fixed costs) - at a discount, while Ed pays the full price. Which one of the following is false?Ed's average total costs are greater than Maurice's at all levels of production.Maurice will earn higher economic profitsGiven the same market price, Maurice will supply more than Ed.Ed and Maurice are price takers.Maurice earns more accounting profit than Ed does.. Angela has linear indifference curves with slope = -1 over consumption bundles of pretzels and beer. Last year, when the price of pretzels was $2/unit and the price of a pint of beer was $1, you observed that her utility maximizing bundle was to consume 10 pints of beer and no pretzels. This year, a bad hop harvest raises the price of beer to $2.50/pint. Which one of the following statements is true, given this is the only change in her situation?Angela will consume 5 pretzels and no beer.Angela will consume 4 pints of beer and no pretzels.Angela will now divide her income equally between pretzels and beer.For Angela beer and pretzels are perfect complements.We can’t tell what happens to Angela’s optimal bundle but we know she’ll be worse off.31089603492500. While studying for exams, Zachary is only able to buy coffee and donuts to eat. He spends his entire income on these two goods. If the Cornell Store started to sell coffee at lower prices during exam period, ceteris paribus, which one of the graphs best shows what would happen to Zachary’s budget constraint?A. Figure IB. Figure IIC. Figure IIID. Figure IVE. None of the Above.2398395000. Carl consumes pens and pencils. The figure shows a Slutsky decomposition for a rise in the price of pens. The initial budget line and indifference curve are labeled BL1 and IC1. The final budget line and indifference curve are labeled BL3 and IC3. Which one of the following statements is false?The change in behavior going from bundle 2 to 3 shows the income effect.The change in behavior going from bundle 1 to 2 shows the substitution effect.Pencils are a normal good and pens are an inferior good.Based on total effect, pens and pencils are complements in consumption.Carl’s pen demand will satisfy the law of demand.. Assume all fixed costs are sunk. The short run supply curve for a perfectly competitive firm isthe portion of its short run marginal cost curve that lies above its short run average total cost curve.the portion of its short run marginal cost curve that lies above its average variable cost curve.the portion of the average variable cost curve that lies above its short run marginal cost curve.the portion of its short run marginal cost curve that lies above its average fixed cost curve.the portion of its short run average total cost curve that lies above its short run marginal cost curve.. Brian makes his own beer. He currently produces 2,000 liters of beer a month using 100 units of capital and 200 hours of labor. With his current production mix the marginal product of capital is 30 liters and the marginal product of labor is 12 liters. The price of capital is $20 per unit and the price of labor is $8 per hour. To cost minimize Brian shoulduse less labor and more capital.use more labor and less capital. SEQ CHAPTER \h \r 1 SEQ CHAPTER \h \r 1use less labor only, since it is not very productive.use more capital only, since it is more productive. SEQ CHAPTER \h \r 1do nothing. SEQ CHAPTER \h \r 1. Assume marginal costs are rising at all levels of output. If profits are maximized by a firm, regardless of the structure of that firm’s market, then as long as it is profitable for the firm to operate at q>0 in the short run,output should be increased whenever marginal cost is below average total cost.output should be increased whenever marginal revenue is less than marginal cost.the firm should produce at a level where marginal cost is equal to average total cost.output should be increased whenever marginal revenue exceeds marginal cost.We do not have sufficient information to answer this question.Number of postersVariable Cost0$01$22$53$94$145$216$297$40. Rufus makes posters. The fixed costs of the business are $6.00. The variable costs of manufacturing each poster are shown in the table. Rufus cannot make fractions of a poster. If the price of posters is $6.00/unit, how many should he make?. Which one of the following statements about the standard cost curves of a perfectly competitive firm must be true?If MC > ATC, then ATC must be decreasing.If MC is increasing, then ATC must be increasing.If MC > AFC, then AFC must be increasing.At the minimum ATC, MC must equal 0.If MC = ATC, then ATC must be at a minimum.Keep going…left0Part II: Make sure you read and do ALL parts of each question. Show as much work as possible. TRY to get started on every question. Show us something. Write legibly and remember to label all graphs and axes in diagrams.020000Part II: Make sure you read and do ALL parts of each question. Show as much work as possible. TRY to get started on every question. Show us something. Write legibly and remember to label all graphs and axes in diagrams.Carlos only consumes two goods in any given month: home-cooked meals (M) and hours of skiing (S). Suppose that Carlos has $1,000 of spending money each month and does not save. The price of a home-cooked meal is $10/meal and the price of an hour of skiing is $20/hour. Carlos’s preferences are very nicely behaved. Assume that both home-cooked meals and hours of skiing can be purchased and consumed in fractional units. Consider a typical month.Graph Carlos’s budget line putting home-cooked meals on the vertical axis and hours of skiing on the horizontal axis. Label it BLO. Make sure your graph is large and that your budget line's endpoints are clearly labeled with values.Assume Carlos successfully maximizes his utility by buying 40 home-cooked meals each month. How many hours of skiing is Carlos buying?On your budget line graph, properly place Carlos's optimal bundle (O) on his utility maximizing indifference curve. Label the indifference curve ICO and label meals and skiing as Mo and So.At Carlos's current equilibrium consumption bundle, O, what is his marginal rate of substitution (MRS)? Make sure to include your unit of measurement.The ski resort that Carlos goes to decides to change its pricing structure. It decides to charge a flat entry fee of $200 a month to Carlos and then it lowers the hourly ski rate to $10/hour. In your graph draw in the new budget line and label it BLN. Make sure your budget line’s endpoints are clearly labeled with values.Will Carlos necessarily consume more hours of skiing now? Defend your position.On your graph, pick a possible option for Carlos's new optimal bundle and label it N.Is Carlos better off or worse off or equally happy under the ski resort’s new pricing strategy? Defend your position.Please start all answers on next page.Answers2. Jan is a Dutch clog maker in Zutphen who runs a clog making business in a perfectly competitive industry, with an equilibrium price of $23 per pair of clogs.Jan's variable production technology is as follows:1) He buys 2 pounds of wood from Lowes at $2/pound for each pair of clogs. 2) He hires labor at $5 an hour to shape the wood into a pair of clogs. His hired labor requirements are shown in the table. 3) He spends his own time painting windmills on each pair as reported in the table. For any of the time Jan isn't painting he can work at his uncle Klaas' tulip business where he would earn a wage rate of $20/hour.Also: Jan rents a shed from his best friend’s company, Wierenga Rental, at $1,100 per month. It is paid in full at the start of the month and is non-refundable. He also needs a license to operate which costs him $1,000 per month paid to the government of Zutphen on the 1st of each month.His equipment only lets him make clogs in increments of 200 pairs. The table shows information for a typical month.Fill in the missing cells in the cost table using the information above (use the “smaller delta” method for the marginal cost calculation).Under current market conditions, what is the profit maximizing level of output?At this level of production what is the value of Jan’s accounting profit?At this level of production what is the value of Jan’s economic profit?Are accounting profits maximized when economic profits are maximized for Jan?Now suppose it is reported that wearing clogs causes back problems, so market demand falls off. Poor Jan sees the market price fall from $23 per pair to $19.Reevaluate Jan’s profit maximizing decision with this new information. In the short run, what additional information would Jan want to consider before deciding what to do?Clogs (pairs/month)Hours of Hired LaborWorkspace use as you wishHours of Jan's own laborWorkspace use as you wishPounds of WoodWorkspace use as you wish00?0?0?20080?100?400?400240?200?800?600480?300?1200?800800?400?1600?1,0001,200?500?2000?1,2001,800?600?2400?Clogs (pairs/month)Variable CostTotal CostMarginal CostWorkspace use as you wishWorkspace use as you wishWorkspace use as you wish0??xxx???200??????400??????600??????800??????1,000??????1,200??????Answers: ................
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