This document appears to be an exam for an economics course consisting of 6 questions worth a total of 110 marks. It provides instructions for the exam, including the time allotted, question values, and options for picking up the completed exam paper. The first question is a yes/no question and writing assignment worth 18 marks. The second question concerns firm and industry behavior in perfect competition and is worth 22 marks. The third question involves a rail monopoly and is worth 28 marks. The fourth question covers the techie device market and is worth 22 marks. The fifth question is on international trade theory and is worth 12 marks. The sixth question is multiple choice worth 8 marks.
This document appears to be an exam for an economics course consisting of 6 questions worth a total of 110 marks. It provides instructions for the exam, including the time allotted, question values, and options for picking up the completed exam paper. The first question is a yes/no question and writing assignment worth 18 marks. The second question concerns firm and industry behavior in perfect competition and is worth 22 marks. The third question involves a rail monopoly and is worth 28 marks. The fourth question covers the techie device market and is worth 22 marks. The fifth question is on international trade theory and is worth 12 marks. The sixth question is multiple choice worth 8 marks.
This document appears to be an exam for an economics course consisting of 6 questions worth a total of 110 marks. It provides instructions for the exam, including the time allotted, question values, and options for picking up the completed exam paper. The first question is a yes/no question and writing assignment worth 18 marks. The second question concerns firm and industry behavior in perfect competition and is worth 22 marks. The third question involves a rail monopoly and is worth 28 marks. The fourth question covers the techie device market and is worth 22 marks. The fifth question is on international trade theory and is worth 12 marks. The sixth question is multiple choice worth 8 marks.
This document appears to be an exam for an economics course consisting of 6 questions worth a total of 110 marks. It provides instructions for the exam, including the time allotted, question values, and options for picking up the completed exam paper. The first question is a yes/no question and writing assignment worth 18 marks. The second question concerns firm and industry behavior in perfect competition and is worth 22 marks. The third question involves a rail monopoly and is worth 28 marks. The fourth question covers the techie device market and is worth 22 marks. The fifth question is on international trade theory and is worth 12 marks. The sixth question is multiple choice worth 8 marks.
T E R M T ES T #3 Monday January 28, 2013 1. Duration of Test: 90 minut 2. Thereare6 questions of unequal value: 1. Yes or No +Writing Assignment 18 2. Firm and Industry in Competition 22 3. Rail Monopoly . 28 4. TechieDeviceMarket *^"*y = 22 5. Theory of Trade 12 6. MultipleChoice 8 TOTAL 110 + Bonus 3. Show your work for fiall marks (excludingYes/No and MC questions). 4. I will pick my test paper upon Monday Feb 4 at thefollowing tutorial room: 3:00PM UC52 UC 87 4:30PM UC244 UC 85 I attend oneof thesetutorials (pick up test at lectureon Mon. Feb 4 at 6PM): Tuesday 4:00PM VC 115 K , , . . VC212 , Tuesday 6:00PM AH 107 VCI Ol Wed. 4:00PM UC 163 Thurs 4PM VC215 I don't attend tutorials* (pick up test at lectureon Mon. Feb 4 at 6 PM): * NOT E: Answers to the test provided in the tutorials only. 1. Name: First Last 2. Student No. 4._ Grade out of 110 converted to percentage; Max Grade = 100% 5.. I f you writein pen, disputesover re-marlcingarelesslikely; nevertheless, you may writein pencil i f you wish I 6. Bonus TOTAL 2 of 13 pages 1. Yes or No + Writing Assignment (18 marks) ^^^is 1.1 (8) Hereis an easy way to start this test... just circleeither Yes or No for thefollowing statements to indicatewhether you agree("Yes") or disagree("No") with each of them. Thank your kindly prof for not including apenalty for awrong answer! (Assumepositively-sloped Supply and negatively-sloped Demand as appropriate. Keep in mind theconcepts discussed in lectures.) a) I f theMarginal Product of Labour (MP l ) isfalling, then Short Run Marginal Cost (SMC) will berising. Ye s / No b) A profit-maximizing monopolist, currently producing output, will respond to an increasein Total Fixed Costs (TFC) by increasing thepriceof output in the Yes /No c) A profit-maximizingfirmwill shut down in theshort runi f its Total RevenuesjfTR) arenot at least equal to its Total Fixed Costs(TFC). Yes / No d) Hockey Superstar is very good with his hands. His handswork magic in hockey and in carpentry too. He spends most of his timepractising his hockey skills and little timeat carpentry - instead hebuys theservices of an expert carpenter to build shelves in his house. Superstar's behaviour exhibits the principleof comparativeadvantage. f 3 of 13 pages 1.2 Economists Have To Write Too! (10 marks) ^ J ij< ^ Hereisa"weestory". A small lakeisdiscovered on public lands. Onceknown, thereisfull accessby all nearby residentsto it. It quickly becomesapopular fishingspot for theexotic fish that arein it. After awhile, agovernment study showsfew exotic fish remain in thelake. Writean articlefor thelocal newspaper, usingEconomicsframework and terminology to analyze thescenario. Besureto definethetermsyou usesincemost readers, unlikeyou, havenot had the benefit of ECO 100! Includearecommendafion to government designed to restorefish stocks over timethrough natural reproduction. Writewell! , v . . . . . . . . >
^^'r^ 4 of 13 pages 2. Firm and Industry in Perfect Competition (22 marks) 2.1 (13) Consider aperfectly competitivemarket in theshort run. For each situation below, develop adiagramof therepresentativefirm and adiagramof theindustry. In the firm diagram, includeSMC, SAC (or ATC) and AVC, assuming thetraditional U-shaped cost curves. In theindustry diagram, consider only theshort run. Hereis onepieceof information to usewisely and show on both diagrams - theminimumpoint of AVC opcurs at apriceof $ 10. [Y ou can chooseto usethis in either.part a) or part b). a) Profits >0 for each firm. Show theprofits area. What ruledid must hold truei f Profits >0? b) Profits <0. Thefirm continues to operate. Show theprcmts situation on your diagram 5 of 13 pages (9) Supposethat an industry currently contains 100 firms. But therearemany morefirms which could enter i f they choseto. Eachof thefirms (thosecurrently in theindustry, and thepotential new entrants) has the sameU-shaped cost structure. . j Supposethereis apermanent increasein (negatively-sloped) industry dopand. In^thenew long run equilibrium. i) theindustry quantity will-(ificrease)f decrease / not change) ii) each firm's quantity will (increase / decrease/^tfot change)" Supposeinstead that this is an increasing cost industry. In thediagram below, for the industry only, show an initial equilibrium (Point A ), theshort run equilibrium after demand has increased (Point B) and thefinal new long run (and associated short run) equilibrium (Point C). . Industry ! 3 Y! > r \{ H 0 6 of 13 pages 3. A Rail Monopoly (28 marks) To reduce greenhouse gas emissions, the village of Otoyk bans car travel. Seeing a new business opportunity, Occident Express decides to offer a new rail service, the only fast transportation service in Otoyk, to its residents. Building therail infrastructure costs Occident $1,000,000. To operate the service, it has to employ 20 workers for every 1,000 passengers. Each worker is paid a fixed salary of $9,000 monthly. Transporting each 1,000 passengers also requires $20,000 in fuel per month. [Use symbol Q for the number of passengers.] 3.1 a) b) c) d) (10) First some questions about the cost structure: What is the Total Fixed Cost (TFC) for Occident Express? TFC= What is its Total Variable Cost (TVC equation)? Ci-,, l T V C - What is its Total Short Run Cost (STC equation)? . ST C- What is its Short Run Marginal Cost (SMC)? SMC = e) Fill in thefollowing Tableof Costs. [Not many marks allocated, but youwill need the Table later!] Q TFC TVC STC AFC (avg fixed) A VC (avg variable) ATC (avg total) SMC 0 O ICCCOC(^.
1,000 iL J rr, rc.C
2,000 \ Hoc c^,- ( "fcccq 1 C 0 ... ... ... 5,000 l U CCCrr 2oc c <:(C Zee LfrC ..' I 0
... ... ... 10,000 6 QCC C(C loo 2 C)0 I CO 7 of 13 pages 3.2 (8) Now questions about pricing under rules established by theGovernment of Otoyk: Theresidents of Otoyk haveaDemand schedulefor monthly rail passesof P =500 - 0.03Q. a)
Although Occident is theonly transportation provider, theGovernment requires it to chargethe'efficient' priceassociated with perfect competition. What is that price(P)? How many passengerswill therebeper month (Q)? Fill in theTablebelow, assuming that Occident does operate. "Z. J / ^ Q Price(P) o b) c) Under this pricing requirement, calculatethemonthly profits for Occident. cc) Monthly Profits I n thefree-hand diagrambelow, show thescenario described above(you need not show AFC, but you should includeSAC, AV C, SMC and show theP, Q values and profit area.) [Your diagramdoesnot haveto beprecise, but it should reflect theshapesimplied by theequations you calculated in part 3.1] P
moreon next page 8 of 13 pages 3.3 a) b) C ) d) (10) Next, there is a different pricing regime, as follows: Occident is successful in getting the Government of Otoyk to repeal the original pricing rule. The firm can now charge whatever price it wishes. What wil l be the price, number of passengers and monthly profits in this scenario? Fill Price Passengers Profits Having created the rail infrastructure, wil l Occident operate it in the short run in this sppnario? (^e^/ No / It is Indifferent / Not enough information to determine). Explain below with reference to profit-maximizing rules: Wil l Ocgident operate in the long run? ' ' ; ; ' (Yes (n^)/ It is Indifferent / Not enough information to determine). [No explanation required!] This entire question reflects a particular type of monopolist. What is it called? [No explanation required!] ^ . Type = 9 of 13 pages 4. Techie Device Market (22 marks) ' Supposeyou arean executiveof theCherry TechieDeviceCompany and you arerequired to providean updateon thecurrent market outlook to your boss. Assumethat every firm in the devicemarket has the samecost structureand offers the samedevice, except for certain distinguishing features that somecustomers value. Put another way, at agiven pricefor devices, someconsumersliketheCherry device; other consumers prefer acompetitor's device. Thereare many competitors. Techiedevices areknown to benormal goods. . . 4.1 (8) Herearetheinitial questions you haveto answer: . a) What is thestructureof this techiedevicemarket? (What namedo wegivethis typeof market?) ; l- i;.* t : ; ; x,^ . Structure b) Is your firm (Cherry) aprice-taker? c) How would you describetheeconomic relationshipbetween your product (Cherry device) and thoseof other producers (e.g.. Bananadevice)? Relationship C) What is theslopeof thedemand scheduleyou arefacingfor your Cherry device? (Horizontal / Vertical /t^^atively-sloped^ Positively-sloped) ^ My conclusion is based on this relationshipbetween theSubstitution Effect (SE) and IncomeEffect (IE) alongagiven demand schedulefor Cherry devices: Relationship d) What is them-iceelasticity of demand you arefacingfor your Cherry device? lastic / relatively inelastic / perfectly inelastic) Explain briefly below: 10 of 13 pages 4.2 (6) In thediagrambelow, show thelong run equilibriumfor your firm, assuming that there aremany current (and potential) techiedevicefirms in this industry. AssumeU-shaped cost curves. On thecost side, show only AC and MC. What profit- r diagram? Rule= What aretheprofits of your Cherry firm in thelong run? (Negative / Zero //Positive / Cannot be determined) 4.3 (8) Supposethat Cherry techiedevices arecurrently produced in thenearby country of Utopia(all other techiedevices areproduced domestically, with the samecost structureas Cherry's). Supposethat thegovernment of Utopia increases theminimumwagethereby impacting on thepriceof labour services used only by Cherry. Assuming no changein the overall demand for techiedevices, what do you expect theeconomic responses to be, in each of the cases below? [Bebrief. Siiort form, "bullet statements" areacceptable. Assumealso that the decisions by Cherry do haveimpacts on other firms.'] a) For theCherry firm in theshort run, assuming it continues to produce: , . ; . ; , b) For other techiedevicefirms in theshort run: . . - . , c) For theCherry firm in thelong run: d) For other techiedevicefirms in thelong run: ^Ignorethereality that thedecisions of onefirmin amarket with many other firms isunlikely to haveasignificant impact onall theseother firms! I I of 13 pages 5. Theory of Trade (12 marks) Consider thetraditional model of international trade, with asingleinput (labour), no transportation costs, etc. Herearethedataon inputs required per unit of output in England and Canadafor theproduction of Blues (B) and Greens (G). Units of Labour Input Required Per Unit of Output : England Canada Blues Greens Test #1 included aquestion that was aprecursor to theTheory of Trade, includingcalculations of opportunity cost. No questions herefor marks about that! I nstead, determinethefollowing: 5.1 (2) ^Which^untry has thecomparativeadvantagein theproduction of Greens? (England^ Canada) 5.2 (4) What aretheboundariesof theTermsof Tradethat will permit both countries to engagein trade? Boimdaries: 5.3 and IS produci (6) SupposeEngland has 900 \yorkers and is producing150 units of Blues on its Production Possibilities Curve. TheTerms of Tradeis currently at 1B for 2.5G. I t exports 250 units of thegood in which it has acomparativeadvantage. What goods arenow availablefor consumption in England? Fill in theTablebelow. Blues Greens 12 of 13 pages 6. Multiple Choice (8 marks) Providethebest answer to thefollowing multiplechoicequestions by circling your response directly on thequestion paper. A correct answer is worth 2 marks; no penalty for awrong answer. Read questionsfully beforeanswering! 6.1 {From Web Quiz) Theopportunity cost to afirm of using an asset is zero i f a) No money was spent to acquirethe asset jv * ' The asset has no alternative uses d) The asset was given to thefirm for free d) The asset is already owned by the firm e) Al l of theabovesignal zero opportunity cost. 6.2 (Adapted From Sample Test) In order to increaseits salesfrom 10 to 11 units, afirm must drop its pricefrom $9 to $8. a) Thefirm is aperfect competitor b) Thefirm is amonopolist c) Themarginal revenueof the11* unit is $88 d) Themarginal revenueof the11'^unit is-$2 A profit-maximizingfirm would never operateat apriceof $8 ' fp Both y ) and ) arecorrect (you fill in). 6.3 Which of thefollowing illustrates theECO 100 concept of external benefit (positive externality)? a) Carlabuys chocolates which makes her very happy when sheconsumes them b) Thechocolatefactory exudes achocolateodour; theneighbour, Harry, hates this odour; his happinessfalls c) Thechocolatefactory exudes achocolateodour; theneighbour, Larry, loves this odour; his happiness rises - - - '= - d) Thechocolatefactory obtains new orders for product; it hires moreworkers e) Thegovernment takes over theproduction of chocolates, sinceit is amerit good f) Not oneof theabovequalifies as an illustration. 13 of 13 pages 6.4 Yankeeland and Republicaarecurrently producingboth beef and soybeans. Republica cannot match thejabour^roductivityo^f Yankeeland in either industry. However, Republica's productivit^issomewhat beittsi^jglatively speaking, in thebeef industr TheECO 100 trademodel, with an appropriate"Terms of Trade", suggests that Republicawill ^ a) deriveno advantagefrom tradingits soybeans for beef from Yankeeland f increasethedomestic production of soybeans sinceit can producemoreof them import soybeansfrom Yankeeland export soybeans to Yankeeland e) not consumeany soybeans domestically sinceall will beexported f) both d) and e) BONUS Y E S / NO (2 Marks) Thesequestions, based on In-Class Test Preparations, should befamiliar to you! 1 mark each this time! a) When Marginal Revenueis less than AverageRevenue, theDemand scheduleis negatively-sloped. member firms and effectively blocks entry of new firms can beassured that this schemewill create profits for eachof thesefirms. (Assumeno changein costsor market demand.) Bonus Question (1 mark) In class last Monday, I woreaT-shirt celebratingthechampionshipof what team? (Full nameof theteamshows you areasportsfan; full credit availablefor just thenameof thecity!) Name= " I a m s t i l l o u t t h e r e c h a s i n g my d r e a m s a n d t r y i n g t o m a x i m i z e my p o t e n t i a l . E v e r y d a y . " MikeBabcock Coach of theDetroit Red Wings (Stanley CupChampions, 2008) Coach of Canada's Olympic Men's Hockey Team(Gold Medal Winner, 2010) Fromhis book: Leave No Doubt