ARE 201 Midterm: ARE 201 NCSU Exam3s96

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15 Feb 2019

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EQUATIONS YOU MAY NEED FOR EXAM III

Depreciation = (Purchase price - salvage value) / years of useful life

Average Value = (Purchase price + salvage value) / 2

Marginal revenue = change in total revenue / change in control variable

Marginal cost = change in total cost / change in control variable

Slope = change in Y / change in X

Percent change in Qd = [(Q1 - Q0) / Q0] X 100

Percent change in P = [(P1 - P0) / P0] X 100

Ed = percent change in Qd / percent change in P

Ed = (change in Qd / change in P) * (P0 / Q0)

Percent change in P = percent change in Qd / Ed

Percent change in Qd = percent change in P * Ed

Percent change in TR = (1 - |Ed|) X percent change in price

EI = Percent change in Qd / percent change in Id

ES = Percent change in QS / percent change in P

Average Relative Pricei = (Nominal Pricei/CPIi) X 100 Where i = year

in 1982-84 dollars

EXPLANATION OF TERMINOLOGY USED

Graph = accurately scaled, precisely plotted, accurately drawn to scale, and labeled.

Rough sketch or illustrate = not scaled or precisely plotted, but completely labeled.

What “explain” means on one of my exams:

Websters Collegiate Dictionary defines EXPLAIN as:

1. to make plain or understandable

2. to give the reason of or cause of

3. to show the logical development or relationships of

Websters continues by enhancing the definition with the following statement:

"Explain implies a making plain or intelligible what is not immediately obvious or entirely known."

SHOW ALL YOUR WORK IN A NEAT AND ORGANIZED MANNER

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EXAM #3

ARE 012, Spring 1996

Answer the six (6) questions below. Do all parts of each question. Use a separate sheet of paper to

answer each numbered question, and arrange your answers in numerical order when finished with the

exam. Write the number of each question and your name on the top of each sheet of paper you use.

You must show all work to receive full credit. The price of all parts of each question is provided in the

left hand margin so that you may make an informed management decision regarding the production of

this exam. DO NOT write answers on the test sheets unless granted permission to do so. Be thorough

and complete in ALL your responses. RETURN THE TEST SHEET !!! No test sheet: F for the

exam.

Please read and sign the Honor Pledge that follows on this exam sheet:

I have neither given or received unauthorized aid on this exam

. _________________________________

Student’s Signature

(10) 1. Using any commodity as an example you wish, illustrate a persistent SHORTAGE by

using a rough sketch. Label your axis, all prices and quantities, and the curves you

draw. Does not need to be drawn to scale.

(5) a. What must a government do to create a persistent SHORTAGE?

(5) b. What price action should the government take to eliminate the persistent

SHORTAGE?

(5) 2. In the recent past, when the annual wheat harvest has decreased by 5 percent, wheat

prices have increased 20 percent. What is the price elasticity of demand for wheat

based on this historical relationship?

(5) a. Using the price elasticity computed above, how much will the quantity of wheat

purchased by processors increasee if the government removes the current price floor

and

the price of wheat decreases 20 percent?

(5) 3. Sketch a demand curve and label the three sections of elasticity. Directly below this

demand curve, sketch THE APPROPRIATE total revenue curve. REMEMBER

TO LABEL THE AXIS OF EACH GRAPH AND ALL CURVES !

(5) a. If total revenue increases when price is decreased, in which section of the

demand curve is the commodity currently priced?

(5) b. If total revenue increases when price is increased, in which section of the

demand curve is the commodity currently priced?

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Document Summary

Depreciation = (purchase price - salvage value) / years of useful life. Average value = (purchase price + salvage value) / 2. Marginal revenue = change in total revenue / change in control variable. Marginal cost = change in total cost / change in control variable. Slope = change in y / change in x. Percent change in qd = [(q1 - q0) / q0] x 100. Percent change in p = [(p1 - p0) / p0] x 100. Ed = percent change in qd / percent change in p. Ed = (change in qd / change in p) * (p0 / q0) Percent change in p = percent change in qd / ed. Percent change in qd = percent change in p * ed. Percent change in tr = (1 - |ed|) x percent change in price. Ei = percent change in qd / percent change in id. Es = percent change in qs / percent change in p.

Related Questions

1-7 True or False

1) In the short run, a perfectly competitive firm can earn positive, zero, or negative profit depending on the market price of the firm's output.

2)In the model of the perfectly competitive firm, the firm's fixed costs are equal to its implicit costs of production.

3)Assume the market price is greater than average total cost at the perfectly competitive firm's profit-maximizing level of output. In this case, the firm is earning positive economic profits, which act as an incentive for new firms to enter the market.

4)Assume that at the current level of output, price equals marginal revenue, but is less than average total cost. So long as price is greater than average variable cost, the firm should continue to operate in the short run to minimize its losses.

5)The fact that a firm is a price-setter does not ensure it will make a positive economic profit in the short run and over time.

6)Barriers to entry serve to limit the number of firms that operate in a particular market and, as 11) such, reduce the amount of total profit earned in the market.

7)In the prisoner's dilemma game, each player's dominant strategy is also the Nash equilibrium.

14-17 Multiple Choice

14) Marginal revenue is equal to:
A) the change in P x Q due to a one unit change in output. B) the change in quantity divided by the change in price.

C) the change in price divided by the change in output. D) price, but only if the firm is a price searcher.

15) In order to maximize its profits, a price-taking firm should produce the level of output at which:

A) marginal revenue = marginal cost. B) total revenue = total cost.

C) variable revenue = variable cost. D) average revenue = average cost.

16) Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause:

A) cannot be determined with the information given. B) no change in the firm's economic profit.
C) a decrease in the firm's economic profit. D) an increase in the firm's economic profit.

17) Assume at the firm's profit-maximizing level of output P = AVC. In this case, the firm will be:

A) incurring an economic loss. B) earning a positive economic profit.

C) earning economic profit = 0. D) breaking even.

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c

The short-run cost function is: (Points : 1)

a. where all inputs to the production process are available
b. relevant to decisions in which one or more inputs to the production process are fixed
c. not relevant to optimal pricing and production output decision facilities
d. crucial in making optimal investment decisions in new production facilities
e. none of the above

Theoretically, in a long-run cost function: (Points : 1)

a. all inputs are fixed
b. all inputs are considered variable
c. some inputs are always fixed
d. capital and labor are always combined in fixed proportions

A linear total cost function implies that: (Points : 1)

a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

1. Another term for an investment good is

A) interest
B) savings
C) capital
D) rent
E) production

2. The opportunity cost of producing capital is

A) decreased current production of consumption goods
B) increased future production of consumption goods
C) the amount of roundabout production
D) abundant capital accumulation
E) the decreased amount of future capital available

A marginal revenue product curve shows the change in

A) total revenue caused by a one-unit change in output, other things constant
B) total revenue caused by a one-unit change in an input, other things constant
C) total product caused by a one-unit change in output, other things constant
D) total product caused by a one-unit change in an input, other things constant
E) total revenue product caused by a one-unit change in the price of the output, other things constant

Marginal revenue product for a price taker equals

A) MP x P
B) MP/MRC
C) MP x MRC
D) MRC/MP
E) MP/P

Interest provides an incentive for households to defer current consumption

A) True
B) False

An increase in the interest rate tends to increase the demand for loanable funds.

A) True
B) False

Generally, the longer the maturity on a bond, the lower the interest rate.

A) True
B) False

Corporations can obtain investment funds by

A) buying government securities
B) selling stock
C) increasing dividends
D) purchasing more capital
E) buying back stock

Vertical integration has no effect on the internal organization of a firm; it only affects the outside markets.

A) True
B) False

10.

One reason a computer manufacturer may produce its own microchips rather than buy them is that it can maintain control over production quality.

A) True
B) False

11.

When a firm is no longer able to reduce its long-run average cost by expanding, it has achieved its minimum efficient scale of production.

A) True
B) False

12.

If a firm experiences economies of scope, per unit production costs fall as it produces more than one kind of product.

A) True
B) False

13.

Publications such as Consumer Reports magazine

A) increase the optimal amount of information gathered
B) reduce the optimal amount of information gathered
C) reduce the amount of common knowledge
D) raise the marginal benefit of information curve
E) make consumers perfectly informed

14.

The winner's curse is more likely when the value of a good at auction is uncertain.

A) True
B) False

15.

When a seller knows more about the condition of a used car than the buyer does, the information is said to be asymmetric.

A) True
B) False

16.

The three kinds of government regulation designed to alter or control firm behavior are:

A) Antitrust policy, lobbying, and social regulation
B) Economic regulation, antitrust policy, and lobbying
C) Social regulation, lobbying, economic regulation
D) Social regulation, economic regulation, and antitrust policy
E) Social regulation, antitrust policy, fiscal policy

17.

A monopoly is likely to charge a higher price than an otherwise similar competitive industry would be.

A) True
B) False

18.

Public policy can help achieve more efficient use of an economy's resources by eliminating all monopolies.

A) True
B) False

19.

Government attempts to prohibit monopolization of a market are known as

A) antitrust regulation
B) economic regulation
C) social regulation
D) anticompetitive regulation
E) Herfindahl regulation

20.

If the electric company is allowed by regulators to earn only a normal profit, it will produce at the point where

A) MR = MC
B) P = MC
C) MC = quantity demanded
D) P = AC
E) MR = AC

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ARE 201 Midterm: ARE 201 NCSU Exam3s96

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