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UMUC Econ306 Section 7980 - Final Exam




Question;Econ 306 Section 7980;Final Exam;Please show your work wherever possible for;full credit.;Q1. (10 points) The demand for packs of Pokemon;cards is given by the equationQD;=500,000;-45,000P.At;a price of $2.50 per pack, what is the quantity demanded? At $5.00 per pack;what is the price elasticity of demand?;Q2.;(10 points) The market for gravel has;been estimated to have these supply and demand relationships;Supply;P=10;+0.01Q;Demand;P=100;-0.01Q;where;P represents price per unit in dollars, and Q represents sales per week in;tons. Determine the equilibrium price and sales. Determine the amount of;shortage or surplus that would develop at P=$40/ton.;Q3.;(56points);a.;(3 pts) Alvin?s preferences for good X and good Y are shown in the diagram;below. Based on Figure 3 what can we;infer about Alvin?s preferences for goofds X and Y?;b. (3 pts) Theodore?s budget line;has changed from A to B. Please indicate what may explain the change in the;budget lines budget line?;Q4. (8 pts) The cost of producing;600 small fiberglass sailboats per year, and the cost of producing sails and;fittings necessary to make the boats seaworthy in a single plant, are together;$780,000. If produced in separate;plants, the boats would cost $540,000, and the sails and fittings would cost;$180,000. From this information.;(4pts);Calculate the economies of scope in the production of sailboats, sails, and;fittings? (4pts) What;can you conclude from your solution (i.e. should they be produced together by;one firm or separately by different firms?;Why?;Q5. (17 pts) Alex Fiani Corporation produces egg;cartons that are sold to egg distributors. Alex Fiani Corporation has estimated;this production function for its egg carton division;Q = 25L0.6K0.4;where Q = output measured in one;thousand carton lots, L = labor measured;in person hours, and K = capital measured in machine hours. Alex currently pays a wage of $10 per hour;and considers the relevant rental price for capital to be $25 per hour.;Derive;(4 pts);Derive MPL(4 pts);Derive MPK(4 pts) Solve for MRTS using mpl and mpk(5 pts);Determine the optimal capital?labor ratio that Acme should use in the egg;carton division;Q6. (4;points)The total cost (TC) of producing computer software diskettes (Q) is;given as: TC = 200 + 5Q. What is the marginal cost?;Q7. (15 points) A competitive firm sells its product at a price of;$.10 per unit. Its total and marginal;cost functions are;TC = 5?;0.5Q + 0.001Q2;MC = -0.5 +;0.002Q;where TC is total cost ($) and Q is output rate (units per time;period).;a. (8 pts) Determine the output;rate that maximizes profit or minimizes losses in the short?term.;b.(7pts) If input prices increase;and cause the cost functions to become TC = 5?;0.10Q + 0.002Q2 MC;= -0.10 + 0.004Q;what will the new equilibrium output rate be?;Explain what happened to the profit maximizing output rate when input;prices were increased.;Q8. (6 points) Define consumer surplus and describe how it is impacted by an;increase in price;Q9. (12 points);a. (4 pts) Determine;the "rule-of-thumb" price when the monopolist has a marginal cost of;$25 and the price elasticity of demand of -3.0.;b. (3 pts) Galaxy has market;power in the market for Iowa State University Big XII Championship 2000;T-shirts. If the price of the firm?s;product =$20, and the total cost curve is TC=;5-15Q, what is the markup for this firm?;c. (3 pts) What if the price;elasticity of demand for this firm becomes -5, what will be the firm?s markup? d.;(2 pts) Compare a monopsony to a monopoly;Q10. (10 points) Discount stores;for private labeling. Marginal cost is a;constant $10 per tire, regardless of the sub-market in which the tire is;sold. The firm has estimated the;following demand curves for each of the markets.;QB = 70;- 2000PB (brand name);QP = 20 ?;5000PB (private label).;Quantities;are measured in thousands per month and price refers to the wholesale price. American currently sells brand name tires at;a wholesale price of $28.50 and private label tires for a price of $17. Are these prices optimal for the firm?;Q11. (12 points) A firm's total cost function is given by the;equation;TC = 4000 +;5Q + 10Q2.;Write an expression for each of the following cost concepts using;the equation above (for example TC =;Total Fixed;CostAverage;Fixed CostTotal;Variable CostAverage;Variable CostAverage;Total CostMarginal;Cost


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