ECN 3030--FALL 2018
Office: 402 Elliott Hall
Office Hours: T/TH: 11:45-12:45 and by appointment
TEL: 248-370-3291
Email: Stano@oakland.edu
CONTENTS
1. Problem Assignments (same as shown on syllabus)
2. Authors' pdf Files ContainingDetailed Answers to all the Text Problems in the Covered Chapters
3. Sample Quiz/Test Quesions with Answers
4. Previous Final Exam Outline
PROBLEM ASSIGNMENTS (subject to minor changes)
The assignments are from the Text and the Study Guide (SG). Study Guide answers are at the back of the Study Guide. Brief answers to the odd-numbered Text questions are at the back of the Text. Detailed answers are in the pdf files found below.
Ch. 6: SG: All; Text: 1,2, 4-10, C1-C4, C6, C7
Ch. 7: SG: 1-5,7; Text: 1-5, 7, 10-13, C1-C7
Ch. 8: SG: All; Text: 2-4, 6-11, C1-C8
Ch. 10: Coverage: pp. 419-430; SG 1-3, Text 1,2,6 + Case Study Problems
SAMPLE TEST QUESTIONS
Sample Quiz: Chapter 1
Value: 50 points: 10% of grade. All work must be shown or explained to receive credit.
1. Consider the following daily demand schedule for pizzas in the local area.
Price ($) QD
15 125
10 250
5 375
- Determine the equation for the demand curve. (10)
- The supply equation is QS = -250 + 50P. Explain why $12 cannot be the equilibrium price. (5)
- Determine the equilibrium price and quantity. (5)
d. The price of mozzarella cheese (used as an ingredient in pizzas) increases. Explain (or show on a graph) what may happen to the demand and/or supply. (5)
2. Describe the main difference between a change in quantity supplied and a change in supply. Feel free to use a graph. (5)
3. FMC corporation has estimated its profit function as:
TΠ = -1/3Q3 + 2Q2 +12Q - 6
- Determine the output level that maximizes FMC’s profit. (10)
- Find the maximum profit that FMC can get. (5)
4. Q = 50L0.8K0.2. Find ∂Q/∂L and ∂Q/∂K. (5)
ANSWERS
1a. QD = 500 – 25P: b. ES (Surplus) = 150: c. Pe = 10 and Qe = 250: d. The supply will decrease resulting in an increase in the equilibrium price and a decrease in the equilibrium quantity.
2. A change in supply is reflected by a shift in the supply curve (caused, for example, by changes in the price of an input, the number of firms, and in technology. A change in quantity supplied reflects a movement along the supply curve resulting from a change in the price of the product.
3a. Q = 6: b. TП = 66
4. ∂Q/∂L = 40(K/L)0.2; ∂Q/∂L = 10 (L/K)0.8
SAMPLE MULTIPLE CHOICE: CHAPTER 2:
Identify the letter of the choice that best completes the statement or answers
the question.
____ 1. A change in demand refers to:
a. movement along the demand curve.
b. a change in a non-price variable in the demand function resulting in a shift
in the demand curve.
c. a change in quantity demanded because of a change in price.
d. movement from the elastic to the inelastic range of a demand curve.
e. movement from the inelastic to the elastic range of a demand curve.
____ 2. The rate of change of total revenue from selling one more unit of a
product is its:
a. average revenue.
b. the firm's demand curve.
c. marginal revenue.
d. price elasticity of demand.
e. total revenue.
____ 3. If the absolute value of the price elasticity of demand is less than
1, then:
a. an increase in price decreases total revenue.
b. an increase in price has no affect on total revenue.
c. a decrease in price lowers total revenue.
d. a decrease in price raises total revenue.
e. a change in price has no affect on total revenue.
____ 4. A firm just increased the selling price of its product. Total
revenue decreases. Which of the following is correct?
a. Demand is inelastic.
b. Demand is unitary elastic.
c. The product is a normal good.
d. Demand is elastic.
e. The product is a superior good.
____ 5. The price of product X has just been increased by 20%. Product Y's sales
decrease as a result of Product X's price increase. Which of the following is
true?
a. Product X and Product Y are substitute goods.
b. Product X and Product Y are complementary goods.
c. Product X and Product Y are both normal goods.
d. Product X and Product Y are not related.
e. Product X and Product Y are both inferior goods.
ANSWERS
1. B
2. C
3. C
4. D
5. B
CHAPTER 5
____ 1. To an economist, for a firm to be operating in the long run,
a. some inputs are fixed.
b. all inputs are variable.
c. only one input can be variable.
d. no more than one input can be fixed.
e. at least one input must be variable.
____ 2. A mathematical statement of the way that the quantity of output of a
particular product depends on the use of specific inputs or resources is
called:
a. a demand curve.
b. a total revenue curve.
c. a production function.
d. the marginal rate of (technical) substitution.
e. an isoquant curve
____ 3. If the percentage increase in a firm's output is the same as the
percentage increase in all of its inputs, then:
a. diminishing marginal returns have begun.
b. the firm is employing the least cost combination of inputs.
c. returns to scale are constant.
d. returns to scale are decreasing.
e. returns to scale are increasing.
____ 4. If, after reaching a certain level of production, one additional
unit an input variable would produce a decline in total product, then:
a. diminishing marginal returns to that input have begun.
b. the output level where marginal product of that input is maximized has not
yet been reached.
c. the output level where marginal product of that input is equal to zero has
been reached.
d. average product of that input is at its minimum.
e. average product of that input is increasing.
____ 5. Which of the following statements is correct for a variable input a
and short-run product curves?
a. When TPa reaches a maximum, the MPa is zero.
b. Then TPa reaches a maximum, the MPa is +1.
c. When APa reaches a maximum, MPa is zero.
d. When MPa reaches a maximum, APa is zero.
e. None of the above is correct.
ANSWERS
1. B
2. C
3. C
4. C
5. A
__________________________________________________
Sample Test 1 Questions: (Chs 2/5)
CH 2: Questions 1-4; CH 5: Questions 5-8
1. The marketing department for Viper, a firm
that produces sailboats, has determined the following demand function for its
boats:
Qx
= 5000 - 0.6Px + 0.2Py + 0.04I + 0.02A
where:
|
Qx |
= the
number of the firm’s boats sold weekly |
|
Px |
= the
price of the firm's boats = $9,000 |
|
Py
|
= the
price of a close competitor's boats = $8,000 |
|
I |
=
average household income = $20,000, and |
|
A |
=
weekly advertising dollars spent = $5,000. |
a. Determine the equation for Viper’s demand
curve. (10)
b. Determine Viper’s marginal revenue equation. (6)
c. Determine the maximum total revenue that
Viper can get. (7)
d. Determine the price elasticity of demand
(calculus) at Viper’s current price of $9,000.
Explain whether demand is elastic or inelastic. (10)
e. The competitor drops price from $8000 to $7,000. Determine Viper’s arc cross price elasticity of demand. (10)
2. Foto Camera is
selling 30,000 digital cameras a month at its current price of $90. Management
estimates that the arc price elasticity of demand is -2 for a price cut to
$80. Determine the quantity it would
sell at $80. (10)
3. Based on careful analysis, you find that the price elasticity of demand for a firm’s product is -0.72. Is there any advice you can provide to management from this information alone? Explain. (5)
4. A firm’s price elasticity of demand is -2.5. Explain what it must do to increase the number of units that it sells by 12%. (5)
5. Glasgow Knits
manufactures sweaters. Labor costs $40
per unit and capital costs $20 per unit.
Q = 5L0.5K0.5
a. Find three combinations of L and K that lies on the isoquant for Q= 100. (6)
b. Determine or explain whether the isoquant
will have a diminishing marginal rate of substitution. (6)
c. Determine
d. Determine
e. Find the maximum
output that
6. Determine whether the following production function have increasing, decreasing or constant returns to scale.
a. Q = 0.001M + 50,000 (5)
b. Q = 15K +0.5KL + 30L (5)
7. Hill Country Farms, Inc. is a small grower of peaches. Hill Country estimates that peach output would increase by 600 bushels per season with an additional 6,000 gallons of water provided strategy throughout the season by an existing irrigation system. Alternatively, peach output could be increased by 500 bushels per season with an additional 2 tons of fertilizer applied at the beginning of the season. Assuming that the cost of water is $.01 per gallon and that fertilizer is $25 per ton, explain whether Hill Country Farms using the least cost combination of fertilizer and water. (8)
8. A firms has the following
weekly production function: Q = 20KL - 0.025KL2.
Suppose the firm is in the short-run with K fixed at 20.
a.
What is the equation for marginal
product? Explain whether
the production function is consistent with the Law of Diminishing Returns.
(10)
b.
Find the maximum weekly output the
firm can produce in a week. (10)
c.
If the firm pays workers
$300 per week, i.e., MCL = 300), and its product sells in a
competitive market for $15 per unit, find the optimal number of workers to
hire. (Assume that material
costs are $5 per unit.)
(10)
Answers:
1a: Qx = 7500 -0.6Px 1b: MR = 12,500 - 3.34Qx 1c: TR = 23,390,000 1d: Ep = -2.57 1e: Arc Exy = 0.75
2: Q2 = 38,000
3: The firn should raise price until it is in
the elastic portion of demand.
4: It must reduce price by 4.8%.
5a: Students may have different answers 5b:
The MRS will be decreasing (you should show) 5c: K = 50 - 2L 5d:
MRSLK = K/L 5e: Q = 88.4
6a: Decreasing 6b: Increasing
7. Yes! MPW/PW = MPF/PF
8a. Q = 400L - 0.5L2 with K = 20. MPL = dQ/dL = 400 - L, MPL decreases as L increase so it is consistent with Law of Diminishing Returns.
8b. Set MPL = 0. Thus L = 400 and Q = 80,000
8c. Need MRPL = MCL Thus MPLxNMR = 300 or (400-L)(15-5) = 300. Thus L =370.
Sample Test 3 Questions: (Chs. 6/7)
2. A firm has the
following total cost function:
STC = 900 + 50Q - 2.7Q2 + 0.045Q3
a. Write equations for average fixed cost and average variable
cost, and marginal cost. (6)
b. At what level of output will average variable cost be at
its minimum? (8)
c.
Determine the firm’s shut-down price?
(6)
3. 3. A firm has
the following long-run total cost function:
LTC =
3500Q - 450Q2 + 15Q3
a. Write the equation
for the long-run average cost. (4)
b. Determine the
minimum value of LAC. (8)
c. If the firm is a price taker, determine the minimum
long-run price it must receive so that it will not exit the industry. (5)
d.
Over what range of output will the firm have economies of scale? (5)
4. Qopy Qat is a specialty printer using the
latest laser technology. Its manager has
estimated weekly demand as: Q = 25,000 -
1000P and total costs as:
STC = 12,000 + 13Q
+ 0.002Q2 where Q is output per week.
a. Determine the
firm’s revenue-maximizing price and quantity.
(8)
b. Determine the
firm’s profit-maximizing price and quantity
(10)
c. Determine its
maximum profits. (5)
5.
Jim's Car Rental has fixed costs of $220,000 per month and variable
costs per car rented per day of $3.
a.
If Jim's charges $25 per day to rent a car, how many car-rental days
(the number of cars rented times the number of days each is rented) must Jim's
have each month to breakeven? (7)
b
How many car-rental days will he need to make $33,000 per month? (7)
6. Complete the following table, given that the price of labor is
constant and that labor is the only variable input. (10)
|
Input L (units) |
Q |
Arc MPL |
Arc SMC |
AVC |
SAC |
|
|
(Output in units) |
|
|||||
|
0 |
0 |
|
|
---- |
----- |
|
|
|
.50 |
|||||
|
3 |
300 |
.50 |
1.00 |
|||
|
|
|
|||||
|
6 |
750 |
|
|
|||
|
|
|
|||||
|
9 |
1350 |
|
|
|||
|
150 |
|
|||||
|
12 |
|
|
|
|||
|
|
.50 |
|||||
|
15 |
|
|
|
|||
|
|
|
|||||
|
18 |
2250 |
|
|
|||
|
|
|
|
|
7. |
Answers 2a. AFC = 900/Q; AVC = 50 -2.7Q + 0.045Q2; SMC = 50 – 5.4Q + 0.135Q2 2b. Q = 30 2c. P = minAVC = 9.5 3a. LAC = 3500 -450Q +15Q2; 3b. minLAC = 125 3c. P = 125 3d output up to Q = 15 4a. Q= 12,500 and P = 12.50 4b. Q = 2000 and P =23 4c. 0 5a. 10,000 5b. 11,500 6 and 7: I will provide answers in class. |
Fall 2018 Tentative Final Exam Outline
Value: 150 points:
30 percent
There are no multiple choice questions. There are 9 questions--not necessarily in the order below. Each question will have equal weight (17 points) resulting in 3 'extra/bonus' points. Most questions have just one part, but one of the questions (other than #s 6&9 as described below) also ask you to explain the market structure/model.
1. Monopoly profit maximization (Ch. 8)
2. Short-run profit maximizing output for
competitive firm (Ch. 8)
3. Long-run price in a competitive industry (Ch.
8)
4. Kinked demand (Ch. 9)
5. Dominant firm price leadership (Ch. 9)
6. 3rd degree price discrimination (2 parts--with
& without a capacity) (
7. Cartels (
8. Equilibrium in a monopolistically competitive
market (Ch. 9)
9