Answers to Sample Final

Multiple Choice

1) b           			
2) c				
3) b				
4) b				
5) a				
6) d				
7) d				
8) b				
9) b				
10) d				
11) b				
12) c				
13) a				
14) c				
15) a				
16) c				
17) d				
18) b				
19) c				
20) b				
21) d				
22) a				
23) c				
24) c				
25) a				
26) b				
27) a				
28) b				
29) b				
30) c				
31) d				
32) a				
33) d				
34) c				
35) b				
36) c				
37) d				
38) a				
39) b				
40) c				

Short Problem Answers

1A) 4 Beer, 2 Cheetos, and 4 Brownies.  Total utility = 349.

1B) Trade your 6th Cheeto (5 units of MU) for a third beer (35 units of
MU).  This yields a net gain of 30 units of utility!

1C) The MU/P schedule for beer now becomes

1st	25
2nd	21
3rd     17.5
4th	14
5th	10
6th	 6

Based on this and remembering that you spend $2 of your budget everytime
you buy a beer, you would purchase the following bundle of goods with
your $10: 1 Beer, 3 Cheetos, and 5 Brownies.  Your total utility from
consumption of these goods is 290.


2A) Total cost for lumber firm: 1000+2000+2200+2400+3000 = $10,600
Total cost for trucking firm: 900+1800+2700+3600+4600 = $13,600
Total cost for both firms: 10,600 + 13,600 = $24,200
 
2B) Total units for the lumber firm: 6 units
Total units for the trucking firm: 4 units
Total combined costs for both firms: (1000+2000+2200+2400+3000+3000) +
  (900+1800+2700+3600) = $22,600
 
More efficient because reduced the same amount of pollution (10 tons) for
lower costs.

2C) The government would sell 6 rights to pollute which would leave 10
units of pollution left to be eliminated by the firms.

The lumber firm would buy 2 rights to pollute. This is so it avoids
paying for pollution reduction on the 7th and 8th units (therefore, it
ends up reducing 6 tons of pollution).
 
The trucking firm would buy 4 rights to pollute to avoid paying for
pollution reduction on the 5th through 8th units.
 
These two methods are equally efficient if there are no costs to
running the auction, because they achieve the same level of pollution
reduction for the same costs.

3A) It slopes upward because of the law of diminishing marginal returns
which states that for some fixed factor in the short run, additional
inputs eventually lead to lower marginal product. Given a fixed wage, this
leads to increasing marginal costs.

3B)PERFECTLY COMPETITIVE INDUSTRY:

Price = $10
Quantity = 200 units
Total Revenues = price*quantity = $10*(200 units) = $2000
Total Costs = ATC*quantity = $10*(200 units) = $2000
Profits = TR - TC =$2000 - $2000 = 0

MONOPOLY FIRM

Price = $15
Quantity = 150 units
Total Revenues = price*quantity = $15*(150 units) = $2250
Total Costs = ATC*quantity = $12*(150 units) = $1800
Profits = TR - TC =$2250 - $1800 = $450