ECON454 FINAL

1. (TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets. 

(a.) (15 points) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?

Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market.

(b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility?(Points : 30)

Question 2. 2. (TCO B)   Here is some data on the demand for lettuce:

Price                Quantity

$10                  100

$ 8                   120

$ 6                   140

$ 4                   160

$ 2                   180

(a.) (15 points) Is demand elastic or inelastic in the $6-$8 price range? How do you know?

(b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 160 units to 180 units? Show all work. (Be careful here!) (Points : 30)

Question 2. 2. (TCO B) Suppose the governor of California has proposed increasing toll rates on California's toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads:

Scenario 1: Toll rate in 2012: $10.00.  Toll rate in 2016: $22.50......