ECON 545 Final Exam

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)

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 3. 3. (TCO C)  You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.  



                        Total                            Total

Workers     Labor Cost      Output     Revenue

     1                $500               100         700

     2               1000                280          1150

     3                 1500             440        1440

     4                2000             540        1570

     5                2500             600         1670

     6                3000             630          1710

     7                3500             640          1730



(a.) (6 points) What is the marginal product of the second worker?  



(b.) (6 points) What is the marginal revenue product of the fourth worker?  



(c.) (6 points) What is the marginal cost of the first worker?  



(d.) (12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.   (Points : 30)

Question 4. 4. (TCO C) john operates a small business out of his home and has little interms of fixed costs. Answer the next questions (Parts A and B) on the basis of the following cost data for a firm operating in pure competition:



OUTPUT ------ TFC ---------- TVC

0                 $30.00         0.00

1                 30.00         70.00

2                 30.00        120.00

3                 30.00        150.00

4                 30.00        200.00

5                 30.00        270.00

6                 30.00        360.00



(a.) (15 points) Refer to the above data. If the product price is $185 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.



(b.) (15 points) Refer to the above data. If the product price is $200 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations. (Points : 30)

Question 5. 5. (TCO D)   A software producer has fixed costs of $20,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below.  Complete the table (TC, MC, TR, and MR), then answer Parts A and B.



  Q                      TVC                              Price

2,000               $5,000                             $25   

4,000                7,000                              22   

6,000                 18,000                              20   

8,000                33,000                              10   

10,000                50,000                              1   

(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work.) 



(b.) (15 points) What should be the production level if fixed costs rose to $70,000 per month? Explain. 

(Points : 30)

Question 9. 9. (TCO E and I) Let the exchange rate be defined as the number of dollars per Japanese yen. Assume there is an increase in U.S. interest rates relative to that of Japan.



(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the yen? Why?



(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the yen?



(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan? Illustrate by showing the price of a U.S. e-reader in Japan before and after the change in the exchange rate.



(d.) (10 points) If you had a business exporting goods to Japan, and U.S. interest rates rose as they have in this example, would you plan to expand production or cut back? Why? (Points : 40)