Order 1080935: Econ
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ECON2010_Summer2018_M2_13781.pdf
THE UNIVERSITY OF MANITOBA ECON 2010
TAKE-HOME MIDTERM EXAMINATION JUNE 13, 2018
➢ DUE TIME. The exam is due June 14, 10:00 in my office (FA 552). Late submissions are not
accepted. ➢ EARLY SUBMISSION. You can submit your exam earlier, of course. If I am not in my office,
leave it with the office assistant of the Economics Department (Alan Nabess or Betty McGregor). If the office is closed (and only in that case!) take a picture of your exam, slid your exam under my office door and email me the picture of the exam.
➢ TYPED EXAM. Unless I specifically exempted you, your exam has to be typed (double spaced, please!) with a font of 12 points. Your diagrams can be drawn by hand.
➢ CHEATING. Failure to obey the following rules constitutes cheating: ➢ Individual work. You will work alone to answer the questions on this exam. That means you
will not ask anyone’s help to answer, you will not form a study group, you will not pay anyone to answer your exam. If someone offers to help you answer this exam, you will refuse. You will not contact the author of your textbook to ask for help. Unlike a written assignment, this is not a team exam!
➢ Plagiarism. Every sentence in your answers will be the result of your own work. If you are using any sentences that are not yours, they have to be quoted and referenced in a footnote at the bottom of the page.
➢ Each numbered question is worth 3 points. ➢ I will try to answer questions by email as fast as I can, after 18:00. ➢ All questions require explanations!
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A. Problems Both gadgets and widgets are selling at a market price of $10, and at that price you choose to buy
exactly 30 gadgets and 30 widgets. Suppose that your demand curves for gadgets and widgets are both straight lines, but (at the market price of $10) your demand for gadgets is much more elastic than your demand curve for widgets.
1. Present this situation in a demand diagram (only one diagram, please!). How does your diagram show the demand for gadgets is more elastic than the demand for widgets?
2. Show your consumer surplus from consuming gadgets and from consuming widgets. Which good gives you the highest consumer surplus?
3. If forced at gunpoint to buy either an extra gadget or an extra widget, which would you buy? 4. Illustrate (in the diagram drawn for question 1) the change in your consumer surplus as a result
of the forced transaction of question (3).
Suppose that a firm is operating at a point where MRTSLK = 2, PL = 3, PK = 1. 5. What is the slope of the isoquant on which this firm operates? What is the economic
interpretation its value? 6. What is the slope of the iso-cost line on which this firm operates? What is the economic
interpretation of its value? 7. Does this firm maximize the amount of output given its expenditure on inputs? If not, explain
how this firm could increase its output without changing its total expenditure on inputs. 8. In a diagram measuring labour on the horizontal axis and capital in the vertical axis, draw the
point at which this firm operates (label it A), and i. the isoquant curve on which this firm operates, ii. the iso-cost curve on which this firm operates, iii. a possible expansion path for this firm.
9. On the above diagram (the one you used to answer question 8), show i. the intersection point between the expansion path and the above iso-cost curve (label it B), ii. the intersection point between the expansion path and the above isoquant (label it C), and iii. draw the isoquant that passes through point B and the iso-cost curve passing through C.
The American demand and supply of oranges cross at a price of $8, but all Americans are free to buy or sell oranges on the world market at a price of $5.
10.What is the price Americans pay for oranges? What price do the US producers feel they are receiving?
11.On a demand and supply diagram show i. the consumer surplus, ii. (US) producer surplus and iii. the total surplus for Americans.
One day, the U.S. government announces that it will pay $6 apiece for American oranges and will buy as many oranges as Americans want to sell at that price. The government then takes these oranges and resells them on the world market at $5 apiece.
12.Redo questions 10 and 11, using the same diagram. 13. Illustrate the deadweight loss (in the same diagram).
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The widget industry is a constant cost industry, so that all firms are identical. The following chart shows the industry-wide demand curve and the marginal cost curve of a typical firm:
Industry-wide demand Firm's marginal cost curve
Price ($) Quantity Quantity Marginal Cost ($)
2 500 1 2
3 400 2 3
5 300 3 5
6 200 4 6
8 100 5 8
9 50 6 9
12 25 7 12
15 10 8 15 The industry is in long run equilibrium and there are 50 firms.
14.What is the price of a widget? 15.What are the fixed costs of each firm? 16.On the short run supply curve of the industry, what quantity corresponds to a price of $8?
B. True/False questions. For this type of questions explanations are especially important. Answering only with “True” or “False” is worth precisely nothing!
17.Suppose that a new law requires every department store in Springfield to carry $10 million worth of fire insurance. True or False: If there is only one department store in Springfield, then none of the insurance costs will be passed on to consumers, but if there are many stores, then some of the costs might be passed on.
18.True or False: In the long run equilibrium, all perfectly competitive firms obtain zero economic profit.
END OF EXAM
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