Economics Problems

Final Examination Review Questions!

The final examination will be held on May 13th at 7:30 A.M. to 8:45 A.M. in Enterprise Room 274. To assist your study for the examination, below you will find a list of eleven questions from which at least four will be selected for the final. The fifth question will be extra credit. I shall not discuss any of the questions either in class on May 6th or my office.!

1. Briefly analyze/comment on the following:!

(a) The price of cheese falls relative to the price of milk. What is implied about the rate of interest? Why?!

(b) There are cheaper prices for matinee performances than evening performances. Why?!

(c) Give the definition of interest rates.!

2. You are given the following demand function for the firm: Q = 20 - p. Its total cost function is TC = Q2 + 8Q + 2. Find :!

(a) profit-maximizing output!

(b) equilibrium price!

(c) elasticity of demand at the equilibrium price!

(d) profits!

Is this firm a price-taker or price-searcher? Why?!

3. Suppose that Florida migrant workers are effectively unionized. What will be the impact of the unionization on (a) the price of Florida oranges, (b) the profits of Florida fruit growers in the short run and in the long run, (c) the mechanization of the fruit picking industry and (d) the employment of fruit pickers? Explain each answer.!

4. Give brief answers to each of the following:!

a. "Since a monopolist is the only supplier of a well-defined product, there is no limit to the price it may charge." Is this statement true or false?!

b. Explain why a monopolist will never set a price (and produce the corresponding output) at which the demand is price-inelastic.!

c. "The ultimate monopoly product would be one whose cross elasticity of demand, with respect to any and all other products, was zero." Comment. !

d. "The reason movie theaters charge youngsters and oldsters less than the rest of us is because theater owners want to help these two low-income groups."!

5. Briefly answer the following:!

a. Is human life priceless? What evidence can you offer to support your contention?!

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b. Minimum wages tend to discriminate against low skilled workers. Why? !

c. Does unemployment mean there are no jobs available?!

6. In the interest of conservation it has been argued there must be government regulation of the extraction of natural resources such as timber because people are greedy and shortsighted. Explain why and how, in a free market, where there are saleable private property rights, the use of these resources are already regulated.!

7. How is interest rate defined? Why is there a lower present value of goods to be delivered in the future? If in New York, U.S. Treasury bonds paying $1,000.00 at maturity (one year hence) sell for $800.00, and in New Jersey sell for $950.00, what are their respective interest rates? Describe the adjustments that you think will ensue.!

8. Below are the fixed cost and variable cost figures for a firm in a perfectly competitive market. Answer the following questions: (a) How low would the market price of its output have to go before the firm would shut down in the short run? (b) What is the price of its output at which the firm would just break even in the short run; how much would the firm produce at that price? (c) If the price of its output were $80, what rate of output would the firm produce and how much profit would it earn?!

Output Fixed Cost AFC Variable Cost AVC Total Cost ATC MC!

1 $100! ! $40!

2 100 70!

3 100 120!

4 100 180!

5 100 250!

6 100 330!

9. a. Both monopolists and purely competitive firms are assumed to behave as if they seek to maximize profits, yet monopoly is held to result in an inefficient allocation of resources as compared to pure competition. Explain. !

b. Why might the existing firms in a cartelized industry prefer to be regulated by the government? Explain.!

10. Do the following comments reflect sound economic reasoning? Explain why or why not.!

a. "I paid $200.00 for this economics course. Therefore, I am going to attend the lectures even if they are useless and boring."!

b. "Since we own, rather than rent, housing does not cost us anything."!

c. "It costs to produce private education, whereas public schooling is free."!

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11. Give brief comments to each of the following, stating first whether the statement is true, false, or uncertain:!

(a) "Since a monopolist is the only supplier of a well-defined product, there is no limit to the price it may charge." !

(b) Race and sex discrimination is part of the optimal stock of human behavior.!

(c) Human rights are far more important for government to protect than property rights.!

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