econ 419 exam 2 - blue - fall 2012

Dollar sales for each of the firms in a given industry are shown in the table below:

Firm

Sales(Thousan

ds of Dollars)

A 100B 80C 220D 160E 120F 60G 140H 120

1. The four firm concentration (C4) index for this industry equals:a) 0.56 b) 0.64 c) 0.72 d) 0.80 e) None of the above are correct.

2. The Hirfindahl-Herschman (HHI) index for this industry equals: a) 1,424 b) 1,520 c) 1,586 d) 1,648 e) None of the above are correct.

3. If firms B and F merge, the new HHI for this industry will equal:a) 1,424 b) 1,520 c) 1,586 d) 1,648 e) None of the above are correct.

The quantity demanded of Better Stuff’s product, for any given price P, is Q = 1,200 – (1/10)P. The cost of producing any quantity Q is C(Q) = 400,000 + 4,000Q + 15Q2, with dC(Q)/dQ = 4,000 + 30Q. Better Stuff is able to practice 1st degree price discrimination across customers in its market. Better Stuff is a profit maximizing firm.

4. Better Stuff will sell _________ units of output.a) 160 b) 200 c) 240 d) 280 e) None of the above are correct.

5. Better Stuff’s profit will equal:a) 160,000 b) 240,000 c) 320,000 d) 400,000 e) None of the above are correct.

Blue Exam 2 – Fall 2012 of 7 Economics 419 – Purdue University

BestEver uses capital (K) and labor (L) to produce its product. For given levels of employment of capital and labor, its output Q = 120K2/3L1/3, with Q/K = 80K-1/3L1/3 and Q/L = 40K2/3L-2/3. The wage BestEver must pay to attract and retain qualified labor, w = 8,000. The rental rate of capital confronting the firm, r = 2,000.

6. BestEver’s production technology is a) Cobb-Douglas b) Linear c) Leontief d) Quadratic

7. BestEver minimizes its cost of producing 24,000 units of output employing _____ units of labor. a) 50 b) 100 c) 200 d) 400 e) None of the above are correct.

8. BestEver’s minimum per unit cost of producing 24,000 units of output equals:a) 5.00 b) 10.00 c) 25.00 d) 50.00 e) None of the above are correct.

Quantity demanded of LaserApps’ product, for any given price P, is Q = 40,000 – 200P. Cost of production for any given quantity produced by LaserApps is C(Q) = 600,000 + 40Q + 0.005Q2. For this cost function, we can determine that dC(Q)/dQ =40 + 0.01Q. LaserApps is a non-price discriminating, profit maximizing, firm.

9. LaserApps maximum profit equals:a) -80,000 b) -40,000 c) 0 d) 40,000 e) None of the above are correct.

10. The price elasticity of total market demand, ET, equals -1.4. The Rothschild index for LaserApps equals: a) 0.35 b) 0.45 c) 0.55 d) 0.65 e) None of the above are correct

11. The Lerner Index for LaserApps equals:a) 0.167 b) 0.333 c) 0.400 d) 0.444 e) None of the above are correct.


|MRTS|=MPLMPK

=40K2 /3 L−2/3

80K−1 /3 L1/3 =K

2 L=4=800

200=wr

for K = 8L

24,000=120K 2/3L1 /3=120 (8 L)2 /3 L1/3=480 L for L = 50 K = 8(50) = 400

Perunit cost=8,000 (50 )+2,000 (400)

24,000=

1,200,00024,000

=50

Pretty Parts produces in two plants, Plant 1 and Plant 2, and sells in a single market. For any price P, quantity demanded of the firm’s good is Q = 5,200 – 20P. Cost of production in Plant 1 is C(Q1) = 104,000 + 10Q1 + (1/80)Q1

2, with dC(Q1)/dQ1 = 10 + (1/40)Q1. Cost of production in Plant 2 is C(Q2) = 82,000 + 20Q2 + (1/100)Q2

2, with marginal cost of production dC(Q2)/dQ2 = 20 + (1/50)Q2. Pretty Parts is a non-price discriminating, profit maximizing, firm.

12. Pretty Parts will produce ______ units of output in Plant 1.a) 900 b) 1,000 c) 1,100 d) 1,200 e) None of the above are correct.

13. Cost of production for Pretty Parts in Plant 2 equals:a) 94,000 b) 132,000 c) 148,000 d) 162,000 e) None of the above are correct.

14. Marginal Revenue at the profit maximizing price and quantity equals:a) 15 b) 25 c) 40 d) 60 e) None of the above are correct.

15. The price Pretty Parts charges equals: a) 150 b) 160 c) 170 d) 180 e) None of the above are correct.

16. Pretty Parts earns an economic profit equal to:a) -8,000 b) 0 c) 4,000 d) 16,000 e) None of the above are correct.


Smart Advice sells its products in two markets, Market A and Market B. Demand for its product in Market A is QA = 600 – (3/2)PA, and demand in Market B is QB = 400 – (1/2)PB. Cost of production for the firm, for any amount of output Q, is C(Q) = 63,000 + 100Q + (1/8)Q2, with dC(Q)/dQ = 100 + (1/4)Q. Smart Advice is a profit maximizing firm.

17. If Smart Advice is unable to practice price discrimination, it will set its price equal to:a) 180 b) 290 c) 340 d) 400 e) None of the above are correct.

18. If Smart Advice is unable to practice price discrimination, its marginal revenue in Market B will equal: a) -120 b) 0 c) 160 d) 280 e) None of the above are correct.

19. If Smart Advice is unable to practice price discrimination, its profit will equal:a) -2,000 b)200 c) 2,000 d) 4,000 e) None of the above are correct.

20. If Smart Advice is able to practice 3rd degree price discrimination, it will set its price in Market A equal to: a) 290 b) 340 c) 370 d) 490 e) None of the above are correct.

21. If Smart Advice is able to practice 3rd degree price discrimination, it will sell ____ units of output in Market B.a) 145 b) 155 c) 165 d) 175 e) None of the above are correct.

22. If Smart Advice is able to practice 3rd degree price discrimination, its profit will equal:a) 2,000 b) 8,000 c) 12,000 d) 16,000 e) None of the above are correct.


60

90AVC

ATC

MC

Q

$

100

3,800 6,000

Short Run Costs of production for the XYZ Corporation are shown in the graph below:

XYZ uses only two inputs in production, Labor and Capital, which it obtains in perfectly competitive markets. Capital is fixed in this short run period.

23. XYZ is employing 152 units of capital. Thus the rental rate it is paying for capital equals _______ per unit.a) 400 b) 800 c) 1,200 d) 1,600 e) None of the above are correct.

24. XYZ is paying a wage of 2,000 per unit of labor. At 6,000 units of output it is employing ______ units of labor.a) 168 b) 194 c) 246 d) 272 e) None of the above are correct.

25. At output level Q = 6,000, the marginal product of capital equals 10.62. We can determine in the long run that at this level of output, given current technology:a) XYZ will not be able to decrease its per unit cost below 90.b) XYZ can reduce its per unit cost of production below 90 using less labor, and more capital.

c) XYZ can reduce its per unit cost of production below 90 using more labor, and less capital.d) XYZ can reduce its per unit cost of production below 90 only if it is able pay a lower wage to its labor.


The High Grade Coal Mine is the only employer in town. For an given amount of labor it employs its output will be Q = 1,300L – (1/2)L2, with dQ/dL = 1,300 – L. The quantity supplied of labor for any wage w that the firm offers is given as L = (1/20)w – 100. High Grade sells its output in a perfectly competitive market at a price P = 20.

High Grade is a non-wage discriminating, profit maximizing, firm. Labor is its only variable input. Fixed costs equal 3,000,000.

26. High Grade maximizes profit offering a wage equal to:a) 8,000 b) 10,000 c) 12,000 d) 14,000 e) None of the above are correct.

27. At High Grade’s profit maximizing level of labor employment, the Value of the Marginal Product of Labor equals:a) 12,000 b) 14,000 c) 16,000 d) 18,000 e) None of the above are correct.

28. High Grade’s maximum profit equals: a) 1,800,000 b) 2,400,000 c) 3,600,000 d) 4,800,000 e) None of the above are correct.

29. Suppose workers in High Grade’s market form a union, and demand a union wage equal to 16,000. If High Grade accepts this wage demand, it will employ ______ units of labor to maximize profit.a) 200 b) 300 c) 400 d) 500 e) None of the above are correct.

30. If High Grade agrees to the union wage demand of 16,000, its maximum profit will equal: a) - 500,000 b) 0 c) 1,200,000 d) 1,800,000 e) None of the above are correct.


31. The owner of Campus Pizza, a profit maximizing firm, knows the price elasticity of demand for pizza among students equals – 2.5 and the price elasticity of demand for non-students equals -2.0. If she charges $20.00 to customers who can show a valid student ID, how much is she charging non-students?a) $16.00 b) $20.00 c) $24.00 d) $28.00 e) None of the above are correct.

32. The Dansby-Willig index provides a quantitative measure useful in assessing industry ________. The Lerner index is a quantitative measure useful in assessing industry ________. The Hirschman-Herfindahl (HHI) index is a quantitative measure useful in assessing industry _________.a) Structure; Conduct; Performance d) Performance; Conduct; Structureb) Conduct; Performance; Structure e) None of the above are correct.c) Structure; Performance; Conduct

33. In the long run, in an industry characterized by monopolistic competition, we would expect:a) Firms in the industry will be producing at Minimum Efficient Scale.

b) Prices charged by firms in the industry will equal average total cost of production.c) Prices charged by firms in the industry will be equal to marginal cost of production.d) All of the above are correct.e) None of the above are correct.

34. Transfer pricing becomes an issue when inputs are acquired through:a) Spot Markets

b) Vertical Integrationc) Contractsd) All of the above are correct.e) None of the above are correct.

35. Mary’s marginal rate of substitution (in absolute value) of daily income (I) for leisure (L), MUL/MUI, equals 3I/L. She is currently working an eight hour day for an hourly wage of $16/hour. Mary will consider working overtime only if the overtime wage is greater than ______ dollars per hour. a) 20 b) 24 c) 28 d) 32 e) None of the above are correct.


MRStudents=(1+ 1−2.5 )20=(1+ 1

−2.0 )PNon−Students=MR Non−Students for PNon−Students=24.00

econ 419 exam 2 - blue - fall 2012

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