Download ECON 290 Intermediate Microeconomics I

ECON 290 Intermediate Microeconomics I
Fall 2006 –Final Exam (30% of course grade)
Instructor: Laura Lamb
Time: 2 hours
Name ______________________________ Student Number____________________
Complete Parts A, B & C
Part A
Explain any 6 of the following 7 microeconomic concepts in the exam booklet
provided. (6 x 2 marks = 12 marks)
Microeconomics
Engel curve
Isocost line
Two-part pricing
Pecuniary economies (not covered in fall 2009)
Transitivity
Gold-plated water cooler effect (not covered in fall 2009)
Part B
Answer all of the following 5 questions in the exam booklet provided. (18 marks)
1. The Canadian health care system is facing challenges in providing quality health care
services to Canadians in an economically efficient manner. The following changes have
occurred over the past 10 years: the number of aging Canadians has increased with a
shift in demographics (the elderly use more health care services), the cost of prescription
drugs used in hospitals has significantly increased, and new medical diagnosis equipment
is extremely expensive. (6 marks)
a. Based on the information given, use the supply and demand model to
analyze the market for health care services in Canada over the past 10
years. Your answer should include graphical analysis and a written
explanation.
2. Complete the table below, which relates to output and cost. (MC represents the
change from the previous row i.e. MC = $25 corresponds with changing production from
Q=0 to Q=1) (2 marks)
Q
TFC ($) TVC($) TC($)
AFC($)
AVC($) ATC($) MC($)
0
180
1
25
2
20
3
24
4
30
1
3. Premium gasoline costs a few more pennies a litre to refine, yet costs much more at
the pump. Explain. (2 marks)
4. Suppose you are going shopping at Aberdeen Mall in Kamloops. You have $560 to
spend on two goods, jeans and shirts. The price of jeans is $70 per pair and the price of
shirts is $80 per shirt. (6 marks)
a) Draw your budget constraint.
b) Draw some indifference curves representing your tastes.
c) Identify your optimal bundle on the graph.
d) Re-draw the budget constraint from part a) and draw some indifference curves
representing the situation where you consider jeans and shirts to be perfect
complements in a one-to-one ratio. Identify and describe your optimal bundle.
5. Suppose a perfectly competitive firm is producing where its SMC= price and the LMC
is less than LAC. How can this firm do better in the long run? Explain. (2 marks)
Part C
Answer all of the following 7 questions on this exam paper. (20 marks)
1) Draw a long run average total cost curve for a natural monopoly firm. With reference
to your graph, explain why it is quite logical for this firm to have monopoly status.
(3 marks)
2) Why is a monopolist not likely to produce in the inelastic section of its demand curve?
(2 marks) (not covered in fall 2009)
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3) The price elasticity of demand for popsicles on a beach in a small New Brunswick
resort area is -5 in the month of May, while in July the elasticity falls to -1.5. A single
vendor supplies the popsicles to the beachgoers. If the marginal cost per popsicle is
$0.60, how much should the vendor charge per popsicle in May and June. (2 marks)
4) The market demand curve for a pair of Cournot duopolists is given as: P=36 –3Q,
Q = Q1 + Q2. The constant per unit marginal cost is $18/unit for each duopolist.
(5 marks)
a. Derive firm 1’s reaction function.
b. Find the Cournot equilibrium price and quantity.
c. If firm 2 had produced 3 units of output, how much would firm 1 produce
in order to maximize its profit?
5) Solve problem 6) as a Bertrand model. Find the long-run equilibrium price,
quantities and profits. (3 marks)
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6) Compare and contrast second and third degree price discrimination. (3 marks)
(not covered in fall 2009)
7) Sketch a graph for a monopolist illustrating monopoly profit and deadweight loss from
monopoly. (2 marks) (not covered in fall 2009)
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