Download Quantity of Bagels Marginal Utility from Bagels (utils) Quantity of Toy

Quantity of Bagels
Marginal Utility from
Quantity of Toy Cars
Bagels (utils)
1
8
1
2
7
2
3
6
3
4
5
4
5
4
5
6
3
6
Theresa consumes both bagels and toy cars. (2012 Question2)
Marginal Utility from
Toy Cars (utils)
10
8
6
4
3
2
(a) The table above shows Theresa’s marginal utility from bagels and toy cars.
(i) What is her total utility from purchasing three toy cars?
(ii) Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of
bagels and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy
cars? Explain your answer using marginal analysis.
(b) Assume that the price of wheat, an input for the production of bagels, increases. Will Theresa’s demand for bagels
increase, decrease, or not change? Explain.
(c) Suppose that Theresa’s income elasticity for bagels is –0.2. Does the value of Theresa’s income elasticity indicate that
bagels are normal goods, inferior goods, substitutes, or complements?
(d) Suppose that when the price of toy cars increases by 10 percent, Theresa buys 5 percent fewer toy cars and 4
percent less of a different toy, blocks. Calculate the cross-price elasticity for toy cars and blocks and indicate if it is
positive or negative.
2007 Question 1 Form B
Assume that the cellular industry is monopolistically competitive.
(a) Assume that cellular telephone manufacturers are earning short-run economic profits. Draw a correctly labeled
graph for a typical firm in the industry and show each of the following.
(i) The profit-maximizing output and price
(ii) The area representing economic profit
(b) At the profit-maximizing price you identified in part (a), would the typical firm’s demand curve be price inelastic?
Explain.
(c) Given the information in part (a), what happens to the demand curve for the typical firm in the long run?
(d) Using a new correctly labeled graph, show the profit-maximizing output and price for the typical firm in the long run.
(e) Does the typical firm produce an output level that minimizes its average total cost in the long run?
(f) In long rung equilibrium, does the typical firm produce the allocatively efficient level of output? Explain.
2008 Questions 1 Form B
The graph above shows the demand and cost curves of a firm that does not price discriminate.
(a) Suppose the firm produces at the profit-maximizing output. Using the labeling on the graph, identify each of the
following.
(i) Level of output. Explain.
(ii) Price
(b) Suppose the firm produces at the revenue-maximizing output. Using the labeling on the graph, identify each of the
following.
(i) Level of output. Explain.
(ii) Price
2009 Question 1 Form A
CableNow is the only supplier of cable TV services offering a wide range of TV channels. CableNow is an unregulated firm
and is currently earning an economic profit. Assume that CableNow does not practice price discrimination.
(a) Draw a correctly labeled graph for CableNow and show each of the following. Make sure your graph is large enough
to be legible.
(i) The profit-maximizing quantity of cable services, labeled as Q*
(ii) The profit-maximizing price, labeled as P*
(iii) The area of economic profit, completely shaded
(iv) The socially optimal level of cable services, assuming no externalities, labeled as QS
(b) Assume that the government grants CableNow a lump-sum subsidy of $1 million. Will this policy change CableNow’s
profit-maximizing quantity of cable services? Explain.
(c) Instead of granting a subsidy, assume now that the government chooses to require CableNow to produce the
quantity at which CableNow earns zero economic profit. On the graph you drew in part (a), label this quantity QR.
(d) At QR, is the firm’s accounting profit positive, negative, or zero? Explain.
(e) Assume that a new study reveals there are external benefits associated with watching TV. Will the socially optimal
quantity of cable services now be larger than, smaller than, or equal to the QS you identified in part (a)(iv) ?
2007 Question 2 Form B
Two airline companies, Airtouch and Windward, operate a route from City X to City Y, transporting a mix of passengers
and freight. They must file their schedules with the National Transportation Board each year and cannot alter them
during the year. Those schedules are revealed only after both companies have filed. Each airline must choose between
a morning and an evening departure. The relevant payoff matrix appears below, with the first entry in each cell
indicating Airtouch’s daily profit and the second entry in each cell indicating Windward’s daily profit.
$1,000
$700
$700
$600
$750
$950
$900
$800
In which market structure do these firms operate? Explain.
If Windward chooses an evening departure, which departure time is better for Airtouch?
Identify the dominant strategy for Windward.
Is choosing an evening departure a dominant strategy for Airtouch? Explain.
If both firms knonw all the information in the payoff matrix but do not cooperate, what will be Windward’s daily profit?