Remember: This exam is open book and open note.

If you have any questions or concerns, please let me know via email or discussion board.

All questions are worth 1 point

Question 1: How can the government fix a negative externality without raising prices on the good

causing the externality?

A) Impose a tax in the good

B) Force the cost of the externality on the firm

C) It can't, fixing the externatily will always raise the good's price

Question 2: Find the equilibrium given the following demand and supply for gasoline in gallons

Price Demand Supply

$10 10 110

$9 20 100

$8 30 90

$7 40 80

$6 50 70

$5 60 60

$4 70 50

$3 80 40

Question 3: Based on your answer to Q2, what would be the effect of a price ceiling of $3?

Please give effect and amount

Question 4: Now assume a supply increase of 40 gallons from the data in Q2

Find the new supply schedule

Price Demand Supply

$10 10

$9 20

$8 30

$7 40

$6 50

$5 60

$4 70

$3 80

Question 5: Based on your answer to Q4, what is the effect of the price ceiling now, if any?

Question 6: Find the equilibrium given the following demand and supply for oil (in barrels)

Price Demand Supply

$10 5 105

$9 10 90

$8 15 75

$7 20 60

$6 25 45

$5 30 30

$4 35 15

$3 40 0

Question 7: Based on your answer to Q6, calculate the price elasticity of demand at the equilibrium price

(range is from $1 below equilibrium to $1 above equilibrium)

Question 8: Given your answer to Q7, would firms increase revenue with a cut in prices or not? Why or why not?

Question 9: If supply and demand increase at the same time, what happens to

the equilibrium quantity?

Question 10: If supply decreased and demand increased at the same time, what happens to

the equilibrium price?

Question 11: A monopolist firm sees the following demand

Find the Marginal Revenue

Price Quantity Marginal Revenue

$8 1

$7 2

$6 3

$5 4

$4 5

$3 6

$2 7

$1 8

Question 12: Here's that firm's cost schedule

Find the Average and Marginal Costs

Quantity Total Cost Average Cost Marginal Cost

0 $4 N/A N/A

1 $9

2 $13

3 $16

4 $18

5 $22

6 $28

7 $36

8 $46

Question 13: Based on your answers to Q11 and Q12, find the monopolist's equilibrium quantity

Question 14: Based on your answer to Q11-Q13, what is the equilibrium price?

Question 15: Based on the data in Q12, what is the monopolist's fixed cost?

Question 16: Assume pure competition, a product price of $3, and the following production schedule

Calculate the Total and Marginal Revenue Products

Workers Total Product TRP MRP

1 8

2 14

3 18

4 20

5 20

Question 17: Assume a market wage rate of $12, how many workers will the firm from Q16 hire?

Question 18: If the government imposes a minimum wage of $18, how many workers will the firm from Q16 hire now?

Question 19: How can the government fix a positive externality without raising prices on the good?

A) Subsidize firms that produce the good

B) Subsidize consumers of the good

C) It can't, fixing the externatily will always raise the good's price

Question 20: In the long run, a firm's fixed cost is

A) Higher than in the short run

B) Zero

C) The same as in the short run