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The answers to the multiple choice and problems sections of the intermediate microeconomic analysis midterm exam held at drake university in fall 2006. Versions a, b, and c of the answers.
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Intermediate Microeconomic Analysis (Econ 173) Drake University, Fall 2006 William M. Boal
(1)c. (2)d. (3)b. (4)b. (5)c. (6)c. (7)c. (8)d. (9)b. (10)d. (11)c. (12)d. (13)b. (14)e. (15)d. (16)b. (17)c. (18)h. (19)f. (20)a. (21)c. (22)e. (23)d. (24)d. (25)b. (26)d. (27)a. (28)f. (29)c. (30)c. (31)e. (32)d. II. PROBLEMS (1) a. 1800 = 5 x 1 x 2. b. MRSP = MP 2 /MP 1 = x 1 / x 2. c. x 1 =24, x 2 =. d. TC(1800) = $240. (2) a. Set PD = PS and solve to get Q=60 and P=5. b. 40 c. $7 d. $4 e. $100 f. $50 g. $ h. $30. III. CRITICAL THINKING (1) False. The profit-maximizing output level depends on the market price. If the market price is greater than minimum average cost, the profit-maximizing output level occurs where price equals marginal cost (q*). If the market price is less than minimum average cost, the profit-maximizing output level is zero. Only if the market price exactly equals minimum average cost will the corresponding output (qES) level maximize profit. (Full credit requires graph—see below.)
(2) If supply is horizontal (perfectly elastic) then the entire burden of the tax falls on manufacturers. The total price paid by consumers (PD) equals the original price (P*) plus the tax. The net price received by the manufacturers (PS) equals the original price. There is no loss of producer surplus (indeed there was no producer surplus in the market to begin with. The loss of consumer surplus equals the tax revenue plus deadweight loss. (Full credit requires graph—see below.) VERSION B I. MULTIPLE CHOICE (1)a. (2)a. (3)b. (4)a. (5)d. (6)d. (7)d. (8)e. (9)c. (10)a. (11)b. (12)b. (13)a. (14)d. (15)e. (16)a. (17)d. (18)a. (19)e. (20)f. (21)e. (22)h. (23)b. (24)a. (25)b. (26)b. (27)b. (28)f. (29)d. (30)g. (31)e. (32)b. Min AC
qES
q* P Q tax P*=PS