Econ 545 final exam answers

Econ 545
2. (TCO B) The supply and demand schedules for tickets to basketball games in town of Oakwood are given in the table below.

Price
Quantity Demanded

Quantity Supplied

$6

5,000

2,000

7

4,000

2,000

8

3,000

2,000

9

2,000

2,000

10

1,000

2,000

The stadium owners need to find the optimum price for the games.

What are the coefficients of elasticity of supply and demand if the price is raised from $6 to $8? (8 points)
Characterize the demand and supply for tickets based on the calculated elasticies. (4 points)
What is the optimum price that the stadium owners can set for the tickets? (4 points)
Why is the selected price for the tickets better than other prices given in the table above? (4 points)

3. (TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.

Total Total

Workers Labor Cost Output Revenue

1 $200 50 $350

2 400 140 675

3 600 220 1120

4 800 270 1570

5 1000 300 1865

6 1200 315 2070

7 1400 320 2170

(a.) (6 points) What is the marginal product of the second worker?

(b.) (6 points) What is the marginal revenue product of the fourth worker?

(c.) (6 points) What is the marginal cost of the first worker?

(d.) (12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer. (Points : 30)

4. (TCO C) John operates a small business out of his home and has very little in terms of fixed costs. Answer the next questions (Parts A and B) on the basis of the following cost data for John’s firm operating in pure competition:

OUTPUT ------ TFC ---------- TVC

0 $30.00 0.00

1 30.00 70.00

2 30.00 120.00

3 30.00 150.00

4 30.00 200.00

5 30.00 270.00

6 30.00 360.00

(a.) (15 points) Refer to the above data. If the product price is $60, at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

(b.) (15 points) Refer to the above data. If the product price is $55 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations. (Points : 30)

5. (TCO D) A software producer has fixed costs of $20,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below. Complete the table (TC, MC, TR, and MR), then answer Parts A and B.

Q TVC Price

2,000 $5,000 $25

4,000 7,000 22

6,000 18,000 20

8,000 33,000 10

10,000 50,000 1

(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work.)

(b.) (15 points) What should be the production level if fixed costs rose to $70,000 per month? Explain.

(Points : 30)

6. (TCO F)

(a.) (20 points) Suppose nominal GDP in 1999 was $100 billion and in 2001 it was $270 billion. The general price index in 1999 was 100 and in 2001, it was 150. Between 1999 and 2001, the real GDP rose by what percent?

(b.) Use the following scenario to answer questions (b1.) and (b2.).

In a given year in the United States, the total number of residents is 170 million, the number of residents under the age of 16 is 38 million, the number of institutionalized adults is 15 million, the number of adults who are not looking for work is 17 million, and the number of unemployed is 10 million.

(b1.) (5 points) Refer to the data in the above scenario. What is the size of the labor force in the United States for the given year?

(b2.) (5 points) Refer to the data in the above scenario. What is the unemployment rate in the United States for the given year? (Points : 30)

7. (TCO G and H)

(a.) (15 points) What are the arguments for and against the use of fiscal policy to fight inflation, lower unemployment, and raise GDP (Keynesian and Monetarist)?

(b.) (10 points) Any change in the economy’s total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as themultiplier effect. Explain how the multiplier effect works.

(c.) (15 points) You are told that 80 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $10 billion. (Points : 40)

8. (TCO G)

(a.) Reserve requirement for banks is set at 5%. Households deposit savings of $35,000 into the Third National Bank.

(10 points) How much excess reserve does the deposit generate for the bank?

(10 points) What is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.

(b.) (10 points) What is the Discount Rate in the banking system?

(10 points) Explain how the Fed manipulates this rate in order to achieve macroeconomic objectives.(Points : 40)

9. (TCO E and I) Let the exchange rate be defined as the number of dollars per Japanese yen. Assume that there is a decrease in U.S. interest rates relative to that of Japan.

(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the yen? Why?

(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the yen?

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan? Illustrate by showing the price of a U.S. e-reader in Japan before and after the change in the exchange rate.

(d.) (10 points) If you had a business exporting goods to Japan, and U.S. interest rates fell as they have in this example, would you plan to expand production or cut back? Why? (Points : 40)