8/20/2019 ECON 545 Week 8 Final Exam Solutions (Version 2)

http://slidepdf.com/reader/full/econ-545-week-8-final-exam-solutions-version-2 1/2

ECON 545 Week 8 Final Exam Solutions(Version 2)

ECON 545 Business Economics

Download1. (TCO A Suppose you are hired to manage a small manufacturing facility that produces

idgets!(a!) ("5 points) #ou $no% from data collected on the idget &ar$et that mar$et demand

has recently increased and mar$et supply has recently decreased! 's manager of the facility %hat

decisions should you ma$e regarding production leels and pricing for your idget

facility* +emem,er that supply and demand are a,out the mar$et supply and mar$et demand

%hich is ,igger than your o%n company! #ou are ,eing gien data on supply and demand for the

%hole mar$et and are ,eing as$ed %hat effect that has on you as a small part of that mar$et! (,!)

("5 points) No% suppose that follo%ing the supply and demand changes in (a) a su,stitute good

goes up in price and your costs of production decrease! hat ne% decisions %ill you ma$e

regarding production leels and pricing for your idget facility* (-oints . /0)

!. (TCO " 1ere is some data on the demand for lettuce.!!!!!!!!!!!(a!) ("5 points) s demand elastic

or inelastic in the 336 price range* 1o% do you $no%* (,!) ("5 points) f the ta,le represents

the demand faced ,y a monopoly firm then %hat is that firm7s marginal reenue as it increases

output from "0 units to "60 units* Sho% all %or$! (Be careful here8) (-oints . /0)

#. (TCO C #ou hae ,een hired to manage a small manufacturing facility %hose cost and

 production data are gien in the ta,le ,elo%!!!!!!!!!!(a!) ( points) hat is the marginal product of

the second %or$er* (,!) ( points) hat is the marginal reenue product of the fourth %or$er*

(c!) ( points) hat is the marginal cost of the first %or$er* (d!) ("2 points) Based on your

$no%ledge of marginal analysis ho% many %or$ers should you hire* E9plain you ans%er!(-oints . /0)

4. (TCO C :ohn operates a small ,usiness out of his home and has ery little in terms of fi9ed

costs! 'ns%er the ne9t ;uestions (-arts ' and B) on the ,asis of the follo%ing cost data for

:ohn7s firm operating in pure competition.!!!!!!!!!!!(a!) ("5 points) +efer to the a,oe data! f the

 product price is 30 at its optimal output %ill the firm reali<e an economic profit ,rea$ een or 

incur an economic loss* 1o% much %ill the profit or loss ,e* Sho% all calculations!(,!) ("5

 points) +efer to the a,oe data! f the product price is 355 at its optimal output %ill the firm

reali<e an economic profit ,rea$ een or incur an economic loss* 1o% much %ill the profit or

loss ,e* Sho% all calculations! (-oints . /0)

5. (TCO D ' soft%are producer has fi9ed costs of 3/0000 per month and her =otal Varia,leCosts (=VC) as a function of output > are gien ,elo%.!!!!!!!!!!a!) ("5 points) f soft%are can only

 ,e produced in the ;uantities a,oe %hat should ,e the production leel if the producer operates

in a monopolistic competitie mar$et %here the price of soft%are at each possi,le ;uantity is

also listed a,oe* hy* (Sho% all %or$!) (,!) ("5 points) hat should ,e the production leel if

fi9ed costs rose to 350000 per month* E9plain!(-oints . /0)

$. (TCO F (a!) (20 points) Suppose nominal ?@- in "AAA %as 3200 ,illion and in 200" it %as

320 ,illion! =he general price inde9 in "AAA %as "00 and in 200" it %as "50! Bet%een "AAA and

200" the real ?@- rose ,y %hat percent* (,!) se the follo%ing scenario to ans%er ;uestions

8/20/2019 ECON 545 Week 8 Final Exam Solutions (Version 2)

http://slidepdf.com/reader/full/econ-545-week-8-final-exam-solutions-version-2 2/2

(,") and (,2)!n a gien year in the nited States the total num,er of residents is 20 million

the num,er of residents under the age of " is /6 million the num,er of institutionali<ed adults

is "5 million the num,er of adults %ho are not loo$ing for %or$ is " million and the num,er of 

unemployed is "0 million!(,"!) (5 points) +efer to the data in the a,oe scenario! hat is the si<e

of the la,or force in the nited States for the gien year* (,2!) (5 points) +efer to the data in the

a,oe scenario! hat is the unemployment rate in the nited States for the gien year*(-oints .

/0)

%. (TCO & and ' (a!) ("5 points) Suppose your local Congress representatie suggests that thefederal goernment interenes in the gasoline mar$et to stop runa%ay price increases! ould you

say that this ie% ,asically supports the Deynesian or the &onetarist school of thought* hy*

hat position %ould the opposing school of thought ta$e on this issue* (Be ,rief you can

ans%er this in 2 or / ,rief paragraphs)!(,!) ("0 points) 'ny change in the economy7s total

e9penditures %ould ,e e9pected to translate into a change in ?@- that %as larger than the initial

change in spending! =his phenomenon is $no%n as themultiplier effect. E9plain ho% the

multiplier effect %or$s! (c!) ("5 points) #ou are told that A0 cents out of eery e9tra dollar

 pumped into the economy goes to%ard consumption (as opposed to saing)! Estimate the ?@-

impact of a positie change in goernment spending that e;uals 320 ,illion!(-oints . 40)

8. (TCO & (a!) +esere re;uirement for ,an$s is set at 5! #our firm deposits its profits of

326000 into the =hird National Ban$! ("0 points) 1o% much e9cess resere does your deposit

generate for the ,an$*("0 points) hat is the ma9imum amount of ne% money that can ,e

created in the ,an$ing system as a result of this deposit* Sho% all %or$! (,!) ("0 points) hat is

the Federal Funds +ate in the ,an$ing system* ("0 points) E9plain ho% the Fed manipulates this

rate in order to achiee macroeconomic o,Gecties! (-oints . 40)

. (TCOs E and ) Het the e9change rate ,e defined as the num,er of dollars per :apanese yen!

'ssume that there is a relatiely lo%er rate of inflation in the !S! relatie to that of :apan!(a!)

("0 points) ould this eent cause the demand for the dollar to increase or decrease relatie to

the demand for the yen* hy* (,!) ("0 points) 1as the dollar appreciated or depreciated in aluerelatie to the yen* (c!) ("0 points) @oes this change in the alue of the dollar ma$e imports

cheaper or more e9pensie for 'mericans* 're 'merican e9ports cheaper or more e9pensie for

importers of !S! goods in :apan* llustrate ,y sho%ing the price of a !S! ereader in :apan

 ,efore and after the change in the e9change rate! (d!) ("0 points) f you had a ,usiness e9porting

goods to :apan and !S! inflation fell as discussed a,oe in this e9ample %ould you plan to

e9pand production or cut ,ac$* hy* (-oints . 40)

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