ECON 544
TCO A
Suppose you are hired to manage a small manufacturing facility that produces Widgets.
(a.) You know from data collected on the Widget Market that market demand has recently decreased and market supply has recently increased. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?
Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market, and are being asked what effect that has on you as a small part of that market.
(TCO B) Here is some data on the demand for marshmallows:
Price Quantity
$10 1100
$ 8 1300
$ 6 1700
$ 4 2300
$ 2 3100
(a.) Is demand elastic or inelastic in the $6-$8 price range? How do you know?
(b.) If the table represents the demand faced by a monopoly firm, then what is that firm- marginal revenue as it increases output from 1700 units to 2300 units? Show all work.
TCO C) You have been hired to manage a small manufacturing facility which has cost and production data given in the table below.
Total Total
Workers Labor Cost Output Revenue
1 $500 100 $700
2 1000 280 1150
3 1500 440 1440
4 2000 540 1570
5 2500 600 1670
6 3000 630 1710
7 3500 640 1730
(a.) What is the marginal product of the second worker?
(b.) What is the marginal revenue product of the fourth worker?
(c.) What is the marginal cost of the first worker?
(d.) Based on your knowledge of marginal analysis, how many workers should you hire? Explain
you answer.
TCO C) Answer the next questions on the basis of the following cost data for a firm in pure competition:
OUTPUT ------ TFC ---------- TVC TC TR MR MC
0 $100.00 0.00 100 0 - -
1 100.00 70.00 170 75 75 70
2 100.00 120.00 220 150 75 50
3 100.00 150.00 250 225 75 30
4 100.00 220.00 320 300 75 70
5 100.00 300.00 400 375 75 80
6 100.00 390.00 490 450 75 90
(a.) Refer to the above data. If the product price is $75, 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.) Refer to the above data. If the product price is $100, 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.
(TCO D) A software producer has fixed costs of $18,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:
Q TVC Price TC TR MR MC
1,000 $15,000 $25 33000 25000 - -
2,000 20,000 24 38000 48000 23 5
3,000 30,000 23 48000 69000 21 10
4,000 50,000 22 68000 88000 19 20
5,000 80,000 20 98000 100000 21 30
(a.) 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.) What should be the production level if fixed costs rose to $48,000 per month? Explain.
(TCO F)
(a.) Suppose nominal GDP in 1999 was $100 billion and in 2001 it was $260 billion. The general price index in 1999 was 100, and in 2001 it was 180. Between 1999 and 2001, the real GDP rose by what percent?
(b.) Use the following scenario to answer questions (b1) and (b2).
(b1.) 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.) Refer to the data in the above Scenario. What is the unemployment rate in the United
States for the given year?
(TCO G and H)
(a.) What are the arguments for and against the use of fiscal policy to fight inflation, lower
unemployment, and raise GDP (Keynesian and Monetarist)?
(b.) Any change in the economy- 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
the multiplier effect. Explain how the multiplier effect works.
(c.) 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.
(a.) Third National Bank is fully loaned up with reserves of $20,000 and demand deposits equal
to $100,000. The reserve ratio is 20%. Households deposit $5,000 in currency into the bank.
How much excess reserves does the bank now have, and 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.) What is the discount rate in the banking system, and explain how the Fed manipulates this
rate in order to achieve macroeconomic objectives.
TCO E and I) Let the exchange rate be defined as the number of dollars per British pound.
Assume there is a decrease in U.S. interest rates relative to that of Britain.
Would this event cause the demand for the dollar to increase or decrease relative to the
(a.) demand for the pound? Why?
(b.) Has the dollar appreciated or depreciated in value relative to the pound?
When the interest rate falls exchange rate also falls as capital moves out of the country.
Ths exchange rate appreciates.
(d.) If you had a business exporting goods to Britain, and U.S. interest rates fell as they have in
this example, would you plan to expand production or cut back? Why?
USA 
India