ECON 544
Q. 1
(TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.
(a.) (15 points) You know from data collected on the Widget Market that market demand has recently increased and market supply has recently decreased. 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.
Q.2
1. 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.
1. What are the coefficients of elasticity of supply and demand if the price is raised from $6 to $8? (8 points)
Solution:
Coefficients of elasticity of supply and demand = (2,000/2) *(6/5000)
Where as
2000 is Quantity Supplied at price of $6
5000 is Demand at price of $6
$8-$6 = $2
Coefficients of elasticity of supply and demand = (2,000/2) *(6/5000)
Coefficients of elasticity of supply and demand = (1,000*6/5000)
Coefficients of elasticity of supply and demand = = 1.2 (elastic)
Q. 3
Question 3. 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 $300 50 $350
2 600 140 675
3 900 220 1120
4 1200 270 1570
5 1500 300 1865
6 1800 315 2070
7 2100 320 2170
Workers Total Labor Cost Output Total Revenue Marginal Labor Cost Marginal Product Marginal Revenue
1 300 50 350 300 50 350
2 600 140 675 300 90 325
3 900 220 1120 300 80 445
4 1200 270 1570 300 50 450
5 1500 300 1865 300 30 295
6 1800 315 2070 300 15 205
7 2100 320 2170 300 5 100
(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.) you hire? Explain you answer. (Points : 30)
(12 points) Based on your knowledge of marginal analysis, how many workers should
Question 4. 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- 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)
Question 5. 5. (TCO D) A software producer has fixed costs of $30,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:
Q TVC Price 3,000 $ 5,000 $5 13,000 25,000 4 23,000 50,000 3 33,000 80,000 2 43,000 120,000 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.)
Question 6. 6. (TCO F)
(20 points) Suppose nominal GDP in 1999 was $200 billion, and in 2001, it was $270
billion. The general price index in 1999 was 100 and in 2001 it was 150. Between 1999
(a.) 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 270 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.
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) Suppose your local Congress representative suggests that the federal government
should NOT intervene in the baseball ticket market to stop runaway price increases. Would you
What position would the opposing school of thought take on this issue? (Be brief -- you can
say that this view basically supports the Keynesian or the Monetarist school of thought? Why?
This supports the Monetarists view. According to them government intervention has no ‘real’
answer this in 2 or 3 brief paragraphs).
(b.) (10 points) 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.
In Keynes theory Y is determined where aggregate demand equals aggregate supply. AD=
C+I+G+XM
8. (TCO G)
(a.) Reserve requirement for banks is set at 5%. Your firm deposits its profits of $28,000 into the
Third National Bank.
Excess reserves= 95% of 28000= 26600
(10 points) How much excess reserve does your 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.
(10 points) Explain how the Fed manipulates this rate in order to achieve macroeconomic
objectives. (Points : 40)
Question 9. 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?
Higher demand for Yen will increase the exchange rate E. This implies $ has depreciated while
Yen has appreciated.
(d.) (10 points) If you had a business exporting goods to Japan, and U.S. interest rates fell as they
USA 
India