Question Details

ECON 545
EXAM 
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)
aracterize the demand and supply for tickets based on the calculated elasticise. (4 points)

3. What is the optimum price that the stadium owners can set for the tickets? (4 points)
Solution:
4. Why is the selected price for the tickets better than other prices given in the table above? (4 points)

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?
Ans - MP for Second Worker =  140-50 = 90
(b.)	(6 points) What is the marginal revenue product of the fourth worker?
Ans.    1570-1120 =450
(c.)	(6 points) What is the marginal cost of the first worker?
Ans.  300-0 =300
(d.)	(12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer. (Points : 30)
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.)	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)
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.)Ans.
In this scenario, at all production level, company has loss, so company should produce 13000 units to minimize its loss.
(b.) (15 points) What should be the production level if fixed costs rose to $50,000 per month? Explain.
Question 6. 6. (TCO F)
(a.)	(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 and 2001, the real GDP rose by what percent?
Ans. Real GDp in 1999 = 100/100 =1
Real GDp in 2001 = 270/150 =1.8
% RISE= 80%
(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.
(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?

(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 say that this view basically supports the Keynesian or the Monetarist school of thought? Why? What position would the opposing school of thought take on this issue? (Be brief -- you can 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 
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. 

(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.
(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.  

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more