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Microeconomics Exam: Questions and Solutions

Added on -2019-09-16

This is a microeconomics exam with questions and solutions. The exam has a total of 180 points and is an open book exam with a hand calculator allowed. The questions cover topics such as market power, monopolies, subsidies, user cost of capital, Cournot-Nash equilibrium, and more. The exam also includes a payoff matrix and a monopolist's decision on pricing and allocation of product output between two markets.
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Directions:Download the examination between 12:01 am on Tuesday, December 16, 2014 and 8:30 pm December 31, 2014. This is an open book exam with hand calculator allowed. Please print your name clearly below and on each page of your answer sheets. Once downloaded, you are allowed to complete the examination in three and one-half hours -- three hours in total to focuson the examination, and one-half hour to allow for downloading/uploading technology-related logistical snafus. It would be best if you take the examination all in one setting. However, sincesome of you may be temporarily interrupted by work or family while taking the exam, the maximum time we will allow for you to upload the completed exam back is 3 hours after you initially downloaded the exam (download and upload times will be time stamped). No examinations will be accepted after midnight, December 31, 2014.Answer all questions as clearly and legibly as possible. The exam has a total of 180 points. The number of points and a suggested amount of time is indicated for each question. For those questions having multiple component parts, we have indicated the point allocation to each component part. In order to obtain full credit for your answers, you need to show your work.
1. (40 total points, 40 minutes, 5 points for each question) Decide whether each of the following statements is True, False or Uncertain, and give a brief but clear explanationsupporting your answer. Most of the credit will be given for your explanation.A.If a firm having market power charges a price for its output that is less than its marginal cost, it should shut down and cease production. B.Dominique is planning to bid on an antique piece of fine jewelry in a second price sealed bid auction. Dominique’s private value for the antique jewelry is $10,000. Dominique should bid no more than $10,000 for the antique jewelry.C.Greater diversity among suppliers makes collusion more likely to emerge, since there is more likely to be something for everyone in the market.D.A monopolist’s long-run supply curve is that portion of its long-run marginal cost curve above its long-run average total cost curve.E.The demand for refrigerators is characterized by a partial adjustment process (inertia). Suppose a $250 tax is imposed on new refrigerators. The share of the burden of this tax borne by consumers (as opposed to producers) will rise.F.Deductibles and cost sharing copayments are tools used by insurers to mitigate or counter the effects of consumers’ adverse selection into health care insurance plans.G.Consider a Cournot game in which a Prisoners’ Dilemma-like payoff matrix is repeated a known finite number of times. In such a case, a tit-for-tat strategy is optimal. H.Whenever a firm has market power and can set its own output prices, deadweight loss will occur. Therefore, any firm having market power reduces economic efficiency compared to a perfectly competitive market outcome.2. (30 total points, 30 minutes) Workers must travel from Residentsville to the Workplace copper mine and return every day. On a monthly basis, the inverse demand for bus rides is given byP = 300 – 4Qwhere P is in cents per ride and Q is in thousands of rides. The marginal cost of each ride is 50 cents (there are no economies of scale and no fixed costs).

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