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Directions:Download the examination between 12:01 am on Tuesday, December 16, 2014 and 8:30 pmDecember 31, 2014. This is an open book exam with hand calculator allowed. Please print yourname clearly below andon each page of your answer sheets. Once downloaded, you areallowed 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-relatedlogistical 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, themaximum time we will allow for you to upload the completed exam back is 3 hours after youinitially downloaded the exam (download and upload times will be time stamped). Noexaminations 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. Thenumber of points and a suggested amount of time is indicated for each question. For thosequestions having multiple component parts, we have indicated the point allocation to eachcomponent 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 thefollowing statements isTrue,FalseorUncertain, and give abrief 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 itsmarginal cost, it should shut down and cease production.B.Dominique is planning to bid on an antique piece of fine jewelry in a second pricesealed 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, sincethere 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 costcurve 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 theburden 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 orcounter the effects of consumers’ adverse selection into health care insurance plans.G.Consider a Cournot game in which a Prisoners’ Dilemma-like payoff matrix isrepeated a known finite number of times. In such a case, a tit-for-tat strategy isoptimal.H.Whenever a firm has market power and can set its own output prices, deadweightloss will occur. Therefore, any firm having market power reduces economicefficiency compared to a perfectly competitive market outcome.2. (30 total points, 30 minutes) Workers must travel from Residentsville to the Workplacecopper mine and return every day. On a monthly basis, the inverse demand for bus rides isgiven byP = 300 – 4Qwhere P is in cents per ride and Q is in thousands of rides. The marginal cost of each ride is 50cents (there are no economies of scale and no fixed costs).