Western University Intermediate Microeconomic Theory I Final Exam

This document contains the answer key for the Intermediate Microeconomic Theory I (Economics 2150b) final exam at Western University, administered in April 2020. The exam covers material since Midterm 2 and includes all topics covered in the course. The exam is divided into four parts: True/False questions, True/False 'Grouped' questions, Fill-in-the-blank questions, and Fill-in-the-blank 'Grouped' questions. The answer key provides solutions to all 43 marks, including numerical, alphabetical, and word answers. Topics covered include consumer theory, utility functions, elasticity, production functions, cost minimization, and market demand. This resource is designed to help students understand the concepts and prepare for similar exams.

INTERMEDIATE MICROECONOMIC THOERY I
ECONOMICS 2150b-001
Department of Economics
Western University
ONLINE FINAL EXAM
I. Trela April 2020
WHEN: Monday, April 13, 9:00am (EDT time zone – same time zone as Western)
ALLOTTED TIME: 2.5 hours (9:00-11:30am, EDT time zone – same time zone as Western)
INSTRUCTIONS:
1. Your exam consists of 4 parts:
Part A: True/False Questions
Part B: True/False ‘Grouped’ Questions
Part C: Fill-in-the-blank Questions
Part D: Fill-in-the-blank ‘Grouped’ Questions
‘Grouped’ questions are a series of questions pertaining to a diagram or word statement.
The questions require either numerical, alphabetical or word answers. Each question is
worth 1 mark. The exam totals 43 marks.
2. Record your name and student number at the top of the ANSWER SHEET, which you
can find on page 2 of this exam question paper. By doing so, you will be acknowledging
the honour pledge.
3. RECORD ALL YOUR ANSWERS ON THE ANSWER SHEET.
3. When you have finished the exam, save PAGES 1, 2 and 3 of the answer sheet in a
separate file titled Ec2150b-001 Final Exam Answers (save either as a pdf or
word file).
4. Submit the saved answer sheet electronically to the Assignments Page of the course
OWL site under the assignment title ‘Ec2150b-001 Final Exam ANSWERS’. DO NOT
SUBMIT THE EXAM QUESTION PAPER; ONLY THE ANSWER SHEET
5. You are allotted 2.5 hours to work the exam AND submit your answer sheet
electronically. You will NOT be able to submit your answer sheet after the timed
deadline of 11:30 am EDT (time zone here at Western), and any answer sheets not
submitted within the timed deadline will receive a grade of zero for the exam (and
firmly enforced).

PAGE 1 of 3
Honour Pledge: I pledge that I will not give or receive any unauthorized help on this exam
(that all work will be my own) and I will exercise complete academic honesty by not sharing
anything from this exam with others who may be taking some version of it or engaging in any
form of cheating. I also acknowledge that any behavior contravening this pledge could result
in formal charges of an academic offence and penalties such as a zero on this exam, course
failure, and suspension or expulsion from the university.
NAME:
STUDENT #:
Ec2150b-001
Answer Sheet
(RECORD ALL YOUR ANSWERS ON PAGES 1, 2 AND 3 OF THIS ANSWER SHEET)
1. False
2.True
3. False
4. False
5. True
6.False
7. True
8. True
9. False
10. False
11.150-90/Y
12.603
13.75
14. B
15.400

PAGE 2 of 3
16. 7.714
17.C
18. A
19. 0.33
20.112
21. Complements
22. Substitutes
23. ordinary
24. Normal
25.0.03 (No need to put negative sign since it says absolute sigh)
26.0.05(this one also do not need to put the positive sign right?) Yes you are right
27.153
28.just as well off
29.30- P/15
30.50
31.1.37
32.16
33. 20
34. 32L
35. 16 + 4L
36. 22
37.40
38. 2

PAGE 3 of 3
39. 4
40.58
41. 116
42.6
43.168

BEFORE YOU BEGIN YOUR EXAM, WRITE YOUR NAME AND STUDENT
NUMBER AT THE TOP OF THE ANSWER SHEET ON PAGE 2 OF THIS QUESTION
PAPER.
Part A: True/False Questions. Each question is worth one mark. On the answer sheet
write T for true and F for false.
1. If a consumer’s marginal utility for X is negative, then it must be that the consumer dislikes
X.
2. Consider a rational individual who purchases only two goods. If one good is a luxury good,
the other good must be an inferior good.
3. Consider the wheat market. Suppose the demand curve for wheat is given by P=100-2Q,
where Q measures bushels of wheat and P is price per bushel, and the supply curve of wheat
is upward-sloping. If the supply of wheat shifts leftward due to a poor harvest, total revenue
to wheat farmers will increase if the shift occurs along the inelastic region of the demand
curve.
4. Suppose that in a particular production process, 2 units of labour are equivalent to 4 units of
capital in producing 8 units of output. The production function that represents this
production process is given by the equation Q=2L+4K.
5. Suppose that in a particular production process, exactly 2 units of labour and 6 units of
capital are required to produce 2 units of output. The production function that represents this
production process is given by the equation Q=min(L,K/3).
6. Suppose that capital and labor are perfect complements in a particular production process. If
the price of labor increases while the price of capital and the level of output remain the same,
then to minimize costs, the firm should use more capital and less labour in producing its
output.
7. Economic profit equals accounting profit minus implicit costs.
Part B: True/False ‘Grouped’ Questions. Each question is worth one mark. On the
answer sheet write T for true and F for false.
Use the following information to answer the next THREE questions:
Simon has a utility function U=min(X, Y/4). He has income I and faces prices Px ,and Py.
Consider Simon’s demand curve for X.
8. The price elasticity of demand for X is positive.
9. The cross price elasticity of demand for X with respect to the price of Y is negative.

10. The income elasticity of demand for X is positive.

Part C: Fill-in-the-blank Questions. Each question is worth one mark. On the answer
sheet record the alphabetical answer/numerical answer/word(s) answer. For numerical
answers, round to two decimal places.
11. Consider two individuals: Dick and Harry. Dick’s utility function is U=XY and Harry’s
utility function is U=XY2. Dick’s income is $150 and Harry’s income is $90. The price of Y
is $1. The market demand curve for X is given by the equation X=_____________.
12. Jessica has a utility function of the form U=XY. She has income of I=200 and the price of Y
is Py=1. Suppose the price of X is initially PX=2 but then rises to PX=8. If Jessica’s income
were to increase at the same time as the rise in price of X so that Jessica’s new optimal
bundle were to give her exactly the same utility as her original bundle before the rise in price
of X and change in income, Jessica’s new income would have to be $_______________.
13. Peter has a utility function of the form U=min(X,Y). He has income of I=200 and the price
of Y is Py=1. Suppose the price of X is initially PX=7 but then falls to PX=2. If Peter’s
income were to decrease at the same time as the fall in price of X so that Peter’s new optimal
bundle were to give him exactly the same utility as his original bundle before the fall in price
of X and change in income, Peter’s new income would have to be $_______________.
14. Consider the income and substitution effects illustrated in the figures below. In which Figure
is the price elasticity of demand for X zero? Figure _________________.

15. Wayne has $2,000 dollars to spend on Grey Cup football tickets (measured in numbers along
the horizontal axis) and on other goods (measured in dollars on the vertical axis). His
preferences and budget line are represented in the figure below. Suppose Wayne is able to
obtain only one ticket from the box office but manages to get an additional ticket from a
scalper who sells him the ticket at the maximum price Wayne is willing to buy the ticket for.
The price Wayne pays the scalper for the additional ticket is $ ________________.
16. Sylvester has an income of $108 that he spends on two goods: X and Y. The price of a unit
of Y is $4. The price of a unit of X is $14 for the first four minutes, but after the fourth unit
the price of a unit of X is $8. Sylvester’s utility function is U=6X+2Y. Sylvester’s level of
utility when he consumes his optimal consumption basket is _____________ utils.

17. It is observed that some people donate to charity while others do not. The figures below
illustrate indifference curves for people’s preferences for income they keep for themselves
and income they donate to others. In which of the figures of indifference curves would a
rational person with $100,000 donate all their money to charity? Figure __________.

18. Consider the isoquants in the following figures:
Figure _____________ depicts production that exhibits diminishing marginal product of
labour and increasing returns to scale.
19. Adam has a utility function U=XY2. He has income I and faces prices Px ,and Py. The
fraction of his income that he spends on X is always __________ (decimal number, rounded
to two digits)
20. A firm’s short-run cost function is given by the following equations: STC=16Q2+144 for
Q>0, and STC=144 for Q=0. If the market equilibrium price of the firm’s output is $128 per
unit, the firm will make short-run economic profits in the amount of $______________.
Part C: Fill-in-the-blank ‘Grouped’ Questions. Each question is worth one mark. On the
answer sheet record the alphabetical answer/numerical answer/word(s) answer. For
numerical answers, round to two decimal places.
Use the following information to answer the next SIX questions:
Suppose the demand for X is QX=200-2PX-2PY+3PZ+5I, where PX is the price per unit of X, PY is
the price per unit of Y, PZ is the price per unit of Z, and I is income.
21. X and Y are (substitutes or complements) ___________ .
22. X and Z are (substitutes or complements) ___________ .
23. X is a (Giffen or ordinary) __________ good.

24. X is a (normal or inferior) __________ good.
25. The absolute value of the price elasticity of demand for X in the neighborhood of PX=3,
PY=1, PZ=4 and I=10 is _________________ (round your answer to two decimal places).
26. The cross price elasticity of demand for X with respect to Z in the neighborhood of PX=3,
PY=1, PZ=4 and I=10 is _________________ (round your answer to two decimal places).
Use the following information to answer the next TWO questions:
Kate has a monthly income of $500. She spends her income on cell phone calls (measured in
minutes on the horizontal axis) and other goods (measured in units on the vertical axis). The
price of a unit of other goods is PY=1. Kate’s mobile phone company offers her the choice of
two cell phone plans:
Plan A: Pay a $40 monthly fee and make calls for $0.20 per minute.
Plan B: Pay no monthly fee and make calls for $0.40 per minute.
27. Suppose Kate has a utility function of the form U=min(0.1X,Y). Kate’s utility at her utility
maximizing bundle is _____________ utils.
28. Suppose instead that Kate has well-behaved preferences and is currently buying minutes
under Plan A. Now suppose that Plan B becomes available, and by coincidence her budget
lines under Plan A and Plan B happen to intersect at the number of minutes she is currently
buying under Plan A. Kate will be (better off, worse off, just as well off) _____________
buying minutes under Plan B.
Use the following information to answer the next THREE questions:
The market for airfare tickets consists of two segments, business travelers and vacation travelers.
The demand curve for airfare tickets by each business traveler is given by Q=20-P/5, and the
demand curve for airfare tickets by each vacation traveler is given by Q=10-P/10, where Q is the
quantity demanded and P is the price of an airfare ticket. There are a total of 100 business
travelers and 300 vacation travelers in the market.
29. The market demand curve for airfare tickets is given by the equation Q=____________.
30. If there are 100 firms selling airfare tickets in the market, each having a supply curve given
by Q=P-10, the equilibrium price of an airfare ticket in the market will be $_____________.
31. At the market equilibrium, the absolute value of the price elasticity of demand is
_____________ (round your answer to two decimal places). .

Use the following information to answer the next FOUR questions.
A firm’s production function is given by Q=4LK. The price of labour is $4 per unit and the price
of capital is $2 per unit.
32. If in the long run the firm wants to produce 32 units of output, the lowest cost to the firm of
producing this output will be $ _____________.
33. If in the short run capital is fixed at 8 units, the lowest cost to the firm of producing 32 units
of output will be $________________.
34. The firm’s short-run production function when capital is fixed at 8 units is given by
Q=__________.
35. When capital is fixed at 8 units, the firm’s short run total cost function is given by the
equation STC=______________ (round numbers to two decimal places)..
Use the following information to answer the next TWO questions:
Consider an industry with market demand of Q=422-P. In this industry, all firms and potential
entrants are identical. Each has a long-run marginal cost curve of MC=2Q+2 and a long-run
average cost curve of AC=Q+2+100/Q.
36. Market price in long-run equilibrium will be $______________.
37. The number of firms in the market in long-run equilibrium will be _____________.
Use the following information to answer the next SIX questions:
Suppose that a market is initially in equilibrium. The market demand curve is Q=100-P and the
market supply curve is Q=0.5P – 5. Now suppose government imposes an excise tax of $6 per
unit on producers.
38. Consumers will pay $_______________of this $6 tax.
39. Producers will pay $_________________ of this $6 tax.
40. The reduction in consumer surplus due to the tax is $______________.
41. The reduction in producer surplus due to the tax is $ _______________.
42. The deadweight loss due to the tax is $ ______________.
43. Government receipts from the tax are $ ______________.