SAKA F22 BEPP 1000 Midterm

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University of Pennsylvania *

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1000

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Economics

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Jan 9, 2024

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Bepp 1000 Midterm Prof. Saka Fall 2022, 10/19/22 NAME: TA NAME: _________________________________________________________________ Recitation Section / Time: ____________________________________________________ Instructions:  There are 4 parts.  There are a total of 100 points for 90 minutes. Plan your time accordingly.  Read all questions carefully.  No calculators or notes allowed.  Write legibly and label any diagrams appropriately and thoroughly.  This exam is given under the terms of Penn’s Code of Academic Integrity. My signature below certifies that I have complied with the University of Pennsylvania’s Code of Academic Integrity in completing this examination. Name (Printed) Signature Date 1

PART 1: MULTIPLE CHOICE QUESTIONS (20 POINTS, 2 POINTS EACH) 1) Suppose the market for umbrellas is perfect competitive and umbrella manufacturers are making positive profits. Over time what do you expect to happen to the equilibrium price of umbrellas? a) The equilibrium price will increase and profits will remain the same. b) The equilibrium price will remain the same and profits will also remain the same. c) The equilibrium price will go down and profits will also go down. d) The equilibrium price will go up and profits will also go up. 2. Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12. Which of the following will happen? a) The firm will sell more output than its competitors. b) The firm's revenue will increase. c) The firm will not sell any output. d) The firm's profits will increase 3. The following graph reflects the market for internet service which is a monopoly. If the price is currently P1, what do we expect to happen to the price in the long run a) The price will remain at P1 because the monopolist will always produce where marginal cost equals marginal revenue. b) The price will fall to P2 because in the long run the monopolist produces where MC=ATC. c) The price will fall to P3 because the monopolist wants to produce where MC equals Demand. d) The price will fall to P4 because the monopolist wants to sell as much as possible without losing money. 4. Suppose there is a technological advancement in chip manufacturing technologies needed to produce tablets, a normal good, but at the same time there is a recession that decreases the disposable income of most Americans. What happens to the equilibrium price and quantity in the market for tablets? a) The equilibrium price goes up. We cannot determine which direction equilibrium quantity moves 2

b) The equilibrium price goes down. We cannot determine which direction equilibrium quantity moves. c) We cannot determine the direction Equilibrium price moves. Equilibrium quantity goes up. d) Equilibrium price goes down. Equilibrium quantity goes down. 5. If the demand for a life-saving drug was perfectly inelastic and the price doubled, the quantity demanded would a) also double. b) decrease by 50%. c) remain constant. d) Decrease by an unknown amount larger than 0 % and less than 50 %. 6. If at a price of $24, Octavia sells 36 home-grown orchids and at $30 she sells 24 home-grown orchids, the demand for her orchids is a) elastic. b) inelastic. c) unit elastic. d) perfectly elastic. 7. Suppose the market price for a 2 bedroom apartment in Albany is $ 950 per month. If the government institutes a policy that reduces housing costs renters should pay, they: a) implemented a price ceiling below $950 which created a shortage in the market. b) implemented a price ceiling below $950 which created a surplus in the market. c) implemented a price ceiling above $950 which created a shortage in the market. d) implemented a price ceiling above $950 which created a surplus in the market. 8. The following graph shows the market for coffee grounds: 3 2.00

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If price equals $2 then each firm: a) Makes positive profit. b) Makes negative profit but continues to operate in the short run. c) Makes negative profit and shuts down in the short run. d) Makes zero profit and continues to operate. 9. The table below lists the highest prices five consumers are willing to pay for a theater ticket. If the price of one of the tickets is $18, Consumer Anya Basil Celeste Dralon Esther Willingness to Pay $24 20 15 12 7 a) Anya and Basil will each buy two tickets. b) Basil will receive $2 of consumer surplus from buying one ticket. c) Anya and Basil receive a total of $26 of consumer surplus from buying one ticket each. No one else will buy a ticket. d) Celeste, Dralon, and Esther will receive a total of $34 of consumer surplus since they will buy no tickets. 10. An increase in the population would be represented by a movement on the graph below from 4

a) A to B. b) B to A. c) D1 to D2. d) D2 to D1. PART 2: TRUE/FALSE QUESTIONS (10 POINTS, 2 POINTS EACH) Indicate whether true or false. No explanations needed. 1) If a firm is producing no output in the short run, then its total costs are zero. 2) If a market is perfectly competitive then producers bear all of the tax burden implemented by the government, no matter where the legal incidence of the tax falls. 3) If a firm experiences positive technological change, it is able to produce more output using the same inputs. 4) If peanut butter and jelly are complements then the cross price elasticity of jelly with respect to peanut butter is negative. 5) If the marginal social cost of cars is greater than the marginal private cost of cars then the socially efficient level of car consumption is lower than the actual level of car consumption. PART 3: SHORT ANSWER QUESTIONS (20 POINTS) 1) (5 points) The following table shows the demand for pizza at different prices. Price of Pizza Quantity of Pizza Demanded 6 150 8 130 a) (2 points) Using the midpoint formula calculate the price elasticity of demand. 5

b) (3 points) Suppose that at Quantity=140 the price elasticity of supply is 1. If the government imposes a tax on pizza, who will the tax incidence fall more heavily on, consumers or producers? Explain your answer. 2) (5 points) The following graph shows the market for electricity in Philadelphia. PECO is the monopoly supplier of electricity in Philadelphia. a) (1 point) What price does PECO charge for electricity? 6

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b) (2 points) Write the letters that together represent PECO’s surplus. c) (2 points) Write the letters that together represent the dead weight loss due to PECO being a monopolist? 3) (5 points) Suppose that the price of a disposable plastic bag is 5 cents, but every disposable plastic bag purchased causes a 1 cent externality due to the pollution caused by throwing these bags out. a) (1 point) What is larger, the Marginal Private Cost of disposable plastic bags or the Marginal Social Cost of disposable plastic bags? b) (3 points) The government wants to ________ (increase/reduce) the number of plastic bags sold. They can do this by implementing a ___________ (subsidy/tax) of size $____. c) (1 point) Government intervention is ____________ (increasing/decreasing) dead-weight loss due to externality. 4) (5 points) he following table contains cost data for Chaise Chair Manufacturers. Q Fixed Cost Variable Cost Total Cost Marginal Cost 0 - 1 13 19 2 8 a) (4 points) Fill in the rest of the table. b) (1 point) What is the firm’s average variable cost when they produce 2 chairs? 7

PART 4: PROBLEMS (50 POINTS) Problem 1 (13 points): The following table shows Ann and Bob to productions of a camera or a roll of film. Cameras Rolls of Film Ann 8 20 Bob 10 40 a) (2 points) Draw Ann and Bob’s PPF with quantity of cameras on the horizontal axis and quantity of film on the vertical axis. Please label both axes and write down the quantities where the PPF intersects the axes. b) (3 points) Next draw the joint PPF. Be sure to label the coordinates of the kink 8

c) (2 points) Who has the comparative advantage in producing film? d) (2 points) What is Ann's opportunity cost for producing an additional camera? e) (4 points) If jointly Ann & Bob produce 4 cameras and they produce efficiently how many cameras and how many rolls of film does each person produce? 9

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Problem 2 (12 points): Suppose in the market for covid tests, supply and demand are given by the following equations: Supply: P = 12 + Q S Demand: P = 60 − 3 Q D a) (3 points) Graph the market for covid tests with quantity on the horizontal axis and price on the vertical axis. Please label all axes and curves and mark the equilibrium point E1. Make sure to indicate the coordinates of E1. b) (2 points) Suppose the government gives any consumer who buys a home test a subsidy of $4. Write down the equation for the new demand curve. 10

c) (2 points) What is the new equilibrium quantity? d) (2 points) What is the new equilibrium price producers receive? What is the new equilibrium price consumers pay? e) (3 points) How much does the government pay for this policy? Problem 3 (12 points): The figure below shows a butcher’s cost structure in the perfectly competitive market for steaks. 11

and the following figure shows supply and demand currently in the market for steaks: a) (2 points) Suppose the market price is $40. In the short run, how many steaks does each butcher produce? b) (2 points) In the short run, calculate a butcher’s profit. c) (2 points) How many butchers are there in the market when the price is $40 dollars? Note here that the market quantity is in thousands. d) (1 point) In the long run will butchers enter or exit this market or will the number of butchers remain constant? 12

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e) (2 points) In the long run how many steaks will each butcher sell? What is the long run price for a steak? f) (3 points) In the long run, how many butchers will there be in the market? Draw where the supply curve must be in the long run. Mark this S2. Problem 4 (13 points): The following table shows Lucie’s marginal utility for baguettes and Camembert cheese. Baguettes Camembert Cheese Quantity Total Utility Marginal Utility Marginal Utility/$ Total Utility Marginal Utility Marginal Utility/$ 1 36 12 56 2 54 84 28 3 12 4 24 6 4 75 9 120 3 a) (2 points) What is the price of baguettes? What is the price of Camembert Cheese? b) (5 points) Fill in the rest of the table above c) (2 points) Suppose Lucie has $18. How many baguettes and how many blocks of cheese will she buy? 13

d) (2 points) Now suppose the price of baguettes changes to $6. The price of Camembert remains the same as does Lucie’s budget. How many baguettes and how many blocks of cheese will she buy with the new price? e) (2 points) Draw 2 points on the demand curve for baguettes. Label the coordinates of these two points. [page intentionally blank] 14

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SAKA F22 BEPP 1000 Midterm

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