Intermediate Microeconomic Analysis (Econ 173)
Drake University, Fall 2009
William M. Boal
MIDTERM EXAMINATION #3 ANSWER KEY
VERSION A
I. MULTIPLE CHOICE
(1)d. (2)b. (3)a. (4)b. (5)c. (6)b. (7)d. (8)a. (9)b. (10)d.
(11)c. (12)b. (13)d. (14)c. (15)a. (16)c. (17)b. (18)a. (19)c.
II. SHORT ANSWER
(1)
a. 3.4 %.
(2)
a. 20 units.
(3)
a. 800 units.
e. $5.
(4)
a. 6 thousand.
e. $14 thousand.
h. $18 thousand.
b. 1.6%.
b. $5.
b. 1100 units.
b. $7.
f. decrease.
i. $3 thousand.
c. 0 units.
d. $11.
c. $4.
g. $7 thousand.
d. decrease.
III. PROBLEMS
(1)
a. 200 = 4 x11/2 x21.2.
b. MRSP = MP2/MP1 = (x1/x2).
c. Set MRSP = $10/$40 and solve jointly with isoquant in part (a) to get
x1* = 25, x2* = 100.
d. TC(200) = 25($40) + 100($10) = $2000.
(2)
a. 180 units.
b. $6.
c. export.
d. 120 units.
e. decrease.
f. $320.
g. increase.
h. $440.
i. increase.
j. $120.
IV. CRITICAL THINKING
(1)
If supply is perfectly elastic, the supply curve is horizontal. In this situation, a tax
raises the total price (including the tax) paid by buyers, but has no effect on the net price
(excluding the tax) received by sellers. Also, consumer surplus is reduced by the tax, but
producer surplus is still zero and unchanged as a result of the tax. So buyers bear the
entire burden of the tax. See graph below.
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Price
D
PD
tax
S
PS
Quantity
(2)
One should disagree with this statement. If the world price is greater than the
domestic price, then domestic consumers lose from international trade, but producers
win. The increase in producer surplus is greater than the decrease in consumer surplus,
so the country is better off from international trade. Gains from trade are shaded in the
graph below at left.
Moreover, if the world price is less than the domestic price, then domestic
consumers win from international trade, but producers lose. However, the increase in
consumer surplus is greater than the decrease in producer surplus, so the country is again
better off from international trade. See graphs below. Gains from trade are shaded in the
graph below at right.
Price
Price
S
S
PW
PW
D
D
Quantity
Quantity
VERSION B
I. MULTIPLE CHOICE
(1)a. (2)a. (3)d. (4)c. (5)b. (6)d. (7)f. (8)d. (9)c. (10)c.
(11)d. (12)a. (13)b. (14)a. (15)b. (16)b. (17)c. (18)b. (19)d.
II. SHORT ANSWER
(1)
a. 2.7 %.
b. 2.3 %.
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(2)
(3)
(4)
a. 50 units.
a. 0 units.
e. $6.
a. 12 thousand.
e. $40 thousand.
h. $72 thousand.
b. $10.
b. 1100 units.
b. $7.
f. increase.
i. $12 thousand.
c. 1400 units.
d. $13.
c. $1.
g. $20 thousand.
d. increase.
III. PROBLEMS
(1)
a. 200 = 5 x11/2 x21.2.
b. MRSP = MP2/MP1 = (x1/x2).
c. Set MRSP = $15/$60 and solve jointly with isoquant in part (a) to get
x1* = 20, x2* = 80.
d. TC(200) = 20($60) + 80($15) = $2400.
(2)
a. 180 units.
b. $6.
c. import.
d. 60 units.
e. increase.
f. $190.
g. decrease.
h. $160.
i. increase.
j. $30.
IV. CRITICAL THINKING
Same as Version A.
[end of answer key]
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