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DEPARTMENT OF ECONOMICS SAN JOSE STATE UNIVERSITY MASTER’S COMPREHENSIVE EXAMINATION MAY 6, 2011 6:00 P.M. TO 9:30 P.M. PROCTOR: J. HUMMEL INSTRUCTIONS: 1. Answer ONLY the specified number of questions from the options provided in each section. Do not answer more than the required number of questions. Each section takes one hour. 2. Your answers must be on the paper provided. No more than one answer per page. Do not answer two questions on the same sheet of paper. 3. If you use more than one sheet of paper for a question, write “Page 1 of 2” and “Page 2 of 2.” 4. Write ONLY on one side of each sheet. Use only pen. Answers in pencil will be disqualified. 5. Write ------ END ----- at the end of each answer. 6. Write your exam identification number in the upper right-hand corner of each sheet of paper. 7. Write the question number in the upper right-hand corner of each sheet of paper. Section 1: Microeconomic Theory—Answer Any Two Questions. 1A. Suppose a monopolist faces two demand schedules, P1= 72 - Q1 and P2 = 36 - Q2/2, and TC = 36Q. Determine the prices and output level for each market that maximizes profits for the following assumptions: a. Can charge different prices in both markets? b. Must charge the same price in both markets? c. Must charge the same price in both markets but TC = 22Q? 1B. Suppose TC = 3Q and Q = 576/P2: a. Solve for the P-Q that maximizes profits. b. Assume a tax of $3/unit is imposed. Solve for the P-Q that maximizes profits. ß Determine the consumer burden of the tax? Explain. -1- DEPARTMENT OF ECONOMICS SAN JOSE STATE UNIVERSITY MASTER’S COMPREHENSIVE EXAMINATION MAY 6, 2011 6:00 P.M. TO 9:30 P.M. PROCTOR: J. HUMMEL 1C. A firm is a price-taker in the labor market. The firm wants to choose the optimal level of labor to maximize profit. Let W be the unit price of labor, and assume that labor cost is the only cost of production: a. Write the objective function in terms of L (labor). Hint: Use TR = TR[Q(L)] for total revenue. b. Derive the first order condition (FOC) for profit-maximization in mathematical notations. c. Derive the second order condition (SOC) for profit-maximization in mathematical notations. d. Explain the economic meaning of the FOC and the SOC graphically and verbally. -2-