Intermediate microeconomics
Korea Univ.
Name:
__________________________
Student ID: __________________________
Final Examination
Monday, June 20, 2022, 10:30pm – 11:45pm
ECON 201
Beomsoo Kim
Spring 2022
There are 5 questions and 170 possible points. There are 3 pages to this exam. You will have 75
minutes to complete the exam. During the exam, you may use a calculator and a dictionary. Use
of hand-held electronic devices (such as cell phones, blackberries, palm pilots, etc.) during the
exam is strictly prohibited.
Small questions are all 7 points each unless specified differently
1.
(32 points) Suppose that all firms in a constant-cost industry have the following
long-run cost curve:
c(q) = 3q2 + 100q + 75
The demand in this market is given by QD = 1280 -2p. To produce firms need to
have a permit and there are only 60 permits
a.
Derive the supply curve in this situation. Find the market equilibrium price
and quantity with the restriction.
b.
If firms are allowed to buy and sell these permits in an open market, what
will be the rental price of permits? Will firm’s that own permits make
profit?
c.
Due to deregulation policy of the new government the permit requirement in
this market has been abolished. What will be the new price in this market?
What will be the market equilibrium quantity?
d.
How much deadweight loss is generated by the permit system? Show your
work [11 points]
2. (38 points) Suppose a consumer advocacy group has convinced legislators that
vitamin pills should be cheap to consumers. Such a policy would enhance the
health of the citizenry, they argue. As a result one bottle of vitamin pills are sold
at the price of $3 in the market although the marginal cost is $7. Government
would reimburse the $4 difference for sold quantity. Assuming a downwardsloping linear demand curve Q = 100 − P.
a. (10 points) Determine the resulting output and social welfare from such a
policy.
b. (10 points) Compare this result to the competitive equilibrium’s output and
social welfare.
c. (10 points) Calculate the deadweight loss.
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Intermediate microeconomics
Korea Univ.
d. (8 points) Explain your intuition why deadweight loss occurs with this policy.
3. (51 points) SBC, the monopoly satellite company, broadcasts TV to subscribers in
New York and Washington D.C. area. The demand functions for each of these two
areas are
Qdc=60-0.25 Pdc
Qny=100-0.50 Pny
where Q is the number of subscriptions per year and P is the subscription price
per year. The cost of providing Q units of service is given by
C= 40Q
where Q=Qdc + Qny
(If you need rounding do it at the second digit. ex) you can use 123.35 instead of
123.3456.)
a. What are the marginal revenue for the New York and DC markets?
b. What are the profit maximizing prices and quantities for the New York and
DC markets?
c. What are the maximized profit for the New York and DC markets? [10
points]
As a new technology people in New York receives SBC's DC
broadcasts and people in DC receives SBC's New York broadcasts. As a result,
anyone in New York or DC can receive SBC's broadcasts by subscribing in
either city. Thus SBC can charge only a single price.
d. What price should he charge? [10 points]
e. How much quantities can SBC sell in New York and DC altogether? [10
points]
f. What will be the profit?
4. (21 points) The domestic demand curve, domestic supply curve, and world supply
curves for a good are given in the below figure. All the curves are linear. Initially,
the country allows imports. Then imports are banned.
a.
b.
c.
Calculate consumer and producer surplus without imports ban.
Calculate consumer and producer surplus after the ban.
Is the country better off with the ban on imports? Explain why?
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Intermediate microeconomics
Korea Univ.
5. (28 points, 7 points each)
The above figure shows the payoff for two firms, A and B, that must each choose to
produce either an advanced computer or a basic computer.
a.
b.
c.
d.
Write down the definition of dominant strategy
Determine the dominant strategies for each firm (if any)
Write down the definition of Nash Equilibrium.
the Nash equilibria (if any).
Honor Pledge:
I pledge on my honor that I have not given or received any unauthorized assistance
on this assignment/examination.
Signature: _________________________
3
Name:
__________________________
Student ID: __________________________
Final Examination
Monday, June 17, 2019, 10:30pm – 11:45pm
ECON 201
Beomsoo Kim
Spring 2019
There are 6 questions and 170 possible points. There are 3 pages to this exam. You will have 75
minutes to complete the exam. During the exam, you may use a calculator and a dictionary. Use
of hand-held electronic devices (such as cell phones, blackberries, palm pilots, etc.) during the
exam is strictly prohibited.
1. (16 points) Alison lives in a small town where she plans to hire workers to help
her make candy. Her production function for candy is
0.5
q = 4LK
She begins producing with K = 4. The cost of capital is $50/unit. The wage
depends on the amount of workers she employs. Specifically, w(L) = 10 + 2L.
a. (5 points) Can you calculate marginal product of labor? Does Alison's
production function exhibit diminishing marginal return to labor? Explain.
b. (4 points) Derive Alison's short-run cost function.
c. (7 points) Calculate Alison's Marginal Cost.
2. (29 points) Suppose Ralph sells sandwiches, which have the following demand:
100 𝑞
0.5𝑞
𝑃
where 𝑃 is the price of Ralph's sandwiches and 𝑞 is the number of sandwiches
Ralph sells. 𝑞 is the number of sandwiches Ralph's rival, Dave, sells. Dave's
demand is given by:
𝑃
100 𝑞
0.5𝑞
where 𝑃 is the price Dave can sell his sandwiches for. Suppose each seller has a
cost per unit (average and marginal) of $1.
a. (3 points) Do Ralph and Dave sell identical product? Justify your answer in
detail for full credit.
b. (16 points) Compute the best response functions for each seller
c. (10 points) Calculate the Nash Equilibrium outputs and prices.
3. (41 points) Suppose that Korean air operates flights from ICN to Singapore: A
business traveler is willing to pay up to $800 for an unrestricted flight and is not
interested in a flight that requires a minimum stay. A vacation traveler is willing
to pay up to $400 for a round-trip with or without restrictions. The cost of
transporting one passenger is $100.
a. (5 points) Korean air cannot ask whether a customer is business traveler or
vacation traveler. Can Korean air separate business traveler from vacation
traveler? Explain in detail.
b. (10 points) To maximize profit what prices should Korean air set for each ticket?
Now vacation traveler is willing to pay $650 for an unrestricted ticket and $600
for one with restrictions
c. (10 points) What will be the Korean air’s relevant pricing options (check
separating one and pooled one each)? compare profits across relevant options
d. (16 points) Can you calculate social welfare related to c?
4. (14 points) Each identical consumer has the following demand for golf, q = 100 p, where q is the number of rounds of golf played per year and p is the price per
round. The only golf course in an isolated town incurs a marginal cost of $10 per
round of golf. It wishes to charge a membership fee and a fee per round of golf.
What price will it set for each fee?
5. (36 points) Suppose anyone with a driver's license is capable of supplying one
trip from the airport to the downtown business center on any given day. The longrun supply curve of such trips is horizontal at p = $50, which is the average cost
of such trips. Suppose daily demand is Q = 1000 - 10p.
a. (6 points) What is the equilibrium quantity and price?
If the city government requires those people supplying such trips to possess a
special license, and the government will issue only 300 licenses.
b. (20 points) What will be the new price? Calculate the change in consumer
surplus, producer surplus and social welfare
c. (10 points) If people can sell and buy this license in the market what will be the
rent for this license?
6. (34 points) The above figure shows supply and demand curves for apartment
units in a large city. If the city government passes a law that establishes $350 per
month as the legal maximum rent,
a. (8 points) the loss in social welfare
b. (8 points) the consumer surplus
c. (8 points) the producer surplus
d. (10 points) the consumer's net gain in surplus and the producer’s net change in
surplus
Honor Pledge:
I pledge on my honor that I have not given or received any unauthorized assistance
on this assignment/examination. Signature: _________________________