## Economics Exam Questions

Economics 202

Sections 01 and 02

Principles of Microeconomics

Fall Semester, 2017

Final Take Home Assignment

Dr. Stephen Morrell

Instructions:

· Answer all parts of the question neatly and legibly on the pages provided. If you need more space then lengthen the space for your answer(s)(Must Full the space provided, Must be in single spaced, Images are not counted in that space).

· Write on only one side of the page.

· Staple all the exam pages together in order.

· Points may be deducted for not following instructions.

· Open books, notes, and course power point slides are permitted. Consultation with anyone else, except Dr. Morrell, is strictly prohibited. Any violation will be considered a violation of the Barry University Honor Code

The table below presents information on the market for olive oil.

· The demand for olive oil is given in columns (1) and (2) of the table.

· Assume the Long-Run Average Total Cost of producing a gallon of olive oil is constant at \$20 per gallon.

· Assume the Long Run Marginal Cost of producing a gallon of olive oil is constant at \$20 per gallon.

1

2

3

4

5

6

7

Price per Gallon

Quantity Demanded per year

(millions of gallons)

Total Revenue

Total Cost

Marginal Revenue

Marginal Cost

Economic Profit

\$20

10.00M

\$200M

\$200M

NA

NA

\$0

\$30

9.00M

\$40

8.00M

\$50

7.00M

\$60

6.16M

\$70

4.50M

\$80

3.50M

(A) Complete columns (3) – (7) in the table above for Total Revenue, Marginal Revenue, Total Cost, Marginal Cost, and Economic Profit.

(B) Producers of olive oil experience (complete the correct answer)

1. Decreasing returns to scale/diseconomies of scale because_______________.

2. Increasing returns to scale/economies of scale because _________________.

3.    Constant returns to scale because _____________________________.

Now, suppose the market for olive oil is a “perfectly competitive” one with a large number of buyers and sellers of olive oil.

(C) Draw a graph in the space below – as neatly as possible – showing the demand curve, marginal revenue curve, long-run average total cost, and long –run marginal cost curves when the market is a perfectly competitive one.

Hint 1: what is true about ATC, MC, MR, and P in a perfectly competitive market?

Hint 2: review Power Point numbers 11 and 12 from Chapter 10.

(D) What is the equilibrium quantity (millions of gallons) and price per gallon of olive oil if the market for olive oil is‘perfectly competitive?’

HINT: See Hints 1 and 2 above.

The market equilibrium quantity of olive oil in a perfectly competitive market is

__________________________ millions of gallons per year, and the equilibrium price is

\$________________________ per gallon

(E) What is economic profit if the olive oil market is perfectly competitive?

HINT: See Hints 1 and 2 above

Economic profit is \$__________________________ per year.

(F) What is Consumer Surplus if the olive oil market is perfectly competitive?

HINT: See Hints 1 and 2 above

Consumer surplus is \$ __________________________ per year

Now, suppose the market for olive oil becomes a monopoly. That is, there is only one seller of olive oil.

(G)    Draw a graph in the space below – as neatly as possible – showing the demand curve, marginal revenue curve, long-run average total cost, and long –run marginal cost curves when the market for olive oil is a monopoly.

Hint 1: Read pages 220 – 228 of Chapter 10.

Hint 2: Review power point slides 8, 9, 11, 12 from Chapter 10.

(H). What is the quantity of olive oil bought and sold and the price per gallon of olive oil if the market for olive oil is a monopoly?

Hint 1: At what quantity is marginal revenue equal to marginal cost?

Hint 2: Read pages 220 – 228 of Chapter 10.

Hint 3: Review power point slides 8, 9, 11, 12 from Chapter 10

If the market for olive oil was a monopoly, then the equilibrium quantity would be

_______________________ millions of gallons per year, and the equilibrium price

would be \$________________________

(I) What is Economic Profit when the olive oil market is a monopoly?

(J) What is Consumer Surplus when the olive oil market is a monopoly?

(K) What is the 'deadweight loss' when the olive oil market becomes a monopoly?

(L) Compare your answers for the price, quantity, profit, consumer surplus ,and deadweight loss when the olive oil market is a perfectly competitive one versus a monopoly.

Perfect Competition    Monopoly

Price __________    ____________

Quantity    __________    _____________

Economic Profit ___________    ______________

Consumer Surplus ___________    ______________