PArt one.
(1) (a) A monopolist has a demand curve given by P = 100 - Q and a total cost curve given by TC = 16 + Q2 . The associated marginal cost curve is MC = 2Q. Draw a supply and demand graph showing the monopoly equilibrium. Calculate the monopolist's profit-maximizing quantity and price. How much economic profit will the monopolist earn? (b) Now suppose that, instead, the monopolist has a total cost curve given by TC = 32 + Q2 . The corresponding marginal cost curve is still MC = 2Q, but fixed costs have doubled. Draw a second supply and demand graph showing the monopoly equilibrium. Calculate the monopolist's profitmaximizing quantity and price. How much economic profit will the monopolist earn? (c) Now suppose that, instead, the monopolist has a total cost curve given by TC = 16 + 4Q2 . The corresponding marginal cost curve is now MC = 8Q, and fixed costs are back to their original level. Draw a third supply and demand graph showing the monopoly equilibrium. Calculate the monopolist's profit-maximizing quantity and price. How much economic profit will the monopolist earn? (d) Now suppose that, instead, the monopolist has the original cost curves from part (a), but also has access to a foreign market in which the monopolist can sell whatever quantity they choose to at a constant price of 60. Draw a fourth supply and demand graph showing this new equilibrium. Calculate how much the monopolist will sell in the foreign market. Also, calculate the monopolist's new quantity and price in the domestic market. Briefly explain. (e) Now suppose that the monopolist has a long-run marginal cost curve of MC = 20. Find the monopolist's profit-maximizing quantity and price. Find the efficiency loss from this monopoly. Briefly explain.
Part 2.
Consider a two-period small open economy populated by a large number of
identical households with preferences described by the utility function
lnCT 1 + lnCN 1 + lnCT 2 + lnCN 2
where CT 1 and CT 2 denote consumption of tradables in periods 1 and 2, respectively, and CN 1 and CN 2 denote consumption of nontradables in periods
1 and 2. Households are born in period 1 with no debts or assets and are
endowed with L1 = 1 units of labor in period and L2 = 1 units of labor in
period 2. Households o?er their labor to ?rms, for which they get paid the
wage rate w1 in period 1 and w2 in period 2. The wage rate is expressed in
terms of tradable goods. Households can borrow or lend in the international ?nancial market at the world interest rate r?. Let pN 1 and pN 2 denotes
relative price of nontradable goods in terms of tradable goods in periods 1
and 2, respectively.
Firms in the traded sector produce output with the technology QT 1 = aTLT 1 in period 1 and QT 2 = aTLT 2 in period 2, where QT t denotes output in period t = 1,2 and LT t denotes employment in the traded sector in period t = 1,2.
production in the nontraded sector in periods 1 and 2 is given by
QN 1 = aNLN 1 and QN 2 = aNLN 2 .
b)
Thousands of Bushels Thousands of Demanded Price per Bushel Surplus (+) or Bushels Supplied Shortage (-) 88 $3.40 65 81 3.70 71 75 4.00 75 70 4.30 78 66 4.60 80 63 4.90 81Multiple Choice (2 point each) Michelle grows apples and catches fish. Last year she harvested 1500 apples and 600 fish. She values one fish as having a worth of three apples. She gave James 300 apples and 100 fish for helping her to harvest apples and catch fish, all of which were consumed by James. Michelle set aside 200 fish to help with next year's harvest In terms of fish, consumption would equal (A) 700 fish. (B) 900 fish. (C) 1 100 fish. ( D) 2700 fish. 2. What is the unemployment rate if there are 180 million people employed, 6 million people unemployed, and 14 million not in the labor force? (A) 3.00% (B) 3.23% (C) 3.33% (D) 3.65% 3. In forecasting consumer spending using surveys of consumer confidence. research suggests that (A) the forecasts are not improved when using consumer confidence measures. (B) the forecasts are improved when using consumer confidence measures, C) the forecasts are improved when using consumer confidence measures for forecasts made during recessions. but not expansions (D) the forecasts are not improved when using consumer confidence measures for forecasts made during expansions, but not recessions 4. An increase in the price of capital goods will (A ) increase the expected future marginal product of capital. (B) reduce the expected future marginal product of capital. (C) increase the interest cost and the depreciation cost of capital. (D) increase the interest cost but not affect the depreciation cost of capital 5. Suppose output is $25 billion, government purchases are $9 billion, desired consumption is $12 billion, and desired investment is $6 billion. Net foreign lending would be equal to (A) -$4 billion. (B) -$2 billion, (0) $2 billion. (D) $4 billion. 6. According to the Solow model, an increase in the capital-labor ratio will (A) always reduce steady-state consumption per worker. (B) always increase steady-state consumption per worker. (C) reduce steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock. (D) increase steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock. 7. If real income rises 4%, prices rise 1%, and nominal money demand rises 4%, what is the income elasticity of real money demand? (A) 3/4 (B) 4/5 (C) 1 (D) 5/3 8. If the asset market is to remain in equilibrium, then if the money supply increases, output is unchanged, the price level is unchanged, and the expected inflation rate is unchanged, then (A) the real interest rate must rise. (B) the real interest rate must decline. (C) the nominal interest rate must rise. (D) the inflation rate must rise.1 Total Planned Expenditures C H Real National Income 7) In the above figure. at an income level of Yj and planned expenditure of (C : Thy. the level of autonomous Investment is AJED B) JK D) FF 8) At an income level of Yj and planned expenditures of (C + Dj in the above figure, Aj the quantity of aggregate demand eureeds real Grom Domestic Product (GDP). B) there is full employment C planned saving exceeds planned investment Dj the economy is in equilibrium. 9) How is economic growth graphically depicted? A) The aggregate demand curve shifts to the left B) The long-run aggregate supply curve shifts right C) Aggregate demand shifts to the right. Dj Short-run aggregate supply shifts left 10) Given the Not of assets below, which is the most liquid? A) A one-ounce gold coin By A 5500 traveler's check C) $500 worth of General Motors common stock D) $500 worth of General Motors bonds 11) If, at some level of output, total planned expenditures are less than real Gross Domestic Product (GDI) AJ unplanned inventories will increase and mal GDP will fall Bj real GDP remains unchanged. () real GDP will either fall or remain unchanged, depending on the MPC. DJ real GDP will rise. 12) Which of the following tools are used as part of a country's fiscal policy? A) Changing tax policy B) Changing the money supply Q Changing exchange rates Dj Changing interest rates 3) The interest-rate-based monetary policy transmission mechanism argues that an increase in the money supply A] causes interest rates to fall, which causes an increase in planned investment, and an increase in aggregate demand B) has no effect on aggregate demand but reduces long-run aggregate supply. () causes the inflation rate to decline, which causes an increase in household consumption spending and an Increase in aggregate demand. D) has no effect on aggregate demand but increases short-run aggregate supply
