Solution to Final Exam -- Micro Principles (F2009, Wenzao)

★★★ Solution to Final Exam (Int’l Business Administration, WUCL) ★★★
Fall 2009 Instructor: 衛忠欣 (Jong-Shin Wei)
經濟學一 (Principles of Microeconomics) (07)342-6031 ext.6222
93001@mail.wtuc.edu.tw jsw12011958@gmail.com
3:30 pm ~ 5:00 pm, January 11, 2010 Open books/notes exam. For questions 1 to 30, choose the most appropriate one from four alternatives. Three points for each. Questions 31 and 32 are short-essay or analytical questions (12 points each).
Total: 114 points.　字典與翻譯機，限於 4:00 pm 前使用。題目較靈活、非填鴨式，宜有系統地依序作答。

1. Recently we saw a movie clip about a meeting between a college young man (Todd) and his professor (Dr. Stephen Malley played by Robert Redford) in his office. That meeting took place
(A) in the late afternoon;
(B) at lunch hour;
(C) in the early morning;
(D) in the evening.
Ans: C. [From questions 1 thru 3, you will see why we do not really need mandatory attendance checking. 我的焦點與洪蘭教授不同，上課時間啃雞腿的學生有三種：邊啃邊聽課的、邊啃邊放空的、在教室外啃雞腿的。強制點名制度下，第三種不存在。我認為區分前兩者，是教師的基本責任。]

2. [continued from question 1] The title of that movie is
(A) The Class;
(B) The Emperor's Club;
(C) Charlie Wilson’s War;
(D) Lions for Lambs.
Ans: D. [Chinese title of (D) is 權力風暴；Chinese title of (C) is 蓋世奇才]

3. [continued from question 1] What we can learn from that clip include
(A) students can gain by bribing professors;
(B) students can gain by threatening professors;
(C) opportunity costs;
(D) social costs of cheating on exams.
Ans: C. [Also 差別取價(price discrimination)與自我選擇(self selection). http://www.aliran.com/index.php?option=com_content&view=article&id=427:on-robert-redfords-new-film-lions-for-lambs&catid=53:200710&Itemid=10 ]

4. Lessons we learn from rainfall data in California and New Mexico are
(A) 陳菊市長透過垃圾車廣播呼籲大家節約用水是有效的；
(B) 自來水公司應該視地區制定水費費率；
(C) 自來水公司應該由大陸進口自來水；；
(D) 政府應補貼獎勵大家抽取地下水。
Ans: B. [p.126, text]

5. [continued from question 4] Bad policies include
(A) 針對公立學校推動「一校一泳池」，減少民營游泳池之供給；
(B) 對洗車業實施總量管制；
(C) 檢討用水量龐大的工廠之水費費率與輔導遷徙；
(D) 對游泳池與三溫暖業者實施給水總量管制。
Ans: A.

6. The notion of utilometer
(A) was proposed by Adam Smith;
(B) was proposed by Jeremy Bentham;
(C) was proposed by Thorstein Veblen;
(D) was proposed to measure output thru input usages.
Ans: B. [p.126, text]

7. Examples of violating the law of diminishing marginal utility include
(A) 咖啡續杯半價；
(B) 90分鐘的協同教學的聽眾意見回饋通常比一學期的教學評量為佳；
(C) Most prefer spending NTD240 to see the movie Avatar now to buying its DVD at NTD299 six months later;
(D) Unfamiliar songs may become your favorite songs.
Ans: D. [p.126, text]

8. Suppose that you have NTD200 to be spent on coffee and strawberries consumption. Prices are NTD100 for each cup of coffee; NTD50 for each box of strawberries. We quantify your satisfaction as follows: one cup of coffee gives you 10 utils; two cups of coffee give you 18 utils; three cups of coffee give you 22 utils; four cups of coffee give you 24 utils; five cups of coffee give you 25 utils; one box of strawberries give you 20 utils; two boxes of strawberries give you 35 utils; three boxes of strawberries give you 45 utils; four boxes of strawberries give you 50 utils; five boxes of strawberries give you 51 utils. Your should buy
(A) 1 cup of coffee and 2 boxes of strawberries;
(B) 2 cups of coffee;
(C) 4 boxes of strawberries;
(D) None of the above is correct.
Ans: C. [50 is the highest utility level you can get. See pp.127-133, text]

9. [continued from question 8] Here we see
(A) how the formula MU1/P1 = MU2/P2 works;
(B) law of diminishing marginal utility holds for coffee only;
(C) law of diminishing marginal utility holds for strawberries only;
(D) law of diminishing marginal utility holds for both goods.
Ans: D. [Judging from 10 > 8 > 4 > 2 > 1 and 20 > 15 > 10 > 5 > 1]

10. [continued from question 8] If you have NTD300, then you should buy
(A) 3 cups of coffee;
(B) 2 cups of coffee and 2 boxes of strawberries;
(C) 1 cup of coffee and 4 boxes of strawberries;
(D) None of the above is correct.
Ans: C. [60 is the highest utility level you can get. See pp.127-133, text]

11. [continued from questions 8 and 10] Here we see that an increase in income
(A) shifts your demand curve of coffee to the right;
(B) shifts your demand curve of strawberries to the right;
(C) makes you consume less of coffee;
(D) makes you consume less of strawberries.
Ans: A. [For coffee, note the movement from (0, 100) to (1, 100); for strawberries, the point remains to be (4, 50). 此題係測試同學對需求曲線之靈活運用。]

12. Question 11 best illustrates the phenomenon which is
(A) 咖啡與草莓是互補財；
(B) 供給面因素導致咖啡比草莓貴；
(C) 所得增加會使消費者增加購買最喜歡的商品；
(D) 你是理性的消費者。
Ans: D. [草莓是你最喜歡的商品]

13. According to Chapter 5,
(A) 建商應該在台北信義區興建大坪數的高樓住宅；
(B) 建商應該在屏東地區興建小坪數的高樓住宅；
(C) 由好市多(Costo)試吃的大排長龍，可推知主客群所得水準下降；
(D) 由好市多(Costo)試吃的大排長龍，可推知顧客滿意度增加。
Ans: C. [pp.136-138, text]

14. During the last 30 years or so, we see fast growth in manufacturing industries while the service industries tend to grow slowly. Yet we see that real wages in both categories have risen substantially. One explanation is
(A) opportunity cost;
(B) government regulation;
(C) that nowadays it is more difficult to obtain licenses in service industries;
(D) that nowadays service industries have less employees.
Ans: A. [pp.147-148, text]

15. Suppose that you have worked as a (private) English tutor for junior high school students to earn tuition and fees. You charge NTD800 per hour if you have one student; NTD600 per hour if you have two students; NTD500 per hour if you have three students; NTD400 per hour if you have four students. Tutoring is done on the one-on-one basis; one hour per day for each student. Your supply of labor
(A) satisfies the law of supply;
(B) reflects that the market equilibrium price must be around NTD400 per hour;
(C) reflects that the market equilibrium price must be around NTD500 per hour;
(D) reflects that your opportunity cost of tutoring for one hour is no greater than NTD400.
Ans: D. [If your opportunity cost of tutoring for one hour is over NTD400, it does not make sense for you to teach four hours and earn NTD1,600 only.]

16. [continued from question 15] let C(q) be the your daily operating cost (including commuting and preparing materials) in providing tutorial service for the number of students being q of {1, 2, 3, 4}. Which one of the following makes sense?
(A) C(1) = 800; C(2) = 1,200; C(3) = 1,500; C(4) = 1,800;
(B) C(1) = 500; C(2) = 700; C(3) = 900; C(4) = 1,000;
(C) C(1) = 600; C(2) = 1,200; C(3) = 1,800; C(4) = 2,400;
(D) C(1) = 600; C(2) = 800; C(3) = 1,200; C(4) = 1,600.
*Ans: B. [Think about the non-increasing or decreasing marginal cost]

17. [continued from question 15] You wish that you can have
(A) four students;
(B) three students;
(C) at most two students;
(D) at least three students.
*Ans: D. [For one student, (daily) profit is 800 - 500 = 300; for two students, profit is 1,200 - 700 = 400; for three students, profit is 1,500 - 900 = 600; for four students, profit is 1,600 - 1,000 = 600.]

18. [continued from question 16] Your best friend also serves as a tutor similarly. Yet she charges NTD800 per hour if she has one student; NTD900 per hour if she has two students; NTD1,100 per hour if she has three students; NTD1,400 per hour if she has four students. Her function C(q) might be defined such that
(A) C(1) = 800; C(2) = 1,600; C(3) = 3,000; C(4) = 5,600;
(B) C(1) = 900; C(2) = 1,800; C(3) = 2,700; C(4) = 3,600;
(C) C(1) = 700; C(2) = 1,500; C(3) = 3,000; C(4) = 5,000;
(D) C(1) = 600; C(2) = 1,200; C(3) = 1,800; C(4) = 2,400.
*Ans: C.

19. [continued from question 18] In term of production efficiency, we shall say that
(A) you are more efficient than your best friend is;
(B) you are less efficient than your best friend is;
(C) you and your best friend are equally efficient;
(D) efficiency comparison does not make sense since tutorial service is not a manufacturing good.
Ans: A.

20. Borrow the example of Harry’s collecting recycled cans detailed in Chapter 6. Let q be the amount of cans he find; P be the redemption price (which is how much Harry can get for each collected recycled can). Suppose q = 600 (measured in cans daily) if P = 1 (cent per can); q = 1,000 if P = 1.5; q = 1,300 if P = 2; q = 1,500 if P = 3; q = 1,600 if P = 5. Stories behind this exclude
(A) Harry has more incentive to collect cans when P is higher;
(B) It becomes more difficult to collect cans when P is higher;
(C) Collecting more cans make Harry work more efficiently;
(D) More people start collecting cans when P is higher.
Ans: C. [Recall lectures]

21. [continued from question 20] Those (q, P) pairs are best interpreted as
(A) Harry’s demand curve as a price-taking consumer;
(B) The market supply curve of recycled cans;
(C) Harry’s supply curve as a price-taking producer;
(D) Harry’s supply curve as a price-making producer.
Ans: C. [Obvious]

22. The text has an example showing that each resident is willing to pay 6 cents (thru taxes) for each container removed from local environment. If the community has 60,000 citizens, then the benefit of removing one container becomes (6/60,000 =) 0.0001 cent per person! By the similar reasoning, when library spends NTD400,000 on subscribing e-journals or e-books but, on record, only 400 (檢索與下載人次) out of 8,000 people actually use them,
(A) we should pay attention to 400,000/8,000;
(B) we should pay attention to 400,000/400;
(C) we should stop subscribing them and subsidizing those 400 people or less;
(D)其意義與大量印發便民手冊與勞服宣導手冊相同。
Ans: A. [Think of the nature of public goods. See pp.164-165, text.]

23. The text raises an interesting point regarding financial analysts spending money and time on having superior forecasting models. Which of the following is not true?
(A) There are too many smart people working as corporate earning forecasters;
(B) Any one individual analyst spends less, he can be sure that the winning forecast will not be his;
(C) The society as a whole suffers little if all analysts spent less money on their forecasting models;
(D) Competition among those analysts leads to social optimum.
Ans: D. [See p.189, text]

24. A monopolist faces the market demand function f(P) = a - bP (with a > 0 and b > 0).
(A) Her marginal revenue curve (on Q-MR space) is 正斜率的直線。
(B) Her marginal revenue curve (on Q-MR space) is 負斜率的直線；
(C) Her revenue curve (on Q-R space) is 向上開口、正斜率的拋物線；
(D) Her revenue curve (on Q-R space) is 向下開口、正斜率的拋物線。
Ans: B. [Q = a - bP we have R = PQ = (a/b)Q - Q2/b, hence MR = a/b - (2/b)Q. See p.218, text]

25. [continued from question 24] Her revenue is maximized when
(A) Q is a;
(B) Q is a/2;
(C) Q is a/3;
(D) None of the above is correct.
Ans: B. [Q = a/2 maximizes R = PQ = (a/b)Q - Q2/b. Why? Note also that MR = 0 when Q = a/2.]

26. A firm takes output price P > 0 as given. Her variable cost is 0 at q = 0; 10 at q = 1; 15 at q = 2; 16 at q = 3; 20 at q = 4. Producing nothing is her unique best output decision if
(A) P = 4;
(B) P = 5.6;
(C) P = 6;
(D) P = 10.
Ans: A. [Her minimal average variable cost is 5 at Q = 4. Note profit is Q(P - AVC) - FC.]

27. [continued from question 26] Let P = 5.
(A) She can not maximize her profit;
(B) q = 5 is her best output decision;
(C) She cannot shut down production;
(D) She will choose q such that her marginal cost equals 5.
Ans: B. [At P = 5, she can choose either q = 0 or q = 4, yielding maximized profit as -FC. Hence we see the shut-down option. Marginal cost is not defined here.]

28. Suppose that both AVC and MC curves are U-shaped. MC is minimized at q = 3; AVC is minimized at q = 8; MC = AVC at q = 8 only.
(A) For q < 3, her VC is向下開口、正斜率的拋物線；
(B) For q > 3, her AVC is向上開口、正斜率的拋物線；
(C) For q < 8, her MC is向上開口、正斜率的拋物線；
(D) For q > 3, her MC > AVC.
Ans: A. [For q < 3, her VC is向下開口、正斜率的拋物線。For q > 3, her VC is向上開口、正斜率的拋物線。]

29. Let market demand and supply curves be Q = 3 - P and Q = P - 1 respectively.
If government decides to impose a unit tax, $1, and let sellers collect taxes on behalf of the government. At the new equilibrium (Q*, P*), we see
(A) consumers’ surplus is 1/8;
(B) consumers’ surplus is 1/4;
(C) producers’ surplus exceeds consumers’ surplus;
(D) None of the above is correct.
Ans: A. [Before tax, the equilibrium price is 2 and the equilibrium quantity is 1. Imposing unit tax on sellers’ side makes the supply curve shift to P = 1 + Q + 1 = 2 + Q. By Q = 3 - P and Q = P - 2, we get P* = 2.5 and Q* = 0.5. Keep in mind that sellers have to render tax money (= (1)(0.5)) to the government. It is easy to calculate CS = PS = (1/2)(1/2)(1/2) = 1/8.]

30. Let market demand and supply curves be Q = 3 - P and Q = P - 1 respectively.
If government decides to impose a unit tax, $1, directly on consumers.
(A) The new demand curve is Q = 4 - P;
(B) The new demand curve is Q = 2 - P;
(C) The new equilibrium quantity is 1;
(D) The new producers’ surplus is 1/4.
Ans: B. [The new demand curve is P = 3 - Q - 1 = 2 - Q. By P = 2 - Q and P = 1 + Q, we get Q** = 0.5 and P** = 1.5. Here, CS = PS = 1/8.]

31. Nowadays most countries do not have beverage container deposit laws (that require prices must be marked up to include the container deposit). Yet containers (especially aluminum cans) are well recycled by market force. In all universities in Taiwan, professors are required to hold (at least) 4 hours per week as office hours. Students are also asked in end-of-term teaching evaluations about whether they find professors helpful outside the classrooms. Ironically, students, definitely including mine, generally do not make use of office hours. Can you use demand and supply curves to analyze the “market” for office hours? Identify what price and quantity are. Can we say that there is a market failure here? What can we do to increase the demand (and/or supply) of advising time provided by the office hours policy? Will lifting (or abandoning) the office hours policy make students use more office hours? Can we say that students in better universities use office hours more often?
Ans: (skipped here)

32. Consider two countries, A and B. Suppose that each country has 10 hours to spend on producing goods. Assume that for one hour in the production of (good) X, A can produce 4 units of good X; for one hour in the production of (good) Y, A can produce 6 units of good Y. Assume that for one hour in the production of X, B can produce 2 units of good X; for one hour in the production of Y, B can produce 4 units of good Y. As we did in class, perfect divisibility and fixed technology are assumed throughout.
(i) Precisely depict the PPC (or PPF) for A on the x-y plane. You must also write down the equation, indicate the intercepts and slope.
Ans: The PPF for A is (1/4)x + (1/6)y = 10 or 3x + 2y = 120. Vertical intercept is 60, horizontal intercept is 40, and the slope is -1.5. [The PPF for B is (1/2)x + (1/4)y = 10 or 2x + y = 40. Vertical intercept is 40, horizontal intercept is 20, and the slope is -2.]

(ii) Does any country have the absolute advantage in producing some good? Carefully explain.
Ans: For one hour in the production of (good) X, A can produce 4 units of good X, B can produce 2 units of good X, hence A has the absolute advantage in producing X.
Likewise, by 6 > 4, A also has the absolute advantage in producing good Y.

(iii) What is A’s opportunity cost of producing good X? What is B’s opportunity cost of producing good X? Does any have the comparative advantage in producing some good?
Ans: The PPF for A is 3x + 2y = 120; the PPF for B is (1/2)x + (1/4)y = 10 or 2x + y = 40. Hence, A’s opportunity cost of producing one unit of good X is 1.5 units of good Y. B’s opportunity cost of producing one unit of good X is 2 units of good Y. We see that A has the lower opportunity cost in producing good X (than B does), hence A has the comparative advantage in producing good X. Of course, B has the comparative advantage in producing good Y.

(iv) After each country specializes on producing some good according to the comparative advantage, a free trade takes place. Name a reasonable relative price of good X for them to trade. Which country is the exporter of good X?
Ans: Any number between 1.5 and 2 will do. Country A will export good X and import good Y.

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Last update on January 10, 2010