ECON 301 Practise Final

Part I: True/False/explain (Do any 12 questions, 5 marks each)

  1. If the government places a quota on the import of Japanese cars then the price of Canadian made cars should rise.

  2. If a decline in the price of tomatoes results in a reduction in consumption of tomatoes by tomato farmers, then we can conclude that tomatoes are inferior goods to the tomato farmers

  3. If average total cost is rising than average variable cost it must be rising

  4. Consider two different tax policies: a per unit tax on good x or a lump sum tax paid by all consumers. If both taxes leave the consumer equally as well off, the per unit tax will generate more revenue for the government (assume a two good world).

  5. To minimize the cost of producing a given quantity of output, the input bundle it must be chosen so that the marginal products of all inputs are identical

  6. Although high fixed costs may be the cause of pure economic losses, they can never be the reason for closing down.

  7. If perfectly competitive firms are making pure economic profits then, in the long run, we can expect that the equilibrium price will fall, the quantity supplied in the market will rise, and the it output per firm will fall. (assume constant cost industry)

  8. Since every firm in a competitive industry earns zero economic profit in long run equilibrium, a fall in market price would mean no firms at all could continue to survive in the long run.

  9. In comparing long run equilibrium between perfect competition and monopoly, one can say that the monopolist would be willing to sell more at the equilibrium price whereas the competitive firm is not willing to sell any further units at the equilibrium price.

  10. A monopolist faces the following demand curve:p=20-2q. If he has constant marginal cost of $4 and fixed cost of $30, then the monopolist makes a profit of $64.

  11. If an unregulated monopolist is making zero profit then it must be true that price equals minimum average total cost

  12. The larger the setup costs faced by an entrant, the larger will be the limit output chosen by the incumbent firm.

  13. If setup costs of entering an industry are significant, then the established firms it may make pure profit in long run equilibrium.

  14. Bertrand pricing behavior in combination with a positive setup cost is sufficient to deter entry even when there is just one established firm.

Part II: Problems (20 marks)

Given the following demand function p=200-0.5q, and the cost function faced by all firms, c(q)=K+20q, find the following:

  1. The monopoly price and quantity.

  2. Calculate the deadweight welfare loss.

  3. DERIVE he cournot best response functions for a duopoly, and solve for the equilibrium quantities.

  4. If K=100, Find the limit output

  5. If K=100, Find the equilibrium number of firms for a cournot oligopoly.