S.
Klepper, Economics 73-100, Fall 2011
There are a total of three major questions, each weighted according to the points listed to the left of the question. These are the points apportioned to each question. They sum to 100
Each
of the major questions has a series of subsidiary questions. Each of these subsidiary questions is a
true-false question. To answer the
question, indicate in your exam booklet whether the answer is true or false and
provide a brief explanation for your answer. Correct answers with insufficient
explanations will get no points. When
you finish, hand in only your exam booklet.
The
exam is open-book and open-notes. If you
have any questions at all, then ask the proctor to help you. Do not introduce any assumptions (beyond
those introduced in class) without consulting the proctor.
[47] 1. Consider the fourth class experiment concerning supply. Suppose a new technology was being developed
that would reduce the amount of labor required to produce any level of output
by 20% to 30%. Thus, depending on how
much saving was realized from the new technology, the second plant would
require only 70% to 80% as much labor as the first plant to produce the same
level of output. The new technology could
only be implemented in a new plant in which anywhere from 0 to 9 units of
output could be produced. Suppose that
each producer in the experiment was able to build such a plant, so they had two
plants to use in production. Assume that the fixed costs of the second plant were
the same as the first plant, $20, and once built, producers would have to incur
this $20 cost for the second plant whether or not they produced any output in
the plant.
Suppose
the price of labor and the price of output in each of the six rounds of the
experiment were the same as in the version of the experiment conducted in
class. Assuming producers maximized
their profits and the second plant required 70% to 80% as much labor as the
first plant to produce any level of output, which of the following correctly
describe the costs of the two plants, the amount of output producers would have
produced in their two plants in each round, and the amount of labor producers
would have hired in their two plants in each round? Mark true for a correct statement and false
for an incorrect one.
_____1. The average total
cost of production at every level of output was at least 20% lower in the
second plant than the first plant.
_____2. The minimum price at which producers were willing to produce a positive level of output was at least 20% lower in the second plant than the first plant.
_____3. In at least one
round of the experiment, producers produced a positive level of output in the
second plant but no output in the first plant.
_____4. Producers produced a
positive level of output in the second plant in every round of the experiment.
_____5. In every round in
which it was profitable to produce a positive level of output in the first
plant, producers produced a positive level of output in the second plant.
_____6. In every round in
which it was profitable to produce a positive level of output in the first
plant, producers earned greater profits from the output they produced in the
second plant than the output they produced in the first plant.
_____7. In every round in
which it was profitable to produce a positive level of output in the first
plant, producers produced an output in the second plant that was at least 20%
greater than the output they produced in the first plant.
_____8. In every round in
which it was profitable to produce a positive level of output in the first
plant, the marginal cost of production of the last unit of output produced was
greater in the first plant than the second plant.
_____9. In every round in
which it was profitable to produce a positive level of output in the first
plant, the quantity of labor producers hired in the first plant was greater
than the quantity of labor they hired in the second plant.
[20] 2. Consider the way movies are distributed. Theaters commit to accept all the movies produced by a particular company before they know how popular the movies will be. They must pay a fixed distribution fee for each movie that they receive from a production company, and then must decide whether to show the movie. If they decide to show a movie, they incur the costs of projecting it, which are independent of the number of people that view the movie. Theaters set their own ticket price for each movie based on demand for the movie.
Assuming
it is profitable for theaters to show all the movies they receive and will set
a price for each movie that maximizes their profits, which of the following
statements correctly describe this situation?
Mark true for a correct statement and false for an incorrect one.
_____10. A theater should set a ticket price for each
movie that just sells out the theater—i.e., at the chosen price the quantity
demanded should equal the capacity of the theater.
_____11. If the price of
tickets for a movie were such that the quantity demanded exceeded the capacity
of a theater, the theater could not be maximizing its profits.
_____12. If the price of
tickets for a movie were such that a theater did not sell out and the price
elasticity of demand was greater than one, then the theater could not be
maximizing its profits.
_____13. If the price of
tickets for a movie were such that the income elasticity of demand was greater
than one then a theater could increase its profits by lowering the ticket price
for movies.
_____14. If the price of
tickets for a movie were such that the price elasticity of demand were less
than one, then a theater could not be maximizing its profits.
[33] 3. Suppose that over the last 15
years, Chile and Brazil experienced an average annual growth in real GDP of 9%
per year, comparable to the Asian Miracles over the 30 or so years before 1990. Suppose that in this period of time the
population did not change in either country, both countries experienced a 8%
growth per year in labor as more of the population worked, and capital
increased by 9% per year in Chile and 12% per year in Brazil. Furthermore, suppose the fraction of GDP paid
to labor could not be determined exactly for either country but it was known to
be greater than 0 and less than 1 in both countries and was greater in Chile
than Brazil.
Which
of the following statements concerning this situation are correct regardless of
the precise fraction of labor paid to labor in either country? Mark true for a correct statement and false
for an incorrect one.
_____15. The growth in labor
and capital in Chile and Brazil over the last 15 years contributed to at least
8% per year growth in the real GDP of both countries.
_____16. The fraction of the
9% growth in real GDP experienced by both countries that was due to growth in labor
was greater for Chile than Brazil.
_____17. The residual annual
growth in GDP attributable to technical change was greater in Chile and Brazil
over the last 15 years than in the average Asian Miracle country over the 30 or
so years prior to 1990 considered in class.
_____18. The residual annual
growth in GDP attributable to technical change was less in Chile and Brazil
over the last 15 years than in the average high income Western country over the
30 or so years prior to 1990 considered in class.
_____19. In Chile some part
of its 9% annual growth in real GDP was due to technical change.
_____20. The residual annual
percentage growth in real GDP attributable to technical change was greater in
Brazil than Chile.