微观经济学试题英文版.doc

*- Managerial Economics Part 1: 1. The price of good A goes up. As a result the demand for good B shifts to the left. From this we can infer that: a. good A is a normal good. b. good B is an inferior good. c. goods A and B are substitutes. d. goods A and B are complements. e. none of the above. Choose: d) the definition os complements 2. Joes budget line is 15F + 45C = 900. When Joe chooses his most preferred market basket, he buys 10 units of C. therefore, he also buys : a. 10 units of F b. 30 units of F c. 50 units of F d. 60 units of F e. None of the above Choose: b) We assume that Joe will spend all his income. If C = 10, then 15F =900 – 45(10) =450, so F = 450/15 =30. 3. Kim only buys coffee and compact discs. Coffee costs $0.60 per cup, and CDs cost $12.00 each. She has $18 per week to spend on these two goods. If Kim is maximizing her utility, her marginal rate of substitution of coffee for CDs is: a. 0.05 b. 20 c. 18 d. 1.50 e. None of the above Choose: a) At Kims most preferred market basket, her MRS equals the price ratio (Pcoffee/PCD), which equals 0.6/12 or 0.05. 4. The bandwagon effect corresponds best to which of the following? a. snob effect. b. external economy. c. negative network externality. d. positive network externality. Choose: d) 5. A Giffen good a. is always the same as an inferior good. b. is the special subset of inferior goods in which the substitution effect dominates the income effect. c. is the special subset of inferior goods in which the income effect dominates the substitution effect. d. must have a downward sloping demand curve. Choose: c) the definition of Giffen good 6. An Engel curve for a good has a positive slope if the good is : a. an inferior good. b. a Giffen good. c. a normal good. d. a, b, and c are true. e. None of the above is true. Choose: c) Inferior and Giffen goods have negatively sloped Engel curves. 7. The price of beef and quantity of beef traded are P* and Q*, respectively. Given this information, consumer surplus is the area: a. 0BCQ* b. ABC c. ACP* d. CBP* e. 0ACQ* Choose: d) Consumer surplus is the area between the demand line and the price. 8. In Figure 1, holding income constant, what change must have occurred to rotate the budget line from the old line(1) to the new line(2)? (1) (2) Pizza Coke Figure 1 a. The price of Coke fell b. The price of pizza fell c. The price of pizza rose d. The price of Coke went up e. b and c Choose: b) The horizontal intercept, I/PC, is unchanged, which implies that PC could not have changed (holding income constant). Since the slope is PP/PC, the slope change means that the price of pizza must have fallen. This can also be seen intuitively from Figure 1, since the consumer can now buy more pizza than before if he spends all his income on pizza. 9. Andy buys 10 pounds of onions per month when the price is $0.75 per pound. If the price falls to $0.50 per pound, he buys 30 pounds of onions. What is his arc elasticity of demand over this price range? a. - 1.33 b.–2 c.–2.5 d. - 6 e. None of the above is correct. Choose: c) Using the arc elasticity formula, The next two questions refer to the following information: Opie and Gomer are the only two consumers in the video cassette rental market in the Mayberry. Their demand curves per week are pictured in Figure 2. 10. If rentals cost $2.50 each, the total quantity demanded each week in the market is : a. 3 b. 6 c. 15 d. 10 e. None of the above is correct. Choose: b) Add horizontally to get the market demand curve. At P = $2.50, QO = 3 and QG = 3 for a total of 6 units demanded. 11. For a decrease in price from $2.50 to $1.50, market demand is : a. elastic. b. unit elastic. c. inelastic. d. perfectly inelastic. e. More information is needed. Choose: a) Demand is price elastic: EP = %ΔQ/%ΔP = [(15-6)/6]/[(2.50-1.50)/2.50] = -3.75 OPIE 2.50 1.50 3 8 Quantity (number of cassettes) Do Price($/unit) (a) Price($/unit) 2.50 1.50 3 7 Quantity (number of cassettes) COMER DG (b) Figure 2 12. As president and CEO of MegaWorld industries, you must decide on some very risky alternative investments: Project Profit if Successful Probability of Success Loss if Failure Probability of Failure A $10 million .5 -$6 million .5 B $50 million .2 -$4 million .8 C $90 million .1 -$10 million .9 D $20 million .8 -$50 million .2 E $15 million .4 $0 .6 The highest expected return belongs to investment a. A. b. B. c. C. d. D. e. E Choose: b) Ea=2 Eb=6.8 Ec=0 Ed=6 Ee=6 13. An individual with a constant marginal utility of income will be a. risk averse. b. risk neutral. c. risk loving. d. insufficient information for a decision. Choose: b) An individual with a constant marginal utility of income is risk neutral. 14. In the figure below, what is true about the two jobs? a. Job 1 has a lower standard deviation than Job 2. b. All outcomes in both jobs have the same probability of occurrence. c. A risk-averse person would prefer Job 2. d. A risk-neutral person would prefer Job 1. e. Job 1 has a higher expected income than Job 2. Choose: a) Job 1 has a lower standard deviation than Job 2. Expected income of Job 1 equals to Job 2. Part 2: The demand curves for steak, eggs, and hot dogs are given in the table below. The current price of steak is $5. The price of eggs is $2.50, and the price of hot dogs is $0.75. Fill in the remaining columns of the table using this information. Indicate which goods are substitutes and which goods are complements. Good Demand Equation Steak Price Elasticity of Demand Egg Price Elasticity of Demand Hotdog Price Elasticity of Demand Steak Egg Hotdog Solution: Good Demand Equation Steak Price Elasticity of Demand Egg Price Elasticity of Demand Hotdog Price Elasticity of Demand Steak -0.020 -0.00051 1.53E-5 Egg -0.0799 -0.12 1.20E-3 Hotdog 0.016 0.00082 -0.0012 Steak and eggs are complements. Steak and hotdogs and eggs and hotdogs are substitutes. Part 3: Draw indifference curves to represent the following descriptions of consumer preferences: a. I can’t taste the difference between apple and grape jelly, but I like them both. b. I only like grape jelly and never eat apple jelly. c. Apple and grape jelly are better mixed, although I don’t care too much about the proportions. Answer: a) See Figure 7(a). Since the consumer can not tell the difference between the two flavors, all he would care about is the total amount of jelly he has. b) See Figure 7(b). An increase in the amount of apple jelly does not affect the consumer since he never eats it. c) See Figure 7(c). Here, a mixed bundle is better than an extreme one, but the consumer is willing to trade off the different flavors. Figure Ounces of Grape Jelly Ounces of Apple Jelly (a) Ounces of Grape Jelly Ounces of Apple Jelly (b) (c) Ounces of Grape Jelly Ounces of Apple Jelly 7 Part 4: There are reasons other than fads, fashions, and consumer insecurity for bandwagon and snob effects. Various types of externalities in the consumption of certain goods also exist. Explain which these effects (bandwagon or snob) might be present in the following cases: a. A restaurant that is often crowded b. A personal computer software product c. A rock concert Answer: a) A price decrease will attract more customers, but the crowding(longer lines, poorer service) will discourage others. This would resemble a snob effect. b) The more people you expect to buy a software product, the more likely you can find another experienced user to ask questions about it. Also, the more likely it is that a computer bookstore will carry publications about how to use the software. Thus, we would expect to see a bandwagon effect. c) Here, crowding might discourage some customers. But, since part of the enjoyment of a concert is seeing the band with other fans, we might observe a bandwagon effect. Part 5: Tom Wilson is the operations manager for BiCorp, a real estate investment firm. Tom must decide if BiCorp is to invest in a strip mall in a northeast metropolitan area. If the shopping center is highly successful, after tax profits will be $100,000 per year. Moderate success would yield an annual profit of $50,000, while the project will lose $10,000 per year if it is unsuccessful. Past experience suggests that there is a 40% chance that the project will be highly successful, a 40% chance of moderate success, and a 20% probability that the project will be unsuccessful. a. Calculate the expected value and standard deviation of profit. b. The project requires an $800,000 investment. If BiCorp has an 8% opportunity cost on invested funds of similar riskiness, should the project be undertaken? Solution: a. Expected Value 100,000 .4 40,000 50,000 .4 20,000 -10,000 .2 -2,000 = 58,000 Standard deviation 100,000 42,000, 764,000,000 705,600,000 50,000 -8,000 64,000,000 25,600,000 -10,000 -68,000 4,624,000,000 924,800,000 = 1,656,000,000 = 40,693.98 b. Bio-Corps opportunity cost is 8% of 800,000 or 0.08 x 800,000 = 64,000. The expected value of the project is less than the opportunity cost. Bi-Corp should not undertake the project.