University of Wisconsin Milwaukee

Department of Economics
Econ 103: Principles of Microeconomics (Section 208)
Final Exam
Spring 2015
For the final exam you are asked to provide short but precise answers
to the following questions. Your answer sheet must be uploaded on the
D2Ls Dropbox no later than Thursday (05/13/2015) at 11:59 PM. It
must be in .PDF, .DOCX, or .RTF formats. Your answers should not
exceed 500 words all together. Keep it short, but justify your claims
using the concepts and tools that you have learned so far. Feel free
and let me know if anything is ambiguous and requires further
explanation. Good luck.

Question No. 1.
Answer the next 5 questions on the basis of the following information for
Manfred's Shoe Shine Parlor. Assume Manfred hires labor, its only variable
input, under purely competitive conditions. Shoe shines are also sold
competitively.
Notice that Marginal Product is simply defined as the change in Total
Product; i.e. Marginal Product: Q = Q2 Q1.
Units of
Total
Marginal
Total
Labor
Product
Product Revenue
0
0
1
14
14
$42
2
10
3
30
$90
4
35
5
39
$117
6
$126
7
44
2
$132
1.1.
Referring to the above data, how many units of output are
produced when 2 workers are employed?
1.2.
Provide the underlying formula and compute the Marginal
Productivity of the 2nd worker hired by Manfred.
1.3.
Refer to the above data and find the price at which each shoe
shine sell.
1.4.
If the wage rate is $11, how many workers will Manfred hire to
maximize profits? Explain shortly how you find this optimal firm-level
employment.
1.5. If the wage rate is $11 and Manfred's only fixed input is capital, the
total cost of which is $30, then what will be his economic

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University of Wisconsin Milwaukee

Department of Economics
Econ 103: Principles of Microeconomics (Section 208)
Final Exam
Spring 2015

profit? Compute the Total Revenue and Cost (at the optimal output
level) separately and report them both.
Question No. 2.
Part 1.)
Firm i produces its product in a perfectly competitive market. In the figure
below, the Average Total Cost and Marginal Cost of producing that product
are given by the ATC and MC curves, respectively. The price is determined in
the market. Like other firms who compete in this market, firm i is a pricetaker. The market price is given by the horizontal line.
2.1.1. Find the profit maximizing quantity, and call it X*.
2.1.2. Explain how you determined X*.
2.1.3. Draw the profit/loss box.
2.1.4. Keeping market demand constant, would firm i enjoy greater profit or
suffer from greater loss in the long run? Explain why.
MC

ATC
P

Part 2.)
Firm M is a monopolist. In the figure below, the Average Total Cost and
Marginal Cost of production are given by the ATC and MC curves,
respectively. Given the demand in the market (line D), the price is set by firm
M.
2.2.1. Find the profit maximizing quantity, and call it Y*.
2.2.2. Explain how you determined Y*.
2.2.3. Find the price that firm M would charge its customers with, and call it
P*.
2.2.4. Draw the profit/loss box.
MC

ATC

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University of Wisconsin Milwaukee

Department of Economics
Econ 103: Principles of Microeconomics (Section 208)
Final Exam
Spring 2015

Question No. 3.
The production of Electricity releases a harmful gas, SO2. What can the
government do to maximize social well-being? Make use of a graph to
illustrate your answer.

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