Final

Name:______________
Microeconomics
Professor Schenk

Instructions: Please write your name clearly at the top of the page.
Complete all of the questions below. For clarity, please circle your
response and write the letter on the line next to the question. The letter
written on the line will be considered your final answer. Feel free to show
your work alongside the problem.

1. ____Recent census estimates shows the median income for an individual with
a high school diploma is $21,079. Meanwhile, the tuition for a full-time Grand
View student is $18,234. The opportunity cost of a high school graduate
attending Grand View for a year is:
a. $2,845
b. $18,234
c. $21,079
d. $39,313
2. ____ (True or False) Comparative advantage arises from specialization.
3. ____The distinction between a change in demand and a change in quantity
demanded is best made by saying that:
a. change in demand is represented graphically by a shift of the demand
curve and change in quantity demanded as a change in the point along
that curve.
b. change in quantity demanded is represented graphically by a shift of
the demand curve and demand as a a change in the point along that
curve.
c. the quantity demanded is in a direct relation with prices, whereas
demand is in an inverse relation.
d. the quantity demanded is in an inverse relation with prices, whereas
demand is in a direct relation.
4. ____ Price floors…
a. are set below equilibrium price
b. are set above equilibrium price
c. are set equal to equilibrium price
d. do not exist
5. ____ (True or False) Supply curves are the same as the entire marginal cost
curve.
6. ____When choosing between two goods, a particular combination is referred
to as:
a. a basket.
b. a bundle.
c. opportunity cost.
d. choice.
7. ____A firm finds that producing 30,000 vases cost $180,000, while producing
40,000 costs $200,000. This pattern can be explained by:
a. economies of scope.
b. economies of scale.
c. diseconomies of scale.
 d. law of increasing marginal productivity.
8. ____In the early 2000s, sea lions were depleting the stock of steelhead trout.
One idea to scare sea lions away from the Washington coast was to launch
fake killer whales, predators of sea lions. The cost of making the first whale is
\$16,000 (\$5,000 for materials and \$11,000 for the mold). The mold can be
reused to make additional whales, so additional whales cost \$5,000 each.
Based on these numbers, the total cost of making 2 fake killer whales would
be:
a. $10,000
b. $11,000
c. $16,000
d. $21,000
9. ____(True or False) Fixed costs remain the same regardless of the level of
production.
10.____(True or False) If average fixed cost is \$2 and average variable cost is \
$3, then the total cost is \$5.
11.____(True or False) Pigou tax sets a cap on the number of of items sold in the
market place.
12.____(True or False) The firm's supply curve is the marginal cost curve equal to
and greater than the average variable cost.
13.____(True or False) In economic modeling, consumers try to maximize their
utility given a budget contraint and firms try to maximize the number of units
sold.
14.____(True or False) The production function describes how firms transform
inputs into outputs.
15.____(True or False) When firms decide the cost of their product, they consider
fixed costs, variables costs, and spillover costs to make their decision.
Instructions: Argue against the following statement the following
statement using economic reasoning from lectures, notes, and the
textbook. You may use graphs to support your answer, but full credit will
be given to those answers able to express their response in words. The
answer is not necessarially lengthy, so do not write more than you need
to.

11.Trade should be limited. Two countries could never benefit from trade.
Instructions: Answer all of the following questions.

12.Assume there are two firms in the market. Below are the cost curves for each
firm and the demand/marginal revenue curves.
Firm 1
Avera
Fix Tot Avera ge Avera
Varia ed al Margi ge Varia ge
ble Cos Cos nal Fixed ble Total
Output Cost t t Cost Cost Cost Cost
10
0 0 100 0
16
1 60 100 0 60 100.0 60.0 160.0
19
2 90 100 0 30 50.0 45.0 95.0
21
3 110 100 0 20 33.3 36.7 70.0
25
4 150 100 0 40 25.0 37.5 62.5
33
5 230 100 0 80 20.0 46.0 66.0
45
6 350 100 0 120 16.7 58.3 75.0
61
7 510 100 0 160 14.3 72.9 87.1
81
8 710 100 0 200 12.5 88.8 101.3

Firm 2
Avera
Fix Tot Avera ge Avera
Varia ed al Margi ge Varia ge
ble Cos Cos nal Fixed ble Total
Output Cost t t Cost Cost Cost Cost
30
0 0 300 0
33
1 30 300 0 30 300.0 30.0 330.0
35
2 55 300 5 25 150.0 27.5 177.5
37
3 75 300 5 20 100.0 25.0 125.0
39
4 90 300 0 15 75.0 22.5 97.5
 40
5 100 300 0 10 60.0 20.0 80.0
42
6 120 300 0 20 50.0 20.0 70.0
46
7 160 300 0 40 42.9 22.9 65.7
54
8 240 300 0 80 37.5 30.0 67.5
66
9 360 300 0 120 33.3 40.0 73.3

Quantit
y 0 1 2 3 4 5 6 7 8 9
Deman 17 14 14 13
d 180 175 0 165 160 155 150 5 0 5
16 11 10
MR 180 170 0 150 140 130 120 0 0 90

a. Between which level of output are there economies of scale for Firm
1? For Firm 2?

b. In the long run, how many firms will be selling in the market? Why?
 c. At which price must the firm shut down? (Give an amount)

13.Below is a payoff matrix. Assume positive amounts indicate positive utility

(e.g., happiness) and larger amounts indicate greater level of happiness. The
payoff is represented by a pair (x,y) where x indicates car #1’s happiness
and y indicates car #2’s happiness.

Car #2

Swerve Do Not Swerve

C
Swerv
a (0,0) (-1,+1)
e
r
Do
# Not
(+1,-1) (-10,-10)
1 Swerv
e

a. What is car #1’s strategy? Why?

b. What is car #2’s strategy? Why?

c. What is the likely outcome of this game? Why?

You’re Done with the Course!