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Question One
Question One
Solution
a) - Explanation
Demand curve shifts left
Equilibrium price falls and equilibrium quantity falls
Question Two
Question Two
Solution
Answer d)
Question Three
Question Three
Solution:
$5.00 D
$4.25
50 100 Quantity
Question Four
S
S
2.00 2.00
D D
Q uantity Q uantity
(a) (b )
S
S
2.00 2.00
D
D
Q uantity Q uantity
(c ) (d )
EC120 – Review Questions for the Final 8
Question Four
Solution
Answer c)
Question Five
Table 1:
Bananas Apples
Quantit Marginal MUB/PB Quantit Marginal MUA/PA
y Utility y Utility
1 30 1 40
2 24 2 34
3 18 3 24
4 12 4 16
5 6 5 8
6 0 6 0
Assume the price of bananas PB is $1 a kilogram and the
price of apples PA is $2 a kilogram. Sam’s budget for
bananas and apples is $10.
Question Five
Solution
Table 1:
Bananas PB = $1 Apples PA = $2
Q Marginal MUB/PB Q Marginal MUA/PA
Utility Utility
1 30 30/1 =30 1 40 40/2 = 40
2 24 24/1 = 24 2 34 34/2 = 17
3 18 18/1 = 18 3 24 24/2 = 12
4 12 12/1 = 12 4 16 16/2 = 8
5 6 6/1 = 6 5 8 8/2 = 4
6 0 0/1 = 0 6 0 0/2 = 0
Sam will consume 4 bananas and 3 apples at his utility
maximizing combination.
Question Six
Table 2
Bananas Apples
Quantity Marginal MUB/PB Quantity Marginal MUA/PA
Utility Utility
1 30 1 40
2 24 2 34
3 18 3 24
4 12 4 16
5 6 5 8
6 0 6 0
Solution
Table 1:
Bananas PB = $2 Apples PA = $2
Q Marginal MUB/PB Q Marginal MUA/PA
Utility Utility
1 30 30/2 = 15 1 40 40/2 = 40
2 24 24/2 = 12 2 34 34/2 = 17
3 18 18/2 = 9 3 24 24/2 = 12
4 12 12/2 = 6 4 16 16/2 = 8
5 6 6/2 = 3 5 8 8/2 = 4
6 0 0/2 = 0 6 0 0/2 = 0
Sam will consume 2 bananas and 3 apples at his new
utility maximizing combination.
Question Seven
Price
Quantity of Bananas
EC120 – Review Questions for the Final 15
Question Seven
Solution
Price
$2
$1
D
2 4
Quantity of Bananas
EC120 – Review Questions for the Final 16
Question Eight
Question Eight
Solution
AP = TP/L = 156/4 = 39
EC120 – Review Questions for the Final 18
Firm B
Low High
Price Price
Firm A Low A: $2 A: $20
Price B: $5 B: -$15
High A: - $10 A: $10
Price B: $25 B: $20
Question Nine
Question Ten
Question Nine
Solution
If B chooses high
A gets $20 for low
A gets $10 for high
Therefore A should choose low
Question Ten
Solution
(Display Graph)
Question Eleven
a) Q1
b) Q2
c) Q3
d) Q4
EC120 – Review Questions for the Final 21
MC
P5
P4 ATC
P3
P2
P1
MR
0 Q1 Q2 Q3 Q4 Quantity
55101920.doc 22
Question Eleven
Solution
a) Q1
b) Q2
c) Q3
d) Q4
55101920.doc 23
Question Twelve
a) Product differentiation
c) Excess capacity
d) Inefficiency
55101920.doc 24
Question Twelve
Solution
a) Product differentiation
c) Excess capacity
d) Inefficiency
55101920.doc 25
Question Thirteen
a) $960
b) $0
c) $5040
d) $6000
e) $10
55101920.doc 27
Question Thirteen
Solution
a) $960
b) $0
c) $5040
d) $6000
e) $10
55101920.doc 28
Question Fourteen
Question Fourteen
Solution