Exam ii.pdf

a. How many additional signs does the fourth worker produce? How much extra revenue does this worker bring into the company? b. Suppose that the wage for sign makers is $15 per day, how many workers should this c. How much output is produced by the number of workers you listed in (b)? How much profit does the firm earn from producing this amount of output? Is this the profit maximizing output? List two different ways that you know this. d. Does this scenario represent a short run or long run situation? If it is long run, is this firm at a long run equilibrium? If it is short run, what do you expect to happen in the long run? e. Suppose that, for some crazy reason, this firm’s fixed costs increased by $1,000. How will this affect the firm’s decision regarding how much to produce?
Section 3 – Applications and Critical Thought (15 points)
Pfizer’s ever-popular drug Viagra. Using the graph complete the following: effect to those of Viagra. On the graph to the right, upon the introduction of Merck’s new drug. What do Midterm Exam II
Instructions: Answer all questions completely on a separate sheet of paper. Good answers
should demonstrate your understanding of the material and answer the questions asked.
The weight of the question is listed at the end of each question. In the event that you
find yourself unable to answer a question, you may leave the entire question blank and
receive 20% of the available points for that question. You are reminded that the UNC
honor code is in effect for this exam. If you have any questions, please ask. Good luck and
have fun!
Section 1 – Definitions and Short Answers (20 points)

1. If monopolies are always bad (from an economic efficiency point of view), why does the government award some firms with monopolies? List and explain three possible reasons (10 points) 2. Consider an industry consisting of a cartel of three firms. Would the following changes make it easier or more difficult to maintain the cartel agreement (provided that cartels illegal)? (10 points) a. an increase in the elasticity of market demand b. entry by a new firm that wasn’t a member of the cartel c. an easing in the enforcement of antitrust laws
Section 2 – Analysis and Comprehension (65 points)

3. A seafood restaurant in Wilmington has fixed costs of $1,000 per month and variable costs of $1,000 per month, as well. Its total revenues over the six warm months amount to $17,000. Its total revenues over six cold months are only $7,000. Wouldn’t this restaurant do better by staying closed during the off-season? (15 points) 4. Explain in words why a price-searching firm will produce too little output from the standpoint of economic efficiency. (you may use a diagram if you find that it helps tell your story) (15 points) 5. The table on the back page shows the production information for a company that manufactures political yard signs. Assume that the firm has fixed costs of $30 and has to pay $15 per worker in variable costs. Assume that the market for yard signs is perfectly competitive and that the current market price is $1 per sign. (35 points)

Source: http://www.unc.edu/~straines/econ10/Exam%20II%20-%20summer%202k.pdf