N, and P (Note, For This Answer, N Will Not Be A Whole Number)

ECO 6115 – Microeconomics
Final exam Study Problems
1. An competitive industry consists of 1,000 identical firms, each with short-run total costs given
by cSR(q) = .5q2 + 10q + 50.
a. What is the short-run supply for each firm?
b. What is the industry short-run supply?
Suppose market demand is Q = 25,000 – 400P
c. Find the equilibrium price and quantity.
d. What is each firm’s short-run profit?
e. What is short run industry-wide producer surplus?
f. Suppose the government adds a $7 per unit tax. Find the new equilibrium price
demanders pay, price suppliers keep, and quantity produced.
g. Calculate the welfare cost of the tax.
2. In a competitive industry with free entry, market demand is Q = 1,612 - P, where Q is market
output bought and sold and P is market price. Each of the n firms possesses the long-run total
cost function C = 400 + 2q - 4q2 + 2q3 , where q is the firm's output and C is total cost. Derive
the long-run equilibrium values of Q, q, n, and P.
Suppose now that the government adds a license fee, so that fixed costs are now 720, and the
total cost function is C = 720 + 2q - 4q2 + 2q3. Find the new long-run equilibrium values of Q, q,
n, and P (note, for this answer, n will not be a whole number).
3. The domestic demand for high-volume copiers is Q = 50,000 – 10P. The domestic supply is
Q = 40P
a. Suppose no international trade takes place. Find the domestic autarky price and
quantity.
b. Suppose this country can import or export as many printers as it wants at the world
price of Pw = 500. Would the country import or export printers? How many would it
import/export under free trade.
c. Suppose the domestic government puts a tariff of $100 per imported printer. What
would be the new market equilibrium (i.e., P; domestic qd and qs; and imports)? How much tariff
revenue would the government gain?
d. Assuming that supply = MC, what are the welfare effects of the tariff (i.e., ∆CS; ∆PS;
∆W)?
e. Assume instead that the exporting nation signs a Voluntary Export Restraint with the
domestic government that limits exports to 10,000 printers. Find the welfare effects of the VER
as compared to free trade and the tariff in part d.
4. An exchange economy consists of two people, A and B, and two goods X and Y. A’s
preferences are represented by the utility function UA = XA YA ; B’s preferences are represented
by the utility function UB = XB (YB )3. Finally, the initial endowments are as follow:
XA0 = 100; YA0 = 50; XB0 = 200; YB0 = 100.
a. Is the initial allocation Pareto efficient? Please show your work - a yes or no answer
will receive no credit even if correct.
b. If your answer to part A is no, what type of trade do you expect to see between the two
agents?
c. Find the equation of the contract curve.
5 An exchange economy consists of two people, A and B, and two goods X and Y. A’s
preferences are represented by the utility function UA = XA YA ; B’s preferences are represented
by the utility function UB = min {XB , YB }. The initial endowments are given by
XA0 = 10; YA0 = 50; XB0 = 50; YB0 = 10.
a. Draw the initial allocation in an Edgeworth box. Draw each person’s indifference
curve through the initial endowment.
b. Is the initial endowment Pareto Efficient? Explain why or why not.
c. What is the equation of the contract curve (write your answer as YA as a function of XA
)?
6. The demand curve for radial tires is D(P) = 400-5P and the supply curve is S(P) = 3P.
a. Find the equilibrium price and quantity.
b. A per-unit tax of $24 is placed on radial tires. Find the new equilibrium price paid by
demanders, the price kept by suppliers, and the equilibrium quantity.
c. Find the dead weight welfare cost of the tax.
7. In a three-good world, the excess demand for good 2 is given by

Z2 (P) = 4 - P2 /P1 + 2P3 / P1 and the excess demand for good 3 is given by
Z3 (P) = 8 + P2 /P1 - 4P3 / P1.
a. Find the excess demand function for good 1.
b. What are the market clearing price ratios P2* / P1* ; P3* / P1* ; and P3* / P2*?

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ECO 6115 – Microeconomics

Final exam Study Problems

XA0 = 100; YA0 = 50; XB0 = 200; YB0 = 100.

c. Find the equation of the contract curve.

XA0 = 10; YA0 = 50; XB0 = 50; YB0 = 10.

b. Is the initial endowment Pareto Efficient? Explain why or why not.

a. Find the equilibrium price and quantity.

c. Find the dead weight welfare cost of the tax.

7. In a three-good world, the excess demand for good 2 is given by

a. Find the excess demand function for good 1.

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