Microeconomics

Final Examination

Fall 2024

Instructions: Follow the instructions in each part of the final examination to answer the questions on the exam. If you are timing yourself, each question should take you on average no longer than 30-minutes to answer.

There is no need to rewrite each question, you may write your answers into a Word document. Be certain to include the Part and Question Number for each of your answers, and to incorporate every step instructed in the question into your answer. I will be reading your answers critically for the content.

If you want to receive extra credit you may answer additional questions on the final examination after you have answered the required questions in each part of the exam.

Your completed final examination must be submitted to me no later than December 21, 2024 at 11:59 p.m. via Dropbox. It may be submitted as either a Word document or a PDF. However, I highly recommend submitting your completed examination as a PDF to ensure your intended formatting remains in place.

Part One: Key Principles (25 Points)

Key principles provide foundation for understanding a discipline. Briefly, discuss two of the five following key principles and their role in microeconomics in not less than 250 words (double spaced in 12-point Times New Roman font). Be certain to address each of the components from the topic. Be certain your explanation includes content from the required readings, lecture notes, and digital media archive.

1.) Total Physical Product and Marginal Physical Product

Total physical product is the amount of output the firm obtains in total from a given quantity of inputs. Marginal revenue product is the increase in total output that results from a one-unit increase in the input quantity. First, discuss the relationship between total physical product and marginal physical product. Then, define marginal revenue product and discuss its relationship to marginal physical product. Lastly, give one example of each from a recent news article.

2.) Input Quantities

The most desirable output quantity for the firm clearly depends on how costs change as output varies. First, discuss the three types of cost curves economists use to display and analyze this information. Then, discuss the marginal product relationship. Lastly, give one example of how costs change as output varies for the firm from a recent news article.

3.) Price, Output and Profit

It is a common misperception that the firm selects a price and a quantity of output that maximize profit. First, discuss why this is a common misperception. Then, discuss the impact activities of other firms in the market competing for a share of total market demand have on a firm. Lastly, give one example of the firm maximizing its profit from a recent news article.

4.) The Firm Under Perfect Competition

Industries differ dramatically in the number and size of their firms. Perfect competition is a market structure in which firms are numerous and small. First, discuss the conditions for perfect competition. Then, discuss the perfectively competitive firm. Next, compare the perfectively competitive firm to monopoly power. Lastly, give one example of the perfectively competitive firms and one example of monopoly power from a recent news article.

5.)  Limiting Marketing Power: Regulation and Anti-Trust

To protect the public interest from monopolies, government uses anti-trust policy to prevent acquisition of monopoly power. In addition, some industries are regulated by rules that constrain firms’ pricing. First, discuss how the government uses anti-trust policy to prevent acquisition of monopoly power. Then, discuss one industry that is regulated by rules that constrain its pricing. Lastly, give an example of each from a recent news article.

Part Two: Key Concepts (25 Points)

Key  principles  develop  key concepts. Briefly, discuss two of the five following key concepts and their role in microeconomics. Each discussion should be no less than 150 words. Be certain to address each of the components from the topic. Be certain your explanation includes content from the required readings, lecture notes, and digital media archive.

1.) Production, Inputs, and Cost: Building Blocks for Supply Analysis

The firm can generally substitute one input for another. Whether or not it pays to substitute depends on the relative costs of labor and machinery. First, describe the alternative types of input proportions available to the firm. Then, describe the combination of inputs that represent the least costly way for the firm to produce its goods. Lastly, give one example of the firm’s substitutability from a recent news article.

2.) Production, Inputs, and Cost: Building Blocks for Supply Analysis

Total profit is the net earnings of the firm during a period of time. Marginal profit is the addition to total profit resulting from one more unit of output. Total revenue is the total amount of money the firm receives from the consumers of its goods, without any deduction of costs. Marginal revenue is the addition to total revenue resulting from the addition of one unit to output. First, expand on these descriptions to completely describe their impact on the firm. Then, describe fixed cost and the profit-maximizing price. Lastly, give one example of the profit-maximizing firm from a recent news article.

3.) Output, Price, and Profit: The Importance of Marginal Analysis

If the firm is losing money, in certain cases it will be better off continuing to operate until its obligations to pay the non-variable costs expire. First, describe what happens if the firm stops producing. Be certain to describe what happens to its costs that are non-variable. Then, describe in which circumstances will the firm do better by shutting down immediately and producing nothing. Lastly, give an example of each from a recent news article.

4.) Output, Price, and Profit: The Importance of Marginal Analysis

When a perfectly competitive industry is in long-run equilibrium, firms maximize profits so that P = MC. First, describe the relationship between the firm and the industry under perfect competition in the long-run. Then, describe the firm supply curve under perfect competition in the short-run. Next, describe the industry supply curve  under  perfect  competition  in  the  short-run.  Lastly,  give  one  example  of  the  firm  under  perfect competition in the long-run and one example of the industry under perfect competition in the long-run from a recent news article.

5.) Limiting Market Power: Regulation and Anti-Trust

The concentration of an industry measures the share of the total sales or assets of the industry in the ownership of its largest firms. First, describe an industry that has a very low concentration ratio. Then, describe an industry that has a very concentration ratio. Next, describe what occurs when circumstances in the industry are favorable for price collusion. Lastly, give one example of the Herfindahl-Hirschman from a recent news article.

Part Three: Formulas and Schedules (25 Points)

Key principles and key concepts describe formulas and graphs. Briefly, discuss three of the four following formulas or schedules to discuss and their role in microeconomics. Be certain to include in your discussion how each is used as an analytic tool used by economists. Each discussion should be no less than 150 words. Be certain to address each of the components from the topic. Be certain your explanation includes content from the required readings, lecture notes, and digital media archive.

1.) Production, Inputs, and Cost: Building Blocks for Supply Analysis

First, use the following schedule to calculate the marginal physical product, the marginal revenue product and the average physical product. Then, discuss the optimal point for the perfectly competitive firm.

Assumptions:         Price Per Garage:  $15,000         Cost Per Worker:  $50,000

2.) Production, Inputs, and Cost: Building Blocks for Supply Analysis

First, use the following schedule to calculate the marginal revenue, the marginal cost, the total profit, and the marginal profit. Then, list the formula for total revenue and total cost. Lastly, discuss the condition under which the firm will earn a profit, incur a loss, the output that maximizes the perfectly competitive firm’s profit, and under which a firm is maximizing profit by minimizing loss.

3.) Output, Price, and Profit: The Importance of Marginal Analysis

First, use the following schedule to calculate the total cost, the loss if the firm shuts down, and the loss if the firm does not shut-down. Then, identify in which case (i.e. Case A or Case B) the firm should shut-down and discuss the reasons why the firm should shut-down in one case but not the other. Finally, discuss the condition under which the firm will incur a loss and the output level at which the firm will continue to operate.

4.) Taxation, Distribution of Income and Resource Allocation

First, explain how society decides rationally on how much equality it wants relative to income distribution. Next, discuss the policies available to the government to distribute income and the impact such policies may have on the microeconomy. Then, explain how despite economists use of economic analysis to provide suggestions for responding  to economic problems (i.e. housing crisis, financial crisis, Recession) the economy still often confronts market’s short-comings that deeply impact consumers and producers. Lastly, using any graph of your choice from the textbook, graphically illustrate your explanation.

Part Four: Models and Debate (25 Points)

Key principles, key concepts, and formulas/graphs guide a researcher’s analytic analysis. First, answer question number one. Be certain to include in your discussion it is used as an analytic tool used by economists. Then, select two of the remaining questions and in no less than 250 words debate how it is used as an analytic tool in microeconomics used by economists. Be certain to address each of the components from the topic. Be certain your explanation includes content from the required readings, lecture notes, and digital media archive.

1.) Output, Price, and Profit: The Importance of Marginal Analysis

The following graph illustrates a firm’s profits in perfect competition. Using the graph describe how-to calculate the following:

The firm’s profit per unit of output:

The firm’s total profit:

2.) Limiting Market Power: Regulation and Anti-Trust

Predatory pricing threatens to keep competitors out of the market. It is a price that is so low that it will be profitable for the firm that adopts it only if a rival is driven out of the market. Debate why predatory pricing is an economic inefficiency in a perfectly competitive market.

3.) Limiting Market Power: Regulation and Anti-Trust

Government  regulates prices  to prevent prices from  being  so high  that  they  bring  monopoly  profits  to  the firm. Government regulates prices to set levels that are compensatory to enable firms to cover their costs. Many regulated industries are characterized by significant economies of large-scale production. Debate why economist favor setting price equal to marginal cost.

4.)  Externalities, the Environment and Natural Resources

Our very existence makes environmental problems inevitable. Environmental problems are not new. First, explain what is different about the attention we now give to these problems relative to an earlier period of time. Next, debate how our behavior, institutions, and evolution contributed to environmental problems.