# ECON 545 Final Exam 1

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ECON 545 Final Exam 1

1. (TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets. (a.) (15 points) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility? Remember that supply and demand are about the market supply and market demand, which is bigger than your own company.

2. (TCO B) Here is some data on the demand for marshmallows:......... (a.) (15 points) Is demand elastic or inelastic in the \$6-\$8 price range? How do you know? (b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 1300 units to 2200 units? Show all work. (Be careful here!)

3. (TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.............. (a.) (6 points) What is the marginal product of the second worker? (b.) (6 points) What is the marginal revenue product of the fourth worker? (c.) (6 points) What is the marginal cost of the first worker? (d.) (12 points) Based on your knowledge of marginal analysis,

4. (TCO C) Answer the next questions on the basis of the following cost data for a firm in pure competition:........... (a.) (15 points) Refer to the above data. If the product price is \$45 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations. (b.) (15 points) Refer to the above data.

5. (TCO D) A software producer has fixed costs of \$18,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:......... (a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work). (b.) (15 points) What should be the production level if fixed costs rose to \$48,000 per month? Explain.

6. (TCO F) (a.) (20 points) Suppose nominal GDP in 1999 was \$200 billion, and in 2001, it was \$270 billion. The general price index in 1999 was 100 and in 2001 it was 150. Between 1999 and 2001, the real GDP rose by what percent? (b.) Use the following scenario to answer questions (b1) and (b2). In a given year in the United States, the total number of residents is 270 million, the number of residents under the age of 16 is 38 million, the number of institutionalized adults is 15 million, the number of adults who are not looking for work is 17 million, and the number of unemployed is 10 million. (b1.) (5 points) Refer to the data in the above scenario.

7. (TCO G and H) (a.) (15 points) Suppose your local Congress representative suggests that the federal government intervenes in the gasoline market to stop runaway price increases. Would you say that this view basically supports the Keynesian or the Monetarist school of thought? Why? What position would the opposing school of thought take on this issue?

8. (TCO G) (a.) (20 points) Third National Bank is fully loaned up with reserves of \$20,000 and demand deposits equal to \$100,000. The reserve ratio is 20%. Households deposit \$5,000 in currency into the bank. How much excess reserves does the bank now have, and what is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work. (b.) (20 points)

9. (TCO E and I) Let the exchange rate be defined as the number of dollars per British pound. Assume there is a decrease in U.S. interest rates relative to that of Britain. (a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the pound? Why? (b.) (10 points) Has the dollar appreciated or depreciated in value relative to the pound? (c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans?

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