02 Aug Devry University ECON 545 Latest Finals 2017 Version
(TCOs A and D) Suppose you are hired to manage a small manufacturing facility that produces Widgets. (30 points)
(Part A) You know that you are operating in a monopolistically competitive market, that is, you are a small part of a large market with many competitors in this market. From data collected on the Widget Market, you know that market demand has recently increased and market supply has recently decreased. Name two shift factors and determinants that could have caused the market demand to increase and two shift factors and determinants that could have caused the market supply to decrease. Also as manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility? (15 points)
Remember that supply and demand are about the market supply and market demand, which is much bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market. You want to identify the possible change in market equilibrium price and possible change in market equilibrium quantity based on the shifts in demand and supply and adjust your own price and quantity to match the market.
(Part B) Now, suppose that the following changes in demand and supply occur: (1) a complimentary good goes up in price and (2) your costs of production decrease. What decisions will you make regarding production levels and pricing for your Widget facility based ONLY on these changes, for example, do not factor in the changes in part (a) here? (15 points) (Points : 30)
2. (TCO B) Consider the data for two products as shown below. (20 points)
| Quantities Purchased | Quantities Purchased | |
| Prices | Product X | Product Y |
| $6 | 40 | 50 |
| $4 | 50 | 80 |
| Quantities Purchased | Quantities Purchased | |
| Income | Product X | Product Y |
| $30,000 | 25 | 20 |
| 50,000 | 10 | 30 |
(Part A) Using the midpoint formula, calculate the coefficient of elasticity for each product. (8 points)
(Part B) Calculate the income elasticity for each product and characterize each. (12 points) (Points : 20)
3. (TCOs C and D) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below. (20 points)
| Workers | Total Labor Cost | Output | Total Revenue |
| 1 | $250 | 60 | $150 |
| 2 | $500 | 110 | $475 |
| 3 | $750 | 150 | $725 |
| 4 | $1,000 | 180 | $925 |
| 5 | $1,250 | 200 | $1,065 |
| 6 | $1,500 | 210 | $1,195 |
| 7 | $1,750 | 215 | $1,295 |
Part A) (5 points) What is the marginal product of the second worker?.
(Part B) (5 points) What is the marginal revenue product (MRP) of the fourth worker?
(Part C) (5 points) What is the marginal cost (MC) of the first worker?
(Part D) (5 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer. (Points : 20)
4. ((TCO C) Answer the next questions (Parts A and B) on the basis of the following cost data for a firm operating in pure competition. (20 points)
| Output | TFC | TVC |
| 0 | $150.00 | 0.00 |
| 1 | $150.00 | 90.00 |
| 2 | $150.00 | 160.00 |
| 3 | $150.00 | 200.00 |
| 4 | $150.00 | 260.00 |
| 5 | $150.00 | 340.00 |
| 6 | $150.00 | 450.00 |
(Part A) Refer to the above data. If the product price is $75, 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. (10 points)
(Part B) Refer to the above data. If the product price is $55, 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. (10 points) (Points : 20)
5. (TCOs E and F) Compare and contrast a historical and/or current macroeconomic disturbance to the business cycle and economic policy decisions related to that disturbance. The disturbance would be some event that causes either unemployment or inflation to rise. Be sure to discuss the appropriate fiscal and monetary policies which would address that disturbance. (20 points) (Points : 20)
6. (TCO E) Answer Parts A and B completely. (30 points)
(Part A) Suppose nominal GDP in 2012 was $100 billion and in 2014 it was $150 billion. The general price index in 2012 was 100 and in 2014, it was 120. Between 2012 and 2014, the real GDP rose by what percent? (20 points)
(Part B) Use the following scenario to answer the questions (Part B1) and (Part B2).
In a given year in the United States, the total number of residents is 100 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 5 million.
(Part B1) Refer to the data in the above scenario. What is the size of the labor force in the United States for the given year? (5 points)
(Part B2) Refer to the data in the above scenario. What is the unemployment rate in the United States for the given year? (5 points) (Points : 30)
7. (TCOs E and F) Answer Parts A, B, and C completely. (40 points)
(Part A) Evaluate the fundamental arguments between Keynesians and Monetarists concerning the level of government involvement in our economy to minimize the impact and stabilize the different stages of the business cycle. (15 points)
(Part B) Any change in the economy’s total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works. (10 points)
(Part C) You are told that 90 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $8 billion. (15 points) (Points : 40)
8. (TCO H) You are in charge of making recommendations based on economic forecasts to upper management of your firm, which produces widgets, and employs 2,500 workers. What would you look for in terms of leading indicators (discuss at least three indicators), and what recommendations would you make to improve performance and promote better decision making based on your findings regarding leading indicators? Be sure to consider the macroeconomic nature of leading indicators, and the microeconomic nature of your firms’ decisions. (30 points) (Points : 30)
9. (TCO G) Let the exchange rate be defined as the number of dollars per Japanese yen. Assume there is an increase in U.S. interest rates relative to that of Japan. (30 points)
(Part A) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the yen? Why? (5 points)
(Part B) Has the dollar appreciated or depreciated in value relative to the yen? (5 points)
(Part C) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Japan? Illustrate by showing the price of a U.S. e-reader in Japan before and after the change in the exchange rate. (10 points)
(Part D) If you had a business exporting goods to Japan, and U.S. interest rates rose as they have in this example, would you plan to expand production or cut back? Why? (10 points) (Points : 30)
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