MID SEM EXAM ECON4550 SEM 1 2011/12 Name: MATRIC NO :_ PART B : SHORT ANSWERS QUESTIONS. Answer ALL in the answer this booklet . Please show all calculations or illustrate all relevant diagram(s) wherever appropriate. (30 MARKS) 1. Use the information for a competitive firm in the table below to answer the following questions. Quantity Total Total Marginal Marginal Revenue ‘ost Revenue Cost 0 $0 $10 6 oe 1 9 ee a a 2 18 ~1 19 q ~.. eas & z ee 368 ln 32) a > 5 AS ESE 40 < & Go anne a a TRS Sy im to a) 70 4 u 9 81 82] eS CARN AO" a) Complete the table above by calculating marginal revenue equal and marginal cost. [2m] b) Quantity of output is marginal revenue equal to marginal cost is G-_Eyim]. (0 ©) The marginal cost if the firm chooses to maximize profit is__A ts) O 4) ‘The maximum profit available to this firm would be S Un 0) ©) If the firm finds that its marginal cost is $11, it should _cecuee quan\y profit because Maral cosh 16 . 2m] Ney Rete Fon narpcl oleate AN A bi Page | 9MID SEM EXAM ECON1550 SEM 1 2011/12 Consider the two diagrams below. Diagram A represents a typical firm in a purely competitive industry. Diagram B represents the supply and demand conditions in that industry $6 ar 8 ; Nee/ ; i 4 4 £3 MR, 3 é 2 2 1 1 fs ° 04020304050 7000 2000 3000 4060 6000 Quantity Quantity a . a, Describe and state the possible price, output, and profit(loss) situation for the individual firm in the short run.)[2m] er wndodusl Gms th as poce teber, th daber pra from eulyrte Benard — supiy cae of industry Te oe pree Os 3, Outpt § ct a gontofminimam BIC , that «5 Thre Geb less SHR manus RTC thad 5 (Bets g-\ ~ b, Describe what will happen to the individual firm and the industry in the long run.[1m] A Tadirduol fem wal tha down kmpcranly Undecy onl tht clown in the beng man f One of the main characteristics of monopolists is that they price maker. Give two possible reasons (o explain their why they are able determine price? (21) DY do close gulo Wek we 2) baccter entry & Tz Page | 10MID SEM EXAM ECON1550 SEM 1 2011/12 4, For each of the following state whether the statement is true (T) or false (F). 1. Changes in inventory are included in the investment component of GDP. ‘An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger output of goods and services. USS. GDP excludes the production of illegal goods. Expenditures by households on education services are included in the consumption component of GDP. If GDP is higher in one country than another, we can be pretty sure that the standard of living is higher in the country with the higher GDP. GDP does not make adjustments for things like leisure time and environmental quality. (aie (0.5 x 6= 3m] 5. Label the following as either being a final or intermediate good. Economic Activities Type of good "A computer purchased by a professor for use in the classroom es ecmedta ‘An architect builds a scale model of a house he has designed Ramee ‘A minivan purchased by a family cere nal Recycled steel purchased by a steel manufacturer eee L ‘An automobile purchased by a package delivery company Pen cea, Bubbie gum eee Cnal [0.5 x 6=3m] Page | 11MID SEM EXAM ECON1550 SEM 1 2011/12 Value Added in the Production of a Wooden Desk pothetical Numbers Cut timber Milled wood Sent to factory Retail Sale 6. Using the above table, calculate and fill in the blanks with the value added at each stage of the production process. What it the total value added of the wooden desk? What does the above exercise proof? [2 m] total =fl 36 eR that cooneme loss fecur 7. GDP is defined as the market value of all final goods and services produced within a country in a given period of time. In spite of this definition, some production is left out of GDP causing it to be underestimated. Explain why some final goods and services are not included. You may want to give examples. [3 m] meee gme ral gels ancl Serucer che not op era ee asd lay prrducer Leme ewamples arc vegetabla Met ue por @t aan guc cor by oust. (fh and we fix Page | 12,MID SEM EXAM ECON1550 SEM 1 2011/12 8. Why is there a need to differentiate between nominal and real GDP? Is an increase in nominal GDP a good indicator of economic growth? Why? [4 m] Nomal Gpe w th eerfermerce oF 2 aunty weone gered oF dime, whe veal GOP Us used compere He yerka rene cf country oues tae and accrost counties Unerease in nomnal 60P 6 hat a od fra econse Meype tHe price 5 haber “but outpu W lew, TE Ahy Napper, GS chew thet (ARTA bey. Ce cur esnng thet time perod ® indicator eR peme 9. Refer to the table below and answer the following questions. A Three-Good Economy Output Output Price > Price C1987, 1988 19871988 Bread Paper Clips Wine a) Using the above table calculate the nominal GDP for 1987. (1.5 m] (Cekaey (wxos)+ @xs)Y/ Hay © b) Using the above table calculate the real GDP for 1988 with base year 1987. [1.5 m] Gs ag > a a Page | 13,