MPE781 T2 2014 Exam Question Bank (10/09/2014)
Q1. a. Define the price elasticity of demand?
b. Suppose that government would like to maximize tax revenue. Is it a good idea for the
government to raise tax rates for the goods that have very high price elasticities of demand?
Explain your reasons.
c. Suppose that government would like to maximize tax revenue. Is it a good idea for the
government to raise tax rates for the goods that have very low price elasticities of demand?
Explain your reasons.
Q2. Suppose that the demand equation: P = 6 – Q and supply equation: P = Q.
a. Calculate the equilibrium price and quantity, and the price elasticity of demand at
equilibrium.
b. Calculate consumer surplus, producer surplus and total surplus at equilibrium.
c. Suppose government imposes a tax of $1 for each unit bought. Derive the new demand
curve and also calculate the new equilibrium price and quantity.
d. Calculate tax revenue and the deadweight loss of this tax.
Q3. Suppose that the demand data are:
P Q
6 0
5 1
3 3
1 5
and the supply equation is: P = Q.
a. Find the demand equation.
b. Calculate the equilibrium price and quantity, and consumer surplus and producer surplus.
c. Suppose government imposes a tax of $1 for each unit produced from producers. Derive the
new supply curve and also calculate the new equilibrium price and quantity.
d. Calculate tax revenue and the deadweight loss of this tax.
Q4. Consider the following cost data for a perfectly competitive firm:
Output (Q) Total Fixed
Cost (TFC)
Total Variable
Cost (TVC)
1 10 12
2 10 20
3 10 29
4 10 46
5 10 65
a. If the market price is $17, how many units of output will the firm produce in order to
maximize profit in the short run?
b. Specify the amount of economic profit or loss at the profit maximizing output level in the
short run.
c. What will be the price and quantity for the long run equilibrium?Q5. Suppose the wage rate is $10 per hour and the fixed cost is $20. The production information is
as follows:
Labor (hour) Output
0 0
1 2
2 4
3 6
4 8
Suppose the market is perfectly competitive, and the market price is $10.
a. Find out the profit maximizing output level at short run.
b. Specify the amount of economic profit or loss at the profit maximizing output level in the
short run.
c. What will be the price and quantity for the long run equilibrium?
Q6.
Suppose that the monopolist’s demand is: P = 10 – Q, and marginal revenue is: MR = 10 – 2Q.
The marginal cost is: MC = 2, and there is no fixed cost.
a. Find out the profit maximizing output level.
b. Specify the amount of economic profit or loss at the profit maximizing output.
c. Calculate the price elasticity of demand at the profit maximizing point and explain it.
Q7.
Suppose that the market demand is: P = 10 – Q, and marginal revenue is: MR = 10 – 2Q.
The marginal cost is: MC = 4 and average cost is: AC = 4.
a. If the market is under monopoly. Find out the profit maximizing price and output for this
monopolist and calculate its economic profit or loss at the profit maximizing output.
b. If the market is under perfect competition. Find out the profit maximizing price and output
and calculate the profit or loss at the profit maximizing output.
c. Which firm is more efficient, i.e., monopolist or competitive firm? Why?
Q8. Two prisoners, A and B, alleged to be conspirators in a crime, are put into separate rooms. A
police officer goes into each room and says:
If your partner confesses and you confess also, you will only get 3 years in prison.
If your partner remains silent and if you are quite also, you will get 1 year in prison.
However, if your partner confesses and you remain silent, you will get 5 years in prison.
But if your partner remains silent and you confess, you will be out in 0.3 years.
a. If prisoner A confesses, what would be the best strategy for prisoner B?
b. If prisoner A does not confess, what would be the best strategy for prisoner B?
c. Define Nash equilibrium, and then what would be the Nash equilibrium for this question?
Q9. Using AD/AS model and diagrams, discuss the short-run and long-run impacts of the following
events on the price level and output of the domestic economy (starting from the full-employment
level):
a. An increase in money supply
b. An increase in inbound tourism.
Q10.
Using AD/AS model and diagrams, discuss the short-run and long-run impacts of the following events
on the price level and output of the domestic economy (starting from the full-employment level):
a. An increase in government spending
b. An increase in oil prices.
Q11.
Discuss the impacts of appreciation of Australian dollar on the Australian economy.
Q12.
The assignment marks for 11 students are:
9, 8, 5, 10, 8, 3, 4, 7, 8, 6, 7
a. Calculate the mean, median and mode
b. Calculate the first quartile, third quartile, and interquartile.
c. Calculate the sample standard deviation and interpret this value.
Q13. A sample of 4 married couples were asked on how happy each are in their own marriage. The
rating by these couples are:
Husband (X) Wife (Y)
5 7
6 8
7 9
2 4
a. Calculate the sample covariance and interpret the result.
b. Calculate the sample coefficient of correlation and interpret the result.Q14. A simple linear regression model for salary (Yi) and the number of years of working (Xi) is as
follows:
Yi = ß0 + ß1 Xi + ei
where ß0 and ß1 are unknown parameters, and ei is the disturbance term.
The regression results are:
Coefficient Standard error t Stat p-value
Intercept A 20.00 5.00 0.000
Working years B 0.50 10.00 0.000
Regression Statistics___________
R Square 0.8643
Standard error 9.4531
Observations 30
__________________________
a. What are the values of A and B? Explain.
b. Explain the meaning of R Square.
c. What conclusions can you reach about the relationships between salary (Yi) and working
years (Xi)?
d. What is the predicted salary for a person with 10 years working experience?
e. Is this prediction reliable?Q15. A simple linear regression model for marks (Yi ) and the hours of study (Xi) is as follows:
Yi = ß0 + ß1 Xi + ei
where ß0 and ß1 are unknown parameters, and ei is the disturbance term.
The regression results are:
Coefficient Standard error t Stat p-value
Intercept 50 2.00 A 0.000
Study hours B 0.50 4 0.000
Regression Statistics___________
R Square 0.8643
Standard error 9.4531
Observations 30
__________________________
a. What are the values of A and B? Explain.
b. Explain the meaning of R Square.
c. What conclusions can you reach about the relationships between marks (Yi) and study hours
(Xi)?
d. What is the predicted marks for a person with 20 hours of study?
e. Is this prediction reliable?