Final Exam (Practice Version)

Transcription

1 BA 210 Homework 10 Questions and Answers to practice for the Cumulative Final Exam: 3 questions from Part I 3 questions from Part II 3 questions from Part III BA 210 Dr. Jon Burke Final Exam (Practice Version) This is a 150-minute exam (2hr. 30 min.). There are 9 questions (about 16 minutes per question). The exam begins exactly as scheduled. To avoid the temptation to cheat, you cannot take this exam if you arrive more than 10 minutes late, and you cannot (without permission) leave the room and re-enter during the exam. Exam Grading Each individual question on the following exam is graded on this 4-point scale: 4 points if all is correct --- or there is only a small error. 3 points for missing or doing wrong part of a problem, but the rest is correct. 2 points for a reasonable and substanative attempt. 1 point if there is at least something of value in the attempt. After all individual questions are graded, I sum the individual scores, and then compute that total as a percentage of the total of all points possible. I then apply a standard grading scale to determine your letter grade: % A; 80-89% B; 70-79% C; 60-70% D; 0-59% F Finally, curving points may be added to letter grades for the entire class (at my discretion), and the resulting curved letter grade will be recorded on a standard 4-point numerical scale: A = 4; A- = 3.7; B+ = 3.3; B = 3.0; B- = 2.7; C+ = 2.3; C = 2.0; C- = 1.7; D+ = 1.3; D = 1.0; F = 0 Tip: Pace yourself. When there is only ½ hour left, spend at least 5 minutes outlining an answer to each remaining question. 1

2 Question 1: Measure the value to you and your spouse of having kids by the amount you would be willing to pay each year to raise them. And suppose the cost or raising kids is $3,500 per kid. Would it be efficient if the government offered a child tax credit of $1,000 per kid? Would it be efficient if the government offered a child tax credit of $2,000 per kid? Value of Kids Per year Value of Kid #1 $5,000 Value of Kid #2 $4,000 Value of Kid #3 $2,000 Value of Kid #4 $1,000 Answer to Question 1: 2

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4 Question 2. Consider the following linear production possibilities from Tom, Jeffery, and Hank. To be useful, an ad must be both composed and televised. Ads Composed Ads Televised Tom 3 composed 3 televised Jeffery 4 composed 2 televised Hank 3 composed 1 televised A) How many ads can be completed if Tom, Jeffery, and Hank work separately? That is, each composes and televises his own ads. (As usual, fractions are allowed.) B) Show how the market can organize production efficiently. Specifically, suppose the market price per unit for composing ads is $100. Find the price P T per unit for televising ads so that, when the output of completed ads is maximized, then Tom, Jeffery and Hank are each choosing the work that maximizes their income. Answer to Question 2: 4

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6 Question 3: Consider the following demand curves for a Good X by women Abby, Betty, Carla and by men Doug, Ernest, Frank: Potential buyers of Good X Willingness to pay Abby $9 Doug $7 Betty $6 Ernest $5 Carla $3 Frank $1 And consider supply curves for the same Good X by women Gail, Heidi, Ingrid and by men Jim, Kyle, Leo: Potential sellers of Good X Cost to sell Gail $1 Jim $2 Heidi $4 Kyle $5 Ingrid $7 Leo $8 a. Compute the competitive equilibrium price and quantity. Compute consumer surplus and producer surplus. b. By considering Good X to be education at Pepperdine University, show the consumer surplus losses from affirmative action programs designed to help women. Specifically, suppose affirmative action programs cause Pepperdine University to accept Carla and reject Doug. c. By considering Good X to be teachers hired by the state of California, show the producer surplus losses if affirmative action causes California to hire Ingrid and reject Jim. d. By considering Good X to be patients accepted treated by Kaiser Permanente, show the lost total surplus if a US program of Universal Health Care forces Leo to treat Carla. Answer to Question 3: 6

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8 Question 4: Consider negotiations over wages for adjunct Management Science Professors at the Business Administration Division of Seaver College of Pepperdine University. Pepperdine seeks a professor for the next 3 semesters. The only candidate (Charlie) is willing to work for as little as $10,000 per semester and Pepperdine is willing to pay up to $30,000 per semester. Before the first semester, the candidate Charlie confronts Pepperdine over wages. The candidate presents his demand. Pepperdine either accepts it or rejects it and returns the next semester with a counteroffer. Offers alternate thereafter. Employment only occurs in those semesters after an agreement is reached. What wage per semester should candidate Charlie demand from Pepperdine? Should Pepperdine accept that initial demand? Now suppose candidate Charlie finds an alternative employment offer by UCLA for $15,000 for each of the same 3 semesters. Suppose the candidate cannot accept the job at both UCLA and Pepperdine University. Re-compute candidate Charlie s wage demand from Pepperdine. Now suppose, in addition to the alternative employment offer to candidate Charlie by UCLA described above, the problem changes because Pepperdine finds an alternative candidate Chris who is willing to work for $20,000 per semester for each of the same 3 semesters. Re-compute candidate Charlie s wage demand from Pepperdine. Answer to Question 4: 8

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10 Question 5: Wii video game consoles are made by Nintendo, and some games are produced by third parties, including Sega. The unit cost of a console to Nintendo is $60, and of a game to Sega is $10. Suppose, once and for all, Nintendo considers prices $260 and $360 for consoles, and Sega considers $40 and $50 for games. If they choose prices $260 and $40 for consoles and games, then demands are 3 and 4 (in millions); if $260 and $50, then 2 and 3.5 (in millions); if $360 and $40, then 2.5 and 3 (in millions); and if $360 and $50, then 1.5 and 2.5 (in millions). How are the two goods related? What price should Nintendo choose in this pricing game if Nintendo and Sega set prices next January? Are there mutual gains from cooperation? If so, can Nintendo trust Sega to cooperate? and can Sega trust Nintendo to cooperate? Answer to Question 5: 10

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12 Question 6: R.J. Reynolds Tobacco Corp. (Player A) and Philip Morris Corp. (Player B) must decide how much money to spend on advertising each year. They consider spending either $20,000 or zero each year. If one advertises and the other does not, the advertiser pays $20,000, then takes $60,000 profit from the other. If each advertises, each pays $20,000 but the advertisements cancel out and neither player takes profit from the other. Suppose the year interest rate is 20%. What strategies (A One,B One ) should each player choose if they expect this game to last only one time period? Are there mutual gains from cooperative strategies (A Coop,B Coop ) rather than (A One,B One )? If they expect this game to repeat indefinitely, would Player A cooperate each period and choose A Coop if Player B followed the Grim Strategy of punishing noncooperation? and would B cooperate each period and choose B Coop if A followed the Grim Strategy of punishing non-cooperation? Answer to Question 6: 12

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14 Question 7: To understand how to encourage environmentalism, consider Dr. Burke (alive today) and 21 current and future Earth-First people: Dr. Burke burns nonrenewable, polluting fossil fuels like oil and gas without regard to others (he is selfish), and each of the Earth-First people weep for mother earth for each gallon of gas burned by Dr. Burke. Here is the demand for gas by Dr. Burke. $ price per gallon Gallons demanded Suppose each of 21 Earth-First people loses $0.03 of happiness for each gallon Dr. Burke uses. Suppose the unit cost of supplying gas is $0.50 per gallon, and gas stations are perfect competitors. Assuming there are no taxes or subsidies, compute total surplus. Assuming the government imposes the optimal tax, compute the number of gallons of gas that are used. Assuming the government imposes the optimal tax, compute total surplus. Compare total surplus before and after the tax, and comment about the effect of the tax. Answer to Question 7: 14

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16 Question 8: Consider the Work-Shirk Game for an employee and an employer. Suppose if the employee chooses to work, he loses $130 of happiness from the effort of working, but he yields $500 to his employer. Suppose the employer can monitor the employee at a cost of $50. Finally, if the employee chooses to not work and the employer chooses to monitor, then the employee is not paid, but in every other case ( work or not monitor ), then the employee is paid $210. Predict strategies or recommend strategies if this game is repeated daily. Answer to Question 8: 16

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18 Question 9: Suppose Employer Earl has use for two kinds of employees. Skilled and hard working Type A employees contribute $140,000 per year to profits. And Type B employees contribute $70,000 per year to profits. Suppose Type A workers have existing jobs paying $60,000 per year, and Type B have existing jobs paying $50,000 per year. Suppose Type A workers regard the cost of completing a hard college class as $2,000 a year of salary, and Type B workers as $10,000 a year of salary. Suppose there is no way for the employer to directly tell Type A workers from Type B workers, but the employer can confirm the number of completed classes. Finally, suppose potential employees can make a wage demand that the employer must either accept or reject (but not counter). Determine wage demands, the number of completed classes, and which types work for Employer Earl. Answer to Question 9: 18

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