ECON90015 2022 Exam
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Managerial Economics 2022 Final Exam
(ECON90015_2022_SM1)
Exam starts Jun 20 at 10:00 AEST (Melbourne time)
Reading time: 30 minutes Writing time: 3 hours
Exam ends Jun 20 at 13:30 AEST (Melbourne time)
• Please submit your answers in one file with your Student ID legibly shown on the
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documentation.
There are four pages in the exam (including this page).
There are six questions worth a total of 100 marks. (Marks are in brackets). Attempt all
questions.
Start your answer to each question on a new page. You don’t need to write the question out
in your answer.
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1. Suppose the market demand for a good is = 120 − 0.5. The monopolist (total) cost
function is = 20.
a. Find the single-price monopolist’s profit-maximizing output, price, and profit. (6
marks)
b. Suppose the monopolist identifies two groups of customers that make up its
demand. The first group, as a whole, has demand 1 = 60 − 0.11. The second
group, as whole, has demand 2 = 60 − 0.42. The monopolist is able to charge a
separate price to each group but the price of each unit for a group is the same for
every unit. (There is also no two-part pricing). Find the price-discriminating
monopolist’s profit-maximizing outputs, prices, and total monopoly profit. (6 marks)
c. What rule does the monopolist use to decide which group pays the lower price for
the good? Show that this rule is satisfied here. (6 marks)
2. Suppose the Australian government imposes a limit on the quantity – recall this is called a
quota – of houses that can be produced that is less than the competitive market output.
Using a supply and demand diagram, do welfare analysis to show how much better off or
worse off Australian consumers, producers and Australia as whole are when the housing
quota is imposed as compared to the competitive equilibrium. (Assume no externalities).
You may find it helpful to assign letters (A, B, C, etc) to refer to areas on your diagram. (14
marks)
3. Because of better technology, the cost of producing televisions has fallen significantly this
century.
a. Using a supply and demand diagram, show the effect this has had on the equilibrium
price and output in the television market. Assume the television market is perfectly
competitive. (4 marks)
b. Using the diagram, do welfare analysis to show how much better off or worse off
consumers, producers and the nation as whole are when the production costs of
televisions fall. (Assume no externalities). You may find it helpful to assign letters (A,
B, C, etc) to refer to areas on your diagram. (12 marks)
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4. Suppose the market for solar panels in Australia is competitive.
a. Using the (market) demand and supply diagram, show the competitive market
equilibrium. Label the competitive market equilibrium price and quantity pC
and QC, respectively. (2 marks)
Solar panel production reduces the amount of pollution that would have been created
by alternative energy sources, like coal.
b. Using the (market) demand and supply diagram, again, show the efficient
equilibrium output. Label the efficient equilibrium output Qe. (4 marks)
c. Briefly explain how the government can use a corrective tax or subsidy
(which?), to get to the efficient output Qe. On the (market) demand and supply
diagram, show the price to the buyers, Pb, and the price to the sellers, Ps, as a
consequence of this government intervention. (6 marks)
d. Using the diagram, do welfare analysis to show how much better off or worse
off Australian consumers, producers and Australia as whole are from the
corrective tax or subsidy from part c) (compared to the competitive market
equilibrium). You may find it helpful to assign letters (A, B, C, etc) to refer to
areas on your diagram. Be careful about the welfare analysis of Australians as a
whole – you will need to think carefully about this. (12 marks)
5. Suppose the music industry has large upfront costs of production but the cost of
producing each additional unit of output (song) is zero.
a. On one diagram, show the short run marginal cost curve and average cost
curves (average fixed costs, average variable costs and average total cost) for a
firm in such an industry. (4 marks)
b. Give two reasons why monopolistic competition might be an appropriate
model in this industry. (2 marks)
c. Show the long-run monopolistic competition equilibrium for a firm in the digital
industry. (6 marks)
d. Show the (allocatively) efficient output on the diagram. Label it Qe. (4 marks)
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6. Let the economy’s production function be = (,) where Y is real GDP, N is the
population (and labour), K is the stock of capital, A is a measure of the state of technology,
and f is the production function for the economy. (We make no distinction between labour
and population N and so standard of living and labour productivity are the same:
).
Let A = 1 and K = 100 (the actual numbers don’t matter) and suppose the relationship
between real GDP (Y) and population (N) (for a given stock of capital and state of
technology) is shown in the diagram below.
Figure 1
a. Suppose this economy is in a Malthusian world. Draw the diagram above and show
the Malthusian equilibrium output and population. Note: there are no numbers
here, just make up an equilibrium, but show it correctly on the diagram. (2 marks).
b. Now there is a war which reduces the stock of capital, say to K = 80 (the actual
number doesn’t matter, just that it is less capital). Show the new Malthusian
equilibrium output and population. Explain how the economy got to the new
equilibrium. (10 marks)
END OF EXAM