ECON10004: Bob Has Won A Contract To Be The Exclusive Seller Of Bottled Water: Introductory Microeconomics, UM, Australia

University The University of Melbourne (UM)
Subject ECON10004: Introductory Microeconomic

Question A1

Bob has won a contract to be the exclusive seller of bottled water at an upcoming festival. As part of the contract, he can purchase each bottle from the festival owner for $1 and can resell them to patrons for $6. Bob is deciding on how many water stations to set up. Each water station will cost him $200 to run for the duration of the festival. The table below shows the number of bottles Bob can sell based on the number of stations he sets up. How many water stations should Bob set up? Number of water stations Number of Bottles Sold
1 200
2 300
3 350
4 375
5 390
(a) 1.
(b) 2.
(c) 3.
(d) 4.
(e) 5.

Question A2

Suppose that the market for tennis balls is perfectly competitive. If tastes change so that tennis is no longer as desirable to play as it was before, what would happen to the market for tennis balls?
(a) The equilibrium quantity supplied of tennis balls will increase.
(b) The equilibrium price of tennis balls will decrease.
(c) The equilibrium quantity demanded of balls will increase.
(d) There will be excess demand at the initial price of tennis balls.
(e) There will be excess demand at the new price of tennis balls.

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Question A3

Suppose the market for healthcare is perfectly competitive. The government announces a subsidy to be paid to doctors for each consultation they have with patients. At the same time, population growth increases. The combined impact of these two shocks on the healthcare market will be:
(a) Both producer and consumer prices will increase.
(b) The consumer price will increase, but the effect on producer price is ambiguous.
(c) The number of consultations is ambiguous, and the effect on producer price is ambiguous.
(d) The producer price will increase, and the number of consultations will increase.
(e) The effects on both producer and consumer prices are ambiguous.

Question A4

Suppose the market for grapes is perfectly competitive and that Australia is an importer of grapes. If the government decides to place an import tax on grapes:
(a) Consumer surplus will decrease and domestic producer surplus will increase.
(b) The total quantity supplied by domestic and foreign sellers will increase.
(c) There will be a shortage at the new equilibrium price.
(d) Consumers will be able to buy grapes made by domestic suppliers at a lower price than foreign suppliers.
(e) The price paid by consumers will be higher than the price received by domestic suppliers.

Question A5

The demand function for the circus is ( ) 10,000 50 . QP P D  Suppose that the current price of a ticket is $80 and that the circus can only seat 6,000 customers. If the owner of the circus is a monopolist who can set prices, which of the following is true?
(a) The owner has chosen the profit-maximizing price.
(b) If the circus had additional seating, it would be optimal to reduce ticket prices to maximize profits.
(c) Without information about costs, it is impossible to determine if the price is too high or too low.
(d) The owner has chosen a price that maximizes its revenue and is thus acting optimally.
(e) The price of tickets is too low.

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Question A6

Suppose the market for producing energy leads to a negative externality (pollution). The social and private marginal benefits and costs are depicted below.
$ SMC
PMC
A C
D
B PMB = SMB
Q
Q1 Q2
What is the socially optimal output? What is the total surplus in the absence of government intervention?
(a) The socially optimal output is Q1 and total surplus is given by area A+B‐D
(b) The socially optimal output is Q2 and total surplus is given by area A+B
(c) The socially optimal output is Q1 and total surplus is given by area A+B
(d) The socially optimal output is Q1 and total surplus is given by area A‐C
(e) The socially optimal output is Q2 and total surplus is given by area A+B+D

Question Q7

A supplier of pillows faces three production methods, with the following costs:
Method 1 Method 2 Method 3 Fixed costs 150,000 250,000 500,000 Marginal costs per pillow 800 500 200 In the long run, as production increases from 500 to 1,000 pillows, we expect the supplier to:
(a) Switch from production method 1 to production method 2
(b) Switch from production method 1 to production method 3
(c) Switch from production method 2 to production method 3
(d) Switch from production method 3 to production method 1
(e) Not switch production method

Question A8
Suppose there are 800 regular Harry Potter fans and 200 fanatical Harry Potter fans wishing to attend the next theatre production of Harry Potter. The theatre has two classes of seating: ordinary seating and premium seating. The willingness‐to‐pay of each type of theatre‐goer for the two classes of seating, as well as the marginal cost per customer for providing each class of seating, are summarized in the table below:
Ordinary Seats Premium Seats Willingness‐to‐pay:
Regular Harry Potter Fan
$100 $160
Willingness‐to‐pay:
Fanatical Harry Potter Fan
$140 $300
The marginal cost per customer $40 $120
Suppose the concert organizer is considering selling the two classes of seats but cannot identify between regular and fanatical fans using observable characteristics. Which of the following is correct?
a) The organizer should charge $100 per ticket for both ordinary and premium seats.
b) The organizer should charge $160 per ticket for ordinary seats, and $300 per ticket for premium seats.
c) The organizer should charge $100 per ticket for ordinary seats, and $300 per ticket for premium seats.
d) The organizer should charge $100 per ticket for ordinary seats, and $260 per ticket for premium seats.
e) The organizer should charge $140 per ticket for ordinary seats, and $300 per ticket for premium seats.

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