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  • F O I Rosi: University of Toronto, ECO 204 Summer 2010

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    The document is a practice exam for a university economics course. It contains 17 multiple choice and calculation questions about a bus company called ABC that transports passengers between two locations. The questions analyze ABC's costs and profits using production functions, cost minimization, and other economic models. They ask students to calculate optimal inputs and costs for ABC under different scenarios and analyze how costs are impacted by changes in variables like wages, bus prices, and passenger levels.

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    ECO204Y_TT3_2010S

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    The document is a practice exam for a university economics course. It contains 17 multiple choice and calculation questions about a bus company called ABC that transports passengers between two locations. The questions analyze ABC's costs and profits using production functions, cost minimization, and other economic models. They ask students to calculate optimal inputs and costs for ABC under different scenarios and analyze how costs are impacted by changes in variables like wages, bus prices, and passenger levels.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    8 views17 pages

    F O I Rosi: University of Toronto, ECO 204 Summer 2010

    Uploaded by

    examkiller
    The document is a practice exam for a university economics course. It contains 17 multiple choice and calculation questions about a bus company called ABC that transports passengers between two locations. The questions analyze ABC's costs and profits using production functions, cost minimization, and other economic models. They ask students to calculate optimal inputs and costs for ABC under different scenarios and analyze how costs are impacted by changes in variables like wages, bus prices, and passenger levels.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 17

    UniversityofToronto,DepartmentofEconomics

    ECO204Summer2010.AjazHussain

    Test3
    FILLOUTINFORMATIONASITAPPEARSINROSI

    LASTNAME:

    FIRSTNAME:

    MIDDLENAME:

    UTORONTOID#:

    SIGNATURE:

    SCORES
    Question Points Score
    1 100
    TOTALSCOREOUTOF100

    YOUMUSTSTAYSEATEDDURINGTHELAST10MINUTESOFTHETESTWAITUNTILALLTESTSARECOLLECTED
    ONLYAIDALLOWED:ACALCULATOR.
    FORYOURCONVENIENCE,THEREISAWORKSHEETATTHEENDOFTHISTEST
    KEEPANSWERSBRIEF.TOEARNCREDIT,SHOWCALCULATIONSANDGIVEARGUMENTSTOSUPPORTYOURANSWERS

    Goodluck!

    Page1of17
    AjaxBusCompany(ABC)operatesabusservicebetweenRobartslibraryandtheRotmanSchoolof
    Management.EachABCbus(capital)carries100passengersandrequiresadriverandaconductor
    (labor).
    LetK = numberofbuses/day,I = numberofworkers(labor)perday,and = numberof
    passengers/day.Denotethepriceofleasing(orowning)busesperdaybyP
    K
    anddailywagesby
    P
    L
    (assumethatdriversandconductorshavethesamedailywage).Inthisquestion,allinputsare
    variable.

    (1)[5points]InordertomodelABCstechnology,what x inthefollowingproductionfunction: is
    = x min _
    I
    2
    , K]


    Page2of17

    Usethechosenvalueofx
    fortheremainderoftheexam.Pleasegiveabriefexplanationforyouranswer below.

    (2)[5points]CharacterizeABCsreturnstoscale.Givenyouranswer,sketchagraphofaveragecost
    versusoutputbelow.Pleaseshowallcalculationsbelow.

    Page3of17
    (3)[10points]IfABCwishestocarryq passengersperday,whatistheoptimal(costminimizing)number
    ofbusesandlaborperday?Thatis,solvetheproblem:
    Page4of17

    min
    L,K
    C = P
    L
    I + P
    K
    K s. t. (I, K) = q

    Pleaseshowallcalculationsbelow.

    Page5of17
    (4)[5points]DeriveABCs(longrun)costfunction.Pleaseshowallcalculationsbelowandstateany
    assumptions.

    (5)[5points]Thisquestionshouldbeansweredindependentlyofallotherquestions(i.e.thenumbers
    givenhereforP
    L
    andP
    K
    areforthisquestiononly).SupposeP
    K
    = $2uuandP
    L
    canbeeither$20with
    probabilityor$40withprobability.CalculateABCsexpectedcostofcarryingq passengers.Please

    Page6of17
    showallcalculationsbelow.


    Page7of17
    (6)[5points]DeriveABCsaveragecostfunction.WhatistheMinimumEfficientScale(MES)?Please
    showallcalculationsbelowandstateanyassumptions.


    Page8of17
    (7)[5points]WhatistheimpactonABCsoptimalcostifthetargetpassengersincreasesby1
    passenger?Pleaseshowallcalculationsbelow.


    Page9of17
    (8)[5points]WhatistheimpactonABCsoptimalcost(inpercentageterms)froma1%increasein
    targetpassengers?Pleaseshowallcalculationsbelow.


    Page10of17
    (9)[5points]WhatistheimpactonABCsoptimalcost(inpercentageterms)froma1%increasein
    wages?Pleaseshowallcalculationsbelow.


    Page11of17
    (10)[5points]WhatistheimpactonABCsoptimalcost(inpercentageterms)froma1%increaseinthe
    priceofleasing(orowning)buses?Pleaseshowallcalculationsbelow.


    Page12of17
    (11)[5points]WhichofthesehasabiggerimpactonABCscost:a1%increaseinwagesora1%
    increaseinthepriceofleasing(orowning)buses?Pleaseshowallcalculationsbelow.

    Page13of17
    (12)[5points]DoesABCstechnologyhaveeconomiesofscope?Shoulditmergewithanotherbus
    companywithanidenticaltechnology?Pleaseshowallcalculationsbelow.

    Page14of17
    (13)[5points]AssumeABCisarationalcompetitivefirmandhasacapacityof1,000passengersaday.
    GraphABCssupplycurvebelow.

    (14)[5points]InthisquestiononlyassumeABCisanirrationalcompetitivefirmandhasacapacityof
    1,000passengersaday.GraphABCssupplycurvebelow.

    (15)[20points]AssumethatABCisarationalcompetitivefirmwithacapacityof1,000passengersa
    day.Denotethepriceofbusticketsby .SupposeP Solvetheprofitmaximizationproblem: P
    K
    = $2uu.
    max
    q
    s. t q 1,uuu anu q u

    Forwhatrangeofwages(P
    L
    Page15of17
    )willABCchoosetosellnotickets,onethousandtickets,andbetweenzero
    and1,000tickets?Showallcalculations.

    TheEnd

    Page16of17
    Page17of17
    WORKSHEET

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