THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF ECONOMICS SESSION 1, 2010 ECON1101 MICROECONOMICS I Sample FINAL EXAMINATION

1. Time Allowed - 2 Hours 2. This Paper is Worth 50% of The Total Subject Mark

3. This examination paper consists of three parts – Part A, Part B and Part C 4. Part A consists of 20 multiple choice questions each worth one (1) mark. 5. Answer all the questions in Part A on the answer sheet provided, using pencil only: • Print your student number, name and initials in the space provided and mark the appropriate boxes below your student number, name and initials. • For each question, mark the appropriate response (a), (b), (c), or (d). • Choose the most correct response to each question in Part A. There is no negative marking. 6. 7. Part B consists of one written answer question, worth FIFTEEN (15) marks. You must answer this question. Part C consists of 5 questions each worth FIFTEEN (15) marks. You must answer one (1) only of these questions.

8. Answers to questions in Part B and C must be written in ink. Pencil may be used in answers to Part B and C for drawing, sketching or graphical work only. 9. This question paper may be retained by the candidate. 10. Students may bring non-programmable hand held calculators. 11. There are twelve (12) pages in this paper

(b) The Nash equilibrium is for both firms to discount X (c) The Nash equilibrium is for Ace to discount and Bob’s to not discount.Part A . in long run equilibrium. (d) A profit maximising monopolist will always produce where marginal cost is greater than price. always use a scale of plant that minimises long run Average Costs. 6) X (b) A profit maximising monopolist always produces where Average Revenue equals (a) The Nash equilibrium is for neither firm to discount. The following pay-off matrix gives the expected monthly profits (in \$’000) of each company (Ace. . 20) (16. 14) (12. Question 1 Which of the following statements is true? (a) A profit maximising monopolist will always set price and output at a level where demand is price elastic. Average Cost (c) A profit maximising monopolist will. Bob’s) under alternate strategies: BOB’S Discount Discount ACE Do Not Discount (8. (d) The Nash equilibrium is for Bob’s to discount and Ace to not discount.Multiple Choice Answer all 20 questions in Part A on the answer sheet provided as per instructions on front cover. Question 2 Assume two rival car rental companies (Ace Rentals and Bob’s Rentals) are considering whether to discount their rates as a method of increasing market share. 10) Do Not Discount (24.

5 A m a n d a ’s c a k e p r o d u c t io n p e r d a y X j k 4 3 l q 2 p m 1 n r 1 2 1 4 d u c t i o n 2 4 A m a 6 n d a 8 ’s 1 p ie 0 p r o 1 6 1 8 2 0 p e r d a y Amanda’s maximum production of pies per day is represented by point: (a) J. (d) r X .Question 3 Which of the following has the “non excludability” characteristic that defines a pure public good? (a) A local council car park (b) Suburban street lighting (c) A toll road (d) School education Question 4 A monopolist estimates that at the current price being charged for the product.4. (c) n. (b) l. and price elasticity of demand is –1. To increase profit the monopolist should: (a) Increase price and sell less (b) Increase price and sell more (c) Decrease price and sell less (d) Decrease price and sell more X Question 5 Use the following figure to answer the question. marginal revenue is less than marginal cost.

The Coase Theorem X (b) Market based instruments (c) The prisoners dilemma (d) The tragedy of the commons (a) .Question 6 The major implication of__________________ is that individuals can solve many externalities if they can buy and sell the right to commit the externality.

Consider the advantages and disadvantages of alternative criteria for setting the regulated price.Part B Answer the following Question. This question is worth 15 % of the total marks for this course. (6 marks) (c) Suppose the government seeks to regulate the behaviour of the monopolist by price regulation. This means that you must answer it. Use your diagram to explain why profit maximising behaviour by the monopolist is inefficient from society’s point of view. (6marks) . (3 marks) (b) Construct a diagram showing the average and marginal cost curves. and the demand and marginal revenue curves for a natural monopoly. Question 1 B (a) Explain what is meant by the term “natural monopoly”. This Question is Compulsory.