(10 points) Explain how the producer problem evolved throughout this course.  Your answer should include an explanation of the three or four different specifications of the problem itself and brief descriptions of PPFs, cost curves, and revenue functions.  You donot need to address the differences between monopoly and perfect competition here (that’s problem 2).  Feel free to incorporate graphs, drawings, and diagrams relevant to the problem.  Use made up prices and production capabilities if you wish, too.

• (10 points) Explain the differences between the industrial organizations of perfect competition and monopoly.  This explanation should start with the different assumptions between them and then segue into the different conclusions reached about pricing, production, and profits due to those different assumptions.

• (20 points) Complete the chart below for a monopolist and then answer the questions that follow.

• What is Q* for this monopolist?

• How much profit does this monopolist make?

• (15 points) The crux of economics…
• Draw the supply and demand curves for oranges below.

• A new technology is developed that makes picking oranges much easier and quicker.  Show the subsequent shift of the supply curve for oranges on your graph above.

• Consequently, what happened to the equilibrium price of oranges?

• Oranges are obviously one input in the production of orange juice.  As a consequence of the results in the orange market regarding price, what happens to the supply of orange juice?  There is no need to show it graphically.

• Consequently, what happens to the price of orange juice?

• (15 points) Consider the two-period consumption model with borrowing and saving from class when answering the questions below.

• What is the slope of the budget line in the two-period model?

• If Y₁ increases, will C₁ necessarily increase?  Explain your answer.

• What is the opportunity cost of increasing C₁?

• Why would a more realistic two-period model consumption model have a “kink” at the (Y₁, Y₂) point?  Explain graphically why the kink occurs at that point, and what real-world aspect of interest rates is being captured in that more advanced model.

• If C₁< Y₁, which of the following statements below are true? Circle the true statements ONLY.  There may be more than one correct answer.

Statement 1: C₂> Y₂

Statement 2: The consumer is a saver.

Statement 3: The consumer is a borrower.

Statement 4: C₂ = Y₂

Statement 5: The consumer will earn interest on his first period savings.

• (15 points) A societal PPF for cars and trains is shown below.  Answer the questions that follow.

Cars

A

Trains

• Label an inefficient production point X

• Label an infeasible production point Y

• How many trains are being produced at point A?

• An improvement in engine manufacturing is realized.  Show a possible new PPF for this improvement in technology which helps both car and train production.  (Show it on the same graph as above.)

• (15 points) Elasticity

• Write down the equation for cross price elasticity of demandfor two goods.

• What is an example of substitute goods?

• What is an example of complementary goods?

• Lindsey is willing to purchase 4 units of good X when the price of good Y is $2.  If the price of good Y rises to $3 and she purchases only 1 unit of good X at the higher price, what is her cross price elasticity of demand between goods X and Y at those prices?