## 11. (Module 1 l) The nation of Muffet produces only two goods, curds and whey. The table below shows the prices and outputs of these

11. (Module 1 l) The nation of Muffet produces only two goods, curds and whey. The table below shows
the prices and outputs of these two products for three recent years. Year 1 is the base year. Quantity of Curds Price per unit Quantity of Whey Price per unit I .
_ of Curds Produced of Who __ Population
I.” \$1.00 \$200
– – — 2 75 . _.-
——- a. Compute nominal GDP and nominal GDP per capita in Year 1. b. Compute real GDP and real GDP per capita in Year 2. o. Is the average citizen in Muffet more prosperous in year 3 than they were in year 1? Show your
work. (6 points)

## 5. Suppose a consumer derives utility from two goods, X and Y. Her utility fu U(X, Y) = VXY. The marginal utilities of

5.
Suppose a consumer derives utility from two goods, X and Y. Her utility fu
U(X, Y) = VXY. The marginal utilities of X is MUY =
VY
2VX
and the marginal utili
given by MUy =
VX
The consumer’s weekly income / = 6200 is spent entirely
Y whose prices are Py = 61 and Py = 61 per unit.
(a) Write down the equation for the consumer’s (weekly) budget constraint.
marginal utilities, write down the condition for the consumer’s optimal ch
and X and solve for their values. How much utility does she enjoy?

## Solve this 8. Calculating the probability of a Type II error Suppose an architectural firm specializing in the structural restoration and renovation of historic homes

Solve this 8. Calculating the probability of a Type II error Suppose an architectural firm specializing in the structural restoration and renovation of historic homes and early barns is deciding whether to open a branch of the company in Wilmington, Vermont. Market research commissioned by the firm indicates that the Vermont location will be profitable only if the mean age of houses and barns located within a 100-mile radius of Wilmington is greater than 65 years. The architectural firm conducts a hypothesis test to determine whether u, the mean age of structures located within a 100—mile radius of Wilmington,
is greater than 65 years. The test is conducted at a = 0.05 level of significance using a random sample of n = 256 houses and barns located in the specified area. The population standard deviation of the age of structures is assumed to be known with a value of a = 27.2 years. The firm will open a Vermont branch only if it rejects the null hypothesis that the mean age of structures in the specified area is less than or equal to 65 years. To summarize this hypothesis test refer to the chart given below. Reject the Null = Open the Branch Fail to Reject = Do Not Open the Branch Use the Distributions tool to you answer the questions that follow. The null hypothesis is rejected when the sample mean )2 is V . Therefore, the architectural firm will make the decision not to open a branch in Vermont if X is V . (nt: Use the tool to obtain the sampling distribution of 5C) Suppose that the true value of u is 68 years. The probability that the architecture firm commits a Type 11 error is V .
If the true value of u is 68 years, the power of the test is V . Use the graph that follows to plot points on the operating characteristic (0C) curve for u = 66, 67, 68, 69, 70, and 71. Round Y coordinates to two decimal places. 1.0 A I
I .
I
| OC Curve:
cc 0.3
o I
0:
cc I
L” I
E 0.6 I
> I
._
< I
LI.
0 I
,t 0.4 I
g I
ED
< I
m I
O I
E 0.2
I
I
I
a We
54 55 66 67 68 69 7o 71 72
POPULATION MEAN
Based on the level of significance it has selected for its test, the architectural ﬁrm is willing to risk a V probability of opening an unprofitable branch. It is willing to risk a 0.10 probability of not opening the branch when p = 69. (In other words, it is willing to fail to reject the null
hypothesis when it actually should have rejected the null hypothesis only 10% of the time). should the ﬁrm do? 0 Do nothing; its current risks are acceptable.
0 Increase its sample size.
0 Decrease its sample size. 0 Decrease a.

## Solve clearly.. Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on savings by

Solve clearly.. Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on
savings by allowing people to shield their savings by opening Retirement Accounts with commercial banks. is the
effect of this policy on the market for loanable finds
a. Interest rate will
( write one word either increase or decrease in the blank).
b. Quantity of loanable funds will
( write one word either increase or decrease in the blank)
Now assume, the parliament passed a tax reform aimed at making investment more attractive-for instance, by instituting
an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new
piece of equipment is the effect of this policy on the market for loanable finds
c. Interest rate will
( write one word either increase or decrease in the blank).
d. Quantity of loanable funds will
( write one word either increase or decrease in the blank)

## d) We now have another shock and that is it is next to impossible to keep workers at \$100 per day – so you decide

d) We now have another shock and that is it is next to impossible to keep workers at \$100
per day – so you decide to raise wages to keep your workers and that new wage is \$120
per day. fill in the following table (10 points).
TABLE 2 (Note: W = \$120)
N
Y
MPN MRPN
Marginal Profit
Total Profit
0
P =
P =
P = \$10
P = \$12
P = \$10
P = \$12
\$10
\$12
1
20
2
38
3
53
4
66
5
77
6
86
7
93
e) (5 points) How many workers will you hire and what is your maximum profit in
nominal terms when the price of your output is \$10? In real terms? Note, this is when the
wage is \$120.
() (5 points) How many workers will you hire and what is your maximum profit in
nominal terms when the price of the output is \$12? In real terms? Note, this is when the
wage is \$120.
g) ( 10 points) In the space below, draw two supply curves – redraw the supply curve
from part c) above (with points A and B) and then add the new supply curve when wages
are \$120. Be sure to put all the shift variables in parentheses next to the two supply

## Problem 1 (From Baye and Prince, Chapter 5) A firm can manufacture a product according to the following (Cobb-Douglas) production function. Q = F(K,L) =

Problem 1 (From Baye and Prince, Chapter 5) A firm can manufacture a product according to the following (Cobb-Douglas) production function. Q = F(K,L) = K0.4L0.6 a. Calculate the average product of labor, APL, when the level of capital is at 15 units and the firm uses 20 units of labor. How does the average product of labor change if the firm’s level of capital was at 200? b. MPL = 0.6*( K0.4L-0.4) and MPK = 0.4*( K-0.6L0.6). Your budget is \$1200, your wage rate w is \$25 and your rental rate of capital r is \$75. How much labor and capital do you hire and how much do you produce at that point? Problem 2 (From Baye and Prince Chapter 8) You are the manager of a monopoly, and your demand and cost functions are given by P = 300−3Q and C(Q) = 1,500+2q2 With these functions, Marginal Revenue and Marginal Cost are given by MR = 300 − 6Q and MC = 4Q a. price-quantity combination maximizes the firms total profits? b. Calculate the maximum profits. c. Is demand elastic, unit-elastic, or inelastic at the profit maximizing point? d. price-quantity combination maximizes revenues? e. Calculate the maximum revenues. f. Is demand elastic, unit-elastic, or inelastic at the revenue maximizing point?

## Kindly give brief explanations for the ff answers (disregard the X marks) ECON 110 Final Examination 37. The measures the share of those

Kindly give brief explanations for the ff answers (disregard the X marks) ECON 110 Final Examination
37. The
measures the share of those of
X
A. Labor force participation rate
working age (age 15-60) and are either working or actively
looking for work.
B. Employment rate
C. Unemployment rate
D. Underemployment rate
38.
occurs in a labor market with high
A. Frictional unemployment
demand for skills related to information and
communications technology (ICT), but with very few
X B. Structural Unemployment
C. Cyclical Unemployment
D. Involuntary Unemployment
39. Under the neoclassical theory of labor markets,
A. Increase; increase
government regulation must
to
unemployment.
B. Increase; decrease
C. Decrease; increase
D. Decrease; decrease
40. In a perfectly competitive microeconomic labor market,
A. Above
setting the wage
equilibrium will
lead to a surplus of workers.
X B. Below
C. Exactly at
D. None of the above

## In reality, engaging in travel often involves procuring multiple services such as accommodation and transportation. However, these services may not be perfectly divisible

In reality, engaging in travel often involves procuring multiple services such as accommodation and
transportation. However, these services may not be perfectly divisible (that is consumable in
fractional quantities) as assumed in the assignment. For example, you generally don’t have the
option of staying in a hotel for less than one night. Given this fact, is there any implicit similarity
between the Victorian and South Australian schemes that may not be apparent from the simple
interpretations of these schemes described earlier in Assumption (7)? Explain your answer.

## computers, while a Chinese worker can produce 100 shirts or 10 computers. to. Plot the production possibilities frontier for both countries. Suppose, without trade, workers

computers, while a Chinese worker can produce 100 shirts or 10 computers. to. Plot the production possibilities frontier for both countries. Suppose, without trade, workers in each country spend half of their time producing each of the goods. Identify this point in the figure. (5 pts) b. If these countries were open to trade, which of them would export shirts? Provide a numerical example and show it in your figure. Which country would benefit from trade? Explain. (5 pts) c. Explain at what price of computers, measured in terms of shirts, the two countries can trade. (5 pts) d. Suppose that China’s productivity increases and that now the Chinese worker can produce 100 shirts or 20 computers. new trading pattern could be redefined? How come this Chinese productivity advance affect the economic well-being of the population of both countries? (5 pts) 2. Since bread and cheese are usually eaten together, they are complementary goods. We observe that both the equilibrium price of cheese, as the equilibrium quantity of bread have increased. could is this pattern due? A decrease in the price of flour or a decrease in the price of milk? Illustrate and explain your answer. (5 pts

## IEonsitfler a model where a labor union has monopoly on the sale of labor. Its utility function reﬂects the Fact that it cares

IEonsitfler a model where a labor union has monopoly on the sale of labor. Its utility function
reﬂects the Fact that it cares about wages and employment levels and does not mind trading oFF
higher wages For lower levels of employment. The monopoly’s utility function is given by: U=WL, where W is the wage rate and L is the labor hours. Suppose that the utility-maximizing union sells
Labor hours, L to a proﬁt maximizing competitive ﬁrm whose labor demand is given by: l. 1.1. In this model, explain the sequence of decision puking by the union and the ﬁrm’ 1.11 the
determination of wages and employment 1.2. Show the utility maximization problem of the UNION and Fold the optimal level of wages
and employment. 1.3. Now suppose that in an alternative model, the ﬁrm and the union simultaneously bargain
over wages and employment and agrees on a wage and employment level.
(I) Is this agreement “efﬁcient” from a production point of view?
(2} Is this agreement Pareto optimal?
(3) ﬁre the agreed upon wages less or greater than the marginal product of labor
of the worker?