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qP UNIVERSITY Dr.,'

FINAL

EXAMINATION

APRIL

2OO5

DURATION:: HOURS

Department

Name & Course

Number: ECON

2003 D

Course

lnstructor(s) o McFETRIDGE

No.

of Students: 7C

AUrHoRrzEo

MEMoRANoA

Non-programmable

calculators

are

permitted.

Students MUST

counl the nunrber

of pages

in this examination

question paper

before

beginning

to

write, and report any discrepancy

to a proctor. This question paper has _

5_ pages.

This examination question paper MAy be

taken from the examination room'

/

ln addition to this question paper,

students require: an examination booklet yesS|/ noJ ,/

a Scantron sheet YesE noSy'

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,X}

llr\

where

Xu

and

Yo

are

Beckr"s

consumption

of

X and

Y respectively'

Assume

Arthur's

initial

endowment

is 10

X and

25

Y and

Becky's

initial

endow'ment

is l5 X and

5Y.

(a)

(i) lllustrate

the

initial

situation

described

above

using

an

Edgervorlh

box

diagram'

(i marks)

(ii) Can

you

determine

rvho

is

better

off

in

the

initial

situation?

If so'

r'vho?

(2

marks)

(b)

(i)

Derive

Arthur"s

net

demancl

function

for

X' (3

marks)

(ii) Derive

Becky's

net

demand

function

for

X' (3

rnarks)

(c)

(i)

Using

your

answers

to

(b)"

find

the

equilibrium

price

of

X in

terms

of

Y (P'/Pt) in

this

econom\'.

(3

marks)

(ii)Explaintlreexclratrgewhiciloccursbetu,eenAr-thurarrdBecky.Shou,thatthisexchange

ismutr-rall1'beneficial'Iliustrate)'ouransweru'ithadiagram'(3marks)

6.Fir.ef-trrtrsarelocatedaroundacircle60milesincircumference.Thefirmsareequallyspaced

around

the

circle

as

are

the

clrstomcrs

(one

cllstomer

per

mile)' The

firms

produce

the

same

product

at

the

same

cost

(the,v

are

s1'n-}1r-retric)'

The

cost

of production

is

$5

per

ton

and

transportation

cost

is

$

1

per

ton

per

mile

($

1

to

trat'rsport

a

ton

of

product

one

mile)' Each

cLrsrolrrerbr.rl,s

1

ton

of

product

rron,,t. iuppr,.rr"t*]ll: lorvest

delivered

price

(the

delivered

priceisat_trm'S,.rrln*priceat_itsplantplustransportationcosts).Ifeaclrfinnsetsitsselling

price

so

or

ro

n-,u*i-iie'its

profits

gi'enih. selling

prices

of

tl-re

other

firms.

find

the

eqr'rilibrium

selli'g

price

i' this

market.

Shor'r'hou'and

*h1''Vour

ans\\'er

nould

change

if there

\\'t're

six

(equalll'spaced)

ii''n'''

l'''

the

markr;t

instead

of f-ive'

(8

marks)

7.

An econom}'is

endorr.ed

r,vith

tu'o

inputs.

K and.!' Ili'enclor'r.ed

with 100

trnits

of

each

input,

These

inpr.rts

are

used

16

produce

,ruo'gioa''

X a.d Y' The

production

functions

for

X and

Y are:

(a)

If this

econorn)'

der

oted

all

its

resotlrces

to

Y production:

\-/ -

(i)

hou'mttch

Y could

it produce?

(2

marks)

(ii)

nhat

u'or-rld

the

ratio

of input

prices

(rv' / rv*)

be?

(3

n-rarks)

(b)

lf this

ecorlom)'der

oted

all

its

resources

to

X production:

(i)

ho*'much

X could

it produce?

(2 marks)

(ii) rvhat

rvoulcl

the

ratio

of

input

prices

(rv'/ u'*)

be?

(3

marks)

(c)

Explain

u'h1'.vottr

answers

to

(a)(ii)

and

(b)(ii)

differ'

(2

marks)

X

= KiL',

Y=

K;tLl

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