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Final

MGEB02H3 Final: Sample Final


Department
Economics for Management Studies
Course Code
MGEB02H3
Professor
A.Mazaheri
Study Guide
Final

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UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGEB02: Price Theory: A Mathematical Approach
Instructor: A. Mazaheri
Sample Final
Instructions: This is a closed book test. You are allowed the use of a non-programmable
calculator
You have 150 minutes.
Good Luck!
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Answer all following 6 questions in the Exam Paper:
Question-1 [35 Points] Answer the following short questions.
a) (8 Points) A consumer is considering choosing a calling plan for her cell phone. The
plan has a fixed monthly fee of $40, and it gives 200 free minutes per month and charges
$0.1 for each additional minute. The consumer has a monthly income of $100, and she
spend it on cell phone and another composite good y, where p
y
=$1. Her utility function
is given by
2
),( y
xyxU += , where
x
is the minutes of cell phone she uses in a month.
Find her optimal consumption bundle. Graph your solution on a diagram including the
budget line and a representative indifference curve.
b)
(8 Points)
In a perfectly competitive market, there are 100 firm split equally between
the following short run cost functions:
50 10q 0.5q )(qC
200 10q 2q )(qC
2
2
222
1
2
111
++=
++=
Find the total short run market supply curve and graph it.
c) (6 Points)
Explain why a monopolist will never produce in the inelastic portion of its
demand curve, (say the demand of; P = 10 – 2Q.) Draw a properly-labeled graph to
support your argument.
d) (7 Points a bit challanging)
A consumer spends all of his income on
x
and y. Last
year, he consumed 20 units of
x
at a price of $50 per unit, and 50 units of
y
at price $40
per unit. This year, he got some good news and some bad news. The bad news was that
the price of
y
had risen to $50 per unit. The good news was that the price of
x
has
declined to $25 per unit. Using budget constraints and indifference curves, show that the
consumer's utility can be increased following these changes.
e)
(6 Points More changing)
A food coupon program requires families to pay a certain
amount for food coupons. Suppose all families can receive $150 in food coupons for a
payment of $50 (call this policy A). Also, assume all households have $250 of income
and the price of food is $1 per unit. With the composite consumption good (CCG) on the
y-axis and food on the x-axis, draw the original budget line and the budget line under this
policy.
Compared with an allocated grant of $100 in food coupons (call this policy B), would
policy A lead to more, less, or the same food consumption? Why? Assume well-behaved
indifference curves.
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