VANIER COLLEGE FACULTY OF ARTS, BUSINESS,

AND SOCIAL SCIENCES

MACROECONOMICS (383-301-VA)

Final Exam (20%) A. Hammi

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By completing this exam you agree to be fair to your classmates and
instructors in answering all of your academic work with integrity; You
agree that you will respect the Institutional Policy on the Evaluation of
Student Achievement and the rules and standards set by your teacher;
You affirm that you will not give or receive any unauthorized help on
this exam and that all work is your own.

Instructions
1. Manage your time carefully: You have the full class time, today (May the
10th ) to submit this exam document with your answers back to ‘Léa-
Assignments and Dropbox’
2. TIME FOR YOUR EXAM: 18:45 TO 21:00
3. 2 MRKS OFF FOR EACH MINUTES LATE
4. AFTER 30 MINUTES NO EXAM WILL BE GRDED AND A ZERO IS
ASSIGNED TO THE EXAM
5. YOU HAVE TO CHECK MIO BEWTEEN 9 AND 9:15 PM FOR ANY
MESSAGE FROM ME
6. ONLY BRIEF EXPLANATIOSN ARE REQUIRED
7. Answer all questions in the space provided.
8. Round off all final answers to two decimal places.
9. Be sure to answer the questions in their entirety.
10. Double check all answers prior to submitting your exam.

Grade:________ (on 100 marks)

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Question #1 (Worth 25 Marks, grade will be assigned to each column)

a) (21 marks total; 3 marks for each column variable) Fill out the table below (yellow sections)

40

Output TFC TVC TC AFC AVC ATC MC

0 100 0 100 - - - -
1 100 40 140 100 40 140 40
2 100 60 160 50 30 80 20
3 100 70 170 33.3 23.33 56.66 10
4 100 85 185 25 21.25 46.25 15
5 100 130 230 20 26 46  45

b) (4 marks) Briefly explain how you arrived at the numbers for each variable (column) above:

TFC= TC+TVC Total cost is the sum of both total variable cost and total fixed cost.
TVC=TC-TFC Total cost is the sum of both total variable cost and total fixed cost.
TC= TFC + TVC Total cost is the sum of both total variable cost and total fixed cost.
AFC= TFC/ Output. For Average fixed cost, I divided total fixed cost by the output.
AVC=TVC / Output. For Average variable cost, I divided total variable cost by the output.
ATC= TC / Output. For Average total cost, I divided total cost by the output.
MC= change in Total cost/ change in Output quantity

Question #2 (Worth a total of 25 marks)

You are given the following data table on a hypothetical firm:

Quantity Price (P) TR MR TC MC

(Q)
0 $175 $175 N/A $100 N/A
1 $170 $170 $-5 $200 $200
2 $165 $330 $160 $280 $140
3 $160 $480 $150 $350 $116 .6667
4 $155 $620 $140 $400 $100
5 $150 $750 $130 $450 $90
6 $145 $870 $120 $520 $86.6667
7 $140 $980 $110 $600 $85.7143
8 $135 $1080 $100 $700 $87.5
9 $130 $1170 $90 $900 $100

a) Complete the table above (yellow cells). (6 marks total; 3 per column variable)
Explain how you arrived to the result.

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b) What kind of market structure is this firm operating in? Explain your answer. (4 marks total)
the firm is operating in a imperfect market structure (monopolistic competion) this is because the
firm is price market or demand curve is downward sloping.

c) What is the profit maximizing level of output? Answer: 8 units. (5 marks total). Explain
how you arrived to the result.
MC= MR (profit maximizing condition)
Since, MC=MR=100 at Q =8
Therefore, profit maximizing level of output= 8

d) What is the price that will maximize profits? Answer: 135 $ per unit. (5 marks total)
Explain how you arrived to the result.
MC=MR=100 at Q =8 and P= 135, therefore profit maximizing price= P=135
Hence, the price that will maximize profits =P=135

e) What is the total profit/loss that the company makes at the profit maximizing level of output?
Answer: $ 380 . (5 marks total) Explain how you arrived to the result.

TR=1080, at Q=8,
TC=700, at Q=8,

Therefore
Profit=TR-TC
=1080-700=380

Hence, the total profit= $380

Question #3: (Worth a total of 10 marks)

1- What are the characteristics of a perfect competition market structure:

a- Large number of buy and and seller

b- Goods are homogenous

c- There is free entry and exit of the firm

d- Both buyers and sellers have perfect knowledge of the market

2- What are the characteristics of a perfect monopoly?

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 a- Seller is the price maker

b- There are high barriers to entry in the market

c- There is a single seller

d- There is price discrimination

3- Compare and contrast Perfect competition and Perfect Monopoly

i. in a monopolistic competition there is a single seller and many buyers while in a
perfect competition there are many sellers and many buyers.
ii. In a monopolistic competition the product is unique and cannot be readily replaced. In
a perfect competition there is homogeneity of the goods.
iii. In a monopolistic competition the seller is the price setter while in the perfect
competition the market sets the price though demand and supply.
iv. In a monopolistic competition there is high restriction toward the entry and exit of the
market while in a perfect competition there is free entry and exit into and out of the
market.

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Question #4 (Worth a total of 40 marks)

You are given the following graph for a hypothetical firm:

MC

$
ATC
AVC
18

16

13
12.5
12

6
5
4

0 16 25 30 38 45 52 55 Quantity

Using this graph, answer the questions below. Each question is worth a total of 4 marks.

a) This is a The is a perfectly competitive firm (perfectly competitive firm or monopoly)

and they are operating in the short run (short run, long run).
b) The firm will break even when the price is $ $12 .

c) If the firm breaks even, output quantity will be 45 units.

d) If the firm breaks even, total revenue (TR) will be $ 540 and total cost (TC) will be $540 .

e) If price is $18, the firm will produce 16 units and the firm profit
(makes a profit, makes a loss, or breaks even) of $ 12 .
f) The optimal level of output is zero when price falls below $ 12 . Thus, quantity produced will
never be less than 45 units.
g) If the price is $9, the firm will continue to operate (continue to produce, shutdown).
If the firm continues production, then output will be 39 units.

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h) If price is $9, the firm will realize a profit (profit/loss) of $ 3 .

i) Average Total Cost (ATC) is at a minimum when price is $ 45 . Average variable cost (AVC) is at
a minimum when price is $ 6 .
j) At the shutdown point (P ≤ min AVC), we know that total variable cost (TVC) is $ 2 . At this
same position, total fixed cost (TFC) is $ 4 (approximately).