BUS 635 Business Economics

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BUS 635 Business Economics for the World Market Week 5 Written Quiz

Quiz #5, Written Portion

Note: This portion should take about an hour to complete

Due: June 26 noon

Please complete this exercise in Word and submit an electronic copy of it. This is to be independent work. Do not “check” one another’s work. Do not compare answers. Do not copy one another’s work. Do not collaborate on answers. Reason out the answers yourself and submit your best responses to the questions posed. The take home quiz that you submit should reflect your own level of understanding.

15 points.

Suppose that the reserve requirement ratio is 5% and that the Fed uses open market operations by SELLING $100 million worth of Treasury securities. Assume that banks use all funds except required reserves to make loans and that the public does not store any cash.

A. Does this Fed action increase or decrease the money supply (all else equal)? EXPLAIN.

B. Given the information above, what is the best estimate of how much the money supply changes as a result of the Fed’s action?

10 points.

PICK TWO of the following events (A-D) and consider how a university student is likely to react and discuss in terms of Chapter 11 and the notes on Consumer Theory, and/or the reading on consumer theory from The Economist. Answers will vary, but to receive credit, you will need to correctly apply one or more of the concepts from the material in 3-5 sentences per answer. Put differently- this is open-ended and open to interpretation but the goal is simply to CORRECTLY USE some of the terms and concepts from the material. Once again, this may be done correctly in different ways.

TYPES of issues to consider/discuss for the different events include the following: What things might they consume more of? What things might they consume less of? Would they work more or less? Would they increase or decrease their saving? NOTE: NOT EVERY CONSIDERATION LISTED HERE APPLIES TO EVERY EVENT BELOW.

REMINDER: PICK TWO- do not discuss all four here. If you discuss more than 2, we will grade only the first two you discuss.

Answers to each one should be 3-5 sentences.

A. Tuition in the university MBA program is cut 35%.

B. A student receives an award that pays $500 a month for the next four years.

C. The price of food doubles.

D. A new business opens nearby the university offering part time jobs at $25 per hour.

Situation C

Situation D

Use the table below

Output Total Cost Total Variable Cost Marginal Cost Average Total Cost Average Variable Cost

1

$12.0

$12.0

$12.0

12.0

$12.0

2

20.0

20.0

8.0

10.0

10.0

3

27.0

27.0

7.0

9.0

9.0

4

32.0

32.0

5.0

8.0

8.0

5

43.0

43.0

11.0

8.6

8.6

6

63.0

63.0

20.0

10.5

10.5

3. 15 points

A. Complete the Total Cost column of the table above.

B. Complete the Total Variable Cost column of the table above.

C. Complete the Marginal Cost column of the table above.

D. Complete the Average Total Cost column of the table above.

E. Complete the Average Variable Cost column of the table above.

15 points

Using the table above, suppose that the equilibrium price in this competitive industry is $11.00.

A. If you are the owner of the firm whose costs are indicated above, what is your profit maximizing production at this price?

B. At this price what is your total revenue?

C. At this price, what is your profit?

BONUS: Can this be a long-run equilibrium? __No__ (yes or no)

EXPLAIN why or why not. You may need to read ahead.