Advanced Micro I – Williams Final Edition

1. An urban rapid-transit line runs crowded trains (200 passengers per car) at rush hours, but very empty trains (ten passengers per car) at off peak hours. A management consultant makes the following argument: “The cost of running a car for one trip on this line is about $50 regardless of the number of passengers. So the per passenger cost is about 25¢ at rush hour but rises to $5 per passenger in off peak hours. Consequently, we had better discourage off-peak hour business.” Explain the fallacy.

“Commutation tickets” sold by some transit systems (reduced-price, multiple-ride tickets) are predominantly used in rush hours. Are such tickets a good idea?

(#42)

 
 
 
 
 
 
 

2. The literature on the behavior of the firm poses it as a profit maximizer, a wealth maximizer, a growth maximizer, a sales maximizer, a sales maximizer subject to a prescribed profit rate.

Which of these do you use, why, and how do you manage to allow for these other assertions of firm behavior?

(#45)

 
 
 
 
 
 
 

3. Give a brief answer to the following:

Collusions have the natural tendency to break down.

(#40.a)

 
 
 
 
 
 

4. Is the following statement true or false? Explain.

Price discrimination tends to be more common in the sale of services than in the sale of manufactured goods.

(2014 #3.c)

 
 
 
 

5. Is the following statement true or false? Explain your answer.

If you were a visitor in some underdeveloped country in which all lending and borrowing are effectively prohibited there would be no way to tell whether there were changes in the interest rate.

(#92, 2014 #2.c)

 
 
 
 

6. Is the following statement true, false, or uncertain? Explain.

A monopolist will never set price and quantity at a point where the demand is price-inelastic.

(2014 #3.a)

 
 
 
 

7. Do externalities offer unambiguous proof of market inefficiency or is it possible for externalities to be consistent with market efficiency?*

*Hint: Professor Williams takes the mainstream view that a situation is efficient iff it is pareto-optimal.

(#44, part 2)

 
 
 
 

8. Give a brief answer to the following:

A person who loses his job through no fault of his own is also unemployed thereafter through no fault of his own.

(#40.d)

 
 

9. State whether the following is true or false and explain your response:

Existing firms in a cartelized industry prefer to be regulated by government.

 
 
 
 
 
 
 

10. Give a brief answer to the following:

Cost minimization is the general criterion of economic behavior.*

*Hint: Williams implicitly assumes costs are accounting costs.

(#40.b)