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?



2. Some discount stores advertise that they can sell for less because they buy directly from the factory and sell to the consumer, thus eliminating middlemen. What is the flaw in that reasoning?

(2007 #4.a)


3. 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?



4. True or false: Cost curves are monetized reciprocals of product curves? Explain.

(#76, #104, 2014 2.b)


5. 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)


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. Which of the following images is a graph of the standard intertemporal 2-period model?

Enter your answer as a single capitalized letter.







(2014 #1)

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

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


9. Give a brief answer to the following:

Collusions have the natural tendency to break down.



10. Give a brief answer to the following:

Laissez-faire capitalism encourages deceitful advertising, dishonesty, and faithlessness.