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Chicago Exam Questions

Chicago. Exams for second graduate price theory course. Griliches, 1965

 

A few posts ago Economics in the Rear-view Mirror presented the exams for the first quarter of graduate price theory (Economics 300) at the University of Chicago taught by Giora Hanoch in the autumn quarter of the 1964-65 academic year. In this post we have the exam questions for the winter quarter’s second graduate price theory course taught by Zvi Griliches.

As I transcribe these mind-numbing true-false-uncertain questions, I have wondered if there ever was a University of Chicago graduate student who answered all of the questions “uncertain” and tortured the graders with special cases, counter-examples, and intricate ad-hoc-ceteris-not-so-paribus explanations. But then I think of the canonical image of a WWII bomber that has returned to base with flak damage. Goodnight Mrs. Calabash, wherever you are.

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ECONOMICS 301
February 10, 1965
Two-hour Midterm Examination

I. (70 points)

Answer whether the statement is true, false, or uncertain. In each case, write a few sentences explaining your answer. Your grade will depend heavily on your explanation.

  1. The elasticity of a linear supply function that passes through the origin is always unity.
  2. If a firm is producing in the region of rising marginal costs, the firm is realizing profits.
  3. An effective price ceiling on cotton, i.e., one that holds its price below the free market level, will decrease the price of textiles.
  4. Steel prices and output usually move together during business cycles. This means that the income effect of a rise in price is greater than the substitution effect.
  5. Firms try to minimize unit costs; at the point where unit costs are at a minimum, they equal marginal costs; therefore, firms tend to operate where their unit and marginal costs are equal.
  6. Marginal productivity theory does not apply if factors are always used in fixed proportion.
  7. Since all firms in competitive industry have the same marginal costs, it is meaningless to speak of more or less efficient firms.
  8. If a Paasche price index is higher than the Laspeyres’ index, tastes must have changed.
  9. The demand for a product at the market price is inelastic. It follows that the product must be produced under conditions of net internal diseconomies.
  10. “Commodities with higher, income elasticities have higher demand (price) elasticities.” (Stigler, 1952 ed., p. 45)
  11. If X and Y are substitutes, a decline in the price of X can increase the amount of Y demanded only if Y is an inferior good.
  12. The elasticity of demand for a group of commodities with respect to the average price of the group can never be larger in absolute value than the largest of the individual price elasticities of the commodities which comprise the group.
  13. A rational consumer is insatiable.

II. (30 points)

A. The demand function for a product is P = 115 — Q. The total cost of producing Q units in one plant is given by TC = 400 — 100Q2 + Q3. Only one-plant firms are allowed.

(a) What is the long run competitive solution (price, quantity, and the number of firms in this industry)?

(b) What would be the approximate price charged and the quantity produced if there was only one one-plant firm and it maximized its profits. (Work only with round figures.) How much profit would it make?

B. Assume now that a firm may have more than one plant. What is the monopoly solution? How much profit will it make?

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March 15, 1965

ECONOMICS 301
Z. Griliches

FINAL EXAMINATION
Winter, 1965

2 HOURS TO COMPLETE EXAM

I. (80 points)

Answer each question “true”, “false”, or “uncertain”, and explain your answer briefly. Your grade will depend heavily on your explanation.

  1. A competitive firm will increase output as the result of a fall in the price of one of its inputs.
  2. In equilibrium, a competitive firm has all the business (sales) it wants. Hence advertising is incompatible with either competition or equilibrium.
  3. Duopolists with different cost functions cannot achieve a monopoly price without transfer payment between the firms.
  4. A multiplant firm will schedule its output so that the marginal costs are equal in all plants.
  5. The price of haircuts in Chicago is approximately 40 percent higher than in New York; therefore, average earnings of barbers in Chicago are higher than in New York.
  6. The supply curve of a monopolist is inelastic at the point of maximum monopoly profit.
  7. If it takes one day to catch a beaver and two to catch a deer, one deer will exchange for two beavers.
  8. Assume that the world demand elasticity for tin is -2 and that Bolivia produces 1/3 of the world’s tin. Therefore, the elasticity of demand for Bolivian tin is at least -6.0 (in absolute value).
  9. A safety ordinance prohibiting the use of automobiles older than 10 years will increase the long run demand for new automobiles.
  10. The own-price elasticity of demand for a commodity is no smaller in absolute value, than the marginal propensity to consume that commodity.
  11. For a single consumer the sum of income elasticities of demand for all commodities is unity, while the sum of their price elasticities is zero.
  12. It is a convention in economics to draw consumption indifference curves convex to the origin, but we have no way of knowing whether they really are.

II. (10 points)

Each firm in an industry is given a license to operate and no new firms are allowed to enter. The value of a license rises over time. Does this prove that firms operate subject to diseconomies of scale?

III. (30 points)

It is often asserted that Americans love money more than Englishmen (or Europeans, or Latin Americans). Can you think of a way to test this proposition?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 130, Folder “Syllabi and exams, 1961-1969”.

Source: From an image of the Brazilian immigration/visa card for Zvi Griliches dated 18 Aug 1959 that can be found at the ancestry.com website.