Chicago. Price Theory Core Examination. Summer 1962

What would your reaction be to the remark in your exam “Remember that you are writing an examination in economic theory”? But, hey, Chicago, you do you.

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Chicago Price Theory
Preliminary/Core Exams
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CORE EXAMINATION
Theory
Summer 1962

Preliminary Examination for the Ph.D. and A. M. Degrees

WRITE THE FOLLOWING INFORMATION ON YOUR EXAMINATION PAPER:

Your Code Number and NOT your name
Name of Examination
Date of Examination

Results of the examination will be sent to you by letter.

Answer all questions. Time: 3 hours. The suggested times for the various questions are guides to their weights in the grading.

1. (60 minutes) True-False. State very briefly the reason for your answer to each question.
   1. The cross-elasticity of demand of left shoes with respect to the price of right shoes is zero.
   2. A competitive firm buying electrical equipment was not injured by the collusion of the producers (General Electric case) even if the collusion raised prices above the competitive level.
   3. If a consumer’s income rises in the same proportion as a Laspeyres index of his cost of living, his real income is rising.
   4. Duopolists with different costs cannot achieve a monopoly price without transfer payments between the firms.
   5. The marginal utility of income is not constant for a worker who increases his hours of work when the wage rate rises.
   6. If two goods are substitutes in consumption, a 10 cent fall in the price of either good will lead to the same increase in the consumption of the other good.
   7. A minimum wage law may increase the demand for labor by some firms.
   8. A competitive firm will have a more elastic demand function for a factor of production than a monopsonist.
   9. If a firm is operating in the region of falling marginal costs it must be making losses, since marginal cost is then less than average cost.
   10. A multiplant firm will schedule its output so that marginal costs are equal in all plants.
2. (30 minutes) The stock market break of May 28 elicited many explanations. Comment upon the relevance of each of the following explanations.
   1. Stock prices had previously been too high.
   2. There was a holding back by big buyers.
   3. Inflation was no longer feared.
   4. Sellers became panic-stricken.
   5. The gold outflow, it was feared, would lead to exchange controls.

Remember that you are writing an examination in economic theory.

1. (30 minutes) Capital formation may be defined as the use of current resources in such a way as to increase future income, and on this definition capital formation includes investments in equipment, human beings, and discovery of new knowledge. Discuss the problem of the meaning of the marginal product of capital, and whether capital as defined is subject to diminishing returns.
2. (20 minutes) 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?
3. (40 minutes) It appears that the Federal Communications Commission will be given the power to compel manufacturers of television sets to build them in such a way that they will receive ultra-high frequency broadcasts (at an additional cost of about $25 per set). Then every community can have (say) a dozen channels. Will consumers be benefitted?

Source: Harvard University Archives. Papers of Zvi Griliches. Box 129. Folder “Preliminary Examinations, 1957-1965”.

Image Source: The School of Chicago (1972) as drawn by Roger Vaughan.