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(ECON110)[2010](s)midterm~wni^_10219.pdf
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ECON110-L1 Introductory Microeconomics
Midterm Examination Solution
* The numbers in [] indicates the points of each question, and the numbers in () indicates the module objectives corresponding to each problem.
1. [35] Harry usually spends 10 hours a week playing Quidditch. However, his Defense against the Dark Arts exam is coming and he needs more time to study for the exam. If he does not study at all, the lowest grade he will receive is 55. But Harry realizes that this grade is unacceptable and so he has to give up some of his Quidditch time. But how much? He asks his friend Hermione, who is very good at Magical Economics, to help him figure this out. Together, they come up with the schedules of Harry's possibilities and values in the tables below. Then Hermione quickly finds the solution. But Harry still looks puzzled. Help Hermione to explain her solution to Harry.
Extra study time (per week)
Quidditch (hours per week)
Harry's grade (points)
10
0
90
8
2
87
6
4
82
4
6
75
2
8
66
0
10
55
Quidditch (hours per week)
Marginal benefit of an extra hour (points)
1
3.0
3
2.5
5
2.0
7
1.5
9
1.0
(1) [5] Draw Harry's production possibilities frontier with the Quidditch hours on the horizontal axis and Harry's grade, starting at 55, on the vertical axis. (2.1)
(2) [5] What is the opportunity cost of the first two hours of Quidditch? What is the marginal cost of the 5th hour? (2.1)
(3) [5] What is Harry's opportunity cost of raising his grade from 82 points to 87 points? (2.1)
(4) [5] Draw Harry's marginal cost of playing Quidditch curve. What happens to the marginal cost if Harry spends more time playing Quidditch. (2.1)
(5) [5] Draw Harry's marginal benefit from playing Quidditch curve. Describe the relationship between Harry's time spent playing Quidditch and the marginal benefit from playing Quidditch. (2.2)
(6) [10] For how many extra hours did Hermione recommend Harry to study? Why? If Harry follows her advice, what grade will he expect? What do you think Hermione said when Harry asked why he should not spend more time playing Quidditch? (2.2)
Answer:
a) The figure above shows Harry's production possibilities frontier.
b) Harry's opportunity cost of the first two hours of Quidditch is three points off his grade. According to the PPF, if Harry does not play Quidditch at all, the best grade he can get is 90 points, but if he plays Quidditch two hours a week, his grade falls to 87 points. So Harry gives up three points of his grade to get his first two hours of Quidditch. When Harry increases his Quidditch time from 4 hours to 6 hours, he gives up 7 points of his grade, which means each additional hour costs him 3.5 points. So the marginal cost of the 5th hour is 3.5 points.
c) If Harry wants to raise his grade from 82 points to 87 points, he must give up 2