MGEC 611 Final Exam Questions and Answers 100% Correct/ University of Pennsylvania
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Course
MGEC 611
Institution
MGEC 611
MGEC 611 Final Exam Questions and Answers 100% Correct/ University of Pennsylvania
MGEC 611 Final Exam Questions and Answers 100% Correct/ University of Pennsylvania
MGEC 611 Final Exam Questions and
Answers 100% Correct/ University of
Pennsylvania
INSTRUCTOR
DO NOT TURN THE PAGE UNTIL INSTRUCTED TO DO SO
Please Read And Follow These Instructions Carefully:
You have 120 minutes to complete this exam.
The exam is worth a total of 120 points and has 9 problems.
The exam booklet is 36 pages in length. Please check to make sure your copy has all
36 pages.
The exam is a closed-book, closed-notes exam, but you are allowed to bring an 8.5” ×
11” double-sided note sheet and a non web-enabled calculator into the exam.
Show your work for each problem in the space provided (or on overflow pages,
clearly marked). No credit will be given for answers without work (unless noted
otherwise), and partial credit can only be given if you show your work.
Write your answers neatly. Illegible writing will not be graded.
Do not remove the staples that hold the exam pages together. There are no staplers
in the exam rooms.
Good luck!
1
,Part 1: Short-Answer Questions (30 points total)
1. Elasticity (8 Points Total). Six Flags Great Adventure is a theme park located in New
Jersey, roughly one hour from Philadelphia. Each summer the park must decide on
pricing for its tickets. For simplicity, assume that it only sells single-day passes at a
uniform price.
a. (1 Point) The daily demand faced by Six Flags (where 𝑝 is in dollars and 𝑞 is in
𝑞
thousands of tickets) is 𝑝(𝑞) = 175 − . The sign of the elasticity of demand with
150
respect to its own price is which of the following? (No work needs to be shown.)
X Negative
□ Positive
□ Uncertain, it could be either negative or positive.
Solution:
The elasticity is negative. This is true because as the price of a good rises,
the demand for that good will fall. Hence, there is a negative percentage
change in quantity for a positive percentage change in price, resulting in a
negative elasticity of demand.
b. (2 Points) Six Flags currently charges $75 per ticket and sells 15,000 tickets per
day. To check whether $75 is the optimal price, the managers run an experiment
in which they discount the tickets to $70 and find that sales increase to 15,750
tickets per day. What is the elasticity of demand with respect to price that Six
Flags measures using the data from this experiment?
□ Elasticity is -2
X Elasticity is -0.75
□ Elasticity is -0.25
□ Elasticity is 0.5
Solution:
c. (3 Points) The marginal cost of each additional visitor to the park is $10, which
covers additional staff (to operate rides, security, etc.). Is $75 the optimal
price?
□ Yes, they are charging the optimal price
□ No, the price is too high
X No, the price is too low
Solution:
There are two ways to solve this problem. The first is to observe that they
are in the inelastic portion of the demand curve, which suggests they are
likely pricing too low and should increase the price to take advantage of
the fact they can do so without losing a lot of additional customers.
The second more concrete approach is to use the inverse elasticity pricing
rule
This suggests we are not at the optimum and that raising the price will
equalize the two terms (note that the elasticity may change as you move
along the curve to the higher price, but this is still directionally correct).
d. (1 Point) The park sells a variety of different food and beverage options to the
visitors. For lunch, people typically eat either a hot dog or a hamburger or
nothing, but never both food items. The elasticity of hot dog demand with
respect to hamburger price (i.e., the hot dog-hamburger cross-price elasticity)
should be which of the following? (Note: No work needs to be shown.)
□ Zero
X Positive
3
, □ Negative
4
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