# MIT graduate micro exam, 1961

From the archives of Irwin Collier (I won’t do any extra indentation):

Economics Candidates: Answer any FOUR questions (thirty minutes each).
S.I.M. Candidates: Answer any TWO questions (thirty minutes each).

1. Within the framework of static, partial-equilibrium theory, indicate under what circumstances advertising will reduce product prices in the long run, (a) if the advertiser is a simple monopolist, (b) if the advertisers are members of a large, perfectly symmetrical, Chamberlinian group of suppliers of differentiated products (the number of firms being large enough to rule out oligopolistic relationships, and variable in accordance with a long-run-equilibrium condition of zero profit for all firms).
2. How is a firm’s demand schedule for a particular factor of production derived (a) when that factor is the only variable one, and (b) when the quantities of all factors are variable? Show which of these demands is, if anything, the more elastic.
3. The demands for two products are: q1 = q2 = 54 – p1 -p2. How would you characterize their relationship? If they are produced by separate sellers at constant average costs of c1 = 12 and c2 = 6, respectively, calculate each man’s equilibrium price, quantity, and profit under each of the following conditions:
1. Each seller assumes that the other’s price is a constant;
2. The second seller behaves that way and the first seller realizes that he does;
3. Both sellers maximize their joint profit and share it equally.
4. Two countries can produce food (F) and clothing (C) with labor (L) as the only factor of production. Country A has 20 billion units of L, each of which can produce either 5 units of F or 2 units of C. Country B has 10 billion units of L, each of which can produce either 8 units of F or 6 units of C. Everyone always spends half of his income on F and the other half on C. In a purely competitive equilibrium with balanced trade between the two countries (and no transportation costs), what is the effect on the quantities of F and C produced and consumed in each country? Could either country benefit by imposing a tariff on the imported good?
5. What are the various reasons why a free-private-enterprise economy may fail to allocate its resources in an optimally efficient way? Explain.
6. Discuss the roles of “real” and “monetary” elements in a satisfactory theory of interest. Is it logically possible to fashion an interest theory exclusively in terms of one or the other of those elements? Explain.

TC again: I don’t think current graduate students (outside of MIT and a few other places) would do very well on #1, nor do I think they would understand what is being asked on #6, much less have a good answer.  On #5, I wonder how many would give a sufficiently analytical answer rather than just repeating a bunch of cliches from media and social media?

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