251
Exam ECON #2 Pink
Spring 2009
(Practice Exam #2A for Fall 2009)
1. The table below shows Catherines marginal utilities of milk and coffee. Suppose
coffee costs $2/bottle and milk costs $2/bottle and each week she has a maximum of
$10 spends on coffee and milk. Then she should consume __ bottles of milk and
_____ bottles of coffee.
Bottles per
week
1
2
3
4
a.
b.
c.
d.
Milk
Coffee
80
60
40
20
55
50
45
40
3:2
4;1
1;4
2;3
2. At the fair you have $12 and spend all of your money on cotton candy and rollercoaster rides. If cotton candy costs $3 and roller coaster rides cost $4, then which of
the following bundles would be on your budget line?
a. 2 cotton candies and 1 roller coaster ride
b. 2 cotton candies and 2 roller coaster rides
c. 4 cotton candies and 0 roller coaster rides
d. 1 cotton candy and 2 roller coaster rides
3. Using the information in the problem above, what is the marginal rate of substitution
at the utility-maximizing bundle if cotton candy is measured on the x-axis?
a. 1/2
b. 2/3
c. 3/4
d. 4/3
4. Using the information above, if the price of cotton candy increases to $4, which of the
following would be the slope of the new budget line? (Assume still that cotton candy
is measured on the x axis.)
a. -1/2
b. -2/3
c. -3/4
d. -1
Econ 251
Fall 2009
Exam 2 Pink
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5. Tom spends all his income on pizzas and Pepsi. The price of a pizza is $8 and the
price of a can of Pepsi is $1. If he is maximizing his utility, then what must be true
about the marginal utility of the last pizza he consumes?
a. The marginal utility of the last pizza he consumes must be less than the marginal
utility of the last Pepsi consumed.
b. The marginal utility of the last pizza he consumes must be equal to 1/8.
c. The marginal utility of the last pizza he consumes must be 8 times greater than the
marginal utility of the last Pepsi he consumes.
d. The marginal utility of the last pizza he consumes must be equal to 8.
6. Shelby consumes alfalfa (A) and broccoli (B). Her budget line is defined by the
equation QB = 9 2/3 QA, where the quantity of alfalfa is measured on the x axis. If
she has $27 in income, what are the prices of alfalfa and broccoli?
a. Alfalfa costs $2, and broccoli costs $3.
b. Alfalfa costs $8, and broccoli costs $10.
c. Alfalfa costs $6, and broccoli costs $9.
d. Alfalfa costs $3, and broccoli costs $27.
7. Andrew likes to consume strawberries and ice cream cones. The price of strawberries
is $10 and price of ice cream cones is $5. The following table shows the combinations
of strawberries and ice-cream cones that Andrew can consume, given his $30 of
income. The table further shows the total utilities from consuming. What is the
marginal utility of the 2nd unit of strawberries to Andrew?
Quantity of
strawberries
(per pint)
0
1
2
3
4
5
a.
b.
c.
d.
Total utility
from
strawberries
0
70
135
195
250
300
Quantity of
ice cream
cones
0
2
4
6
8
10
Total utility
from ice
cream cones
0
80
140
180
200
210
0
60
65
70
8. Refer to the table in the question above. Assuming that Andrew always spends his
entire income on the available bundles, which of the following bundles maximizes
Andrews total utility?
a. 2 pints of strawberries, 2 ice cream cones
b. 3 pints of strawberries, 4 ice cream cones
c. 4 pints of strawberries, 2 ice cream cones
d. 1 pint of strawberries, 3 ice cream cones
Econ 251
Fall 2009
Exam 2 Pink
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9. Refer to the table in the same question above. At the consumer equilibrium, what is
the marginal utility per dollar spent on the last ice cream cone purchased?
a. 5
b. 6
c. 7
d. 8
10. If a company triples its plant size and its average cost increases, then the firm is
experiencing
a. diseconomies of scale.
b. decreasing marginal returns.
c. increasing marginal returns.
d. economies of scale.
11. If average total cost is below the price, which of the following is true?
a. average total cost is falling
b. marginal cost is falling
c. The firm is making economic profit
d. The firm is making economic loss
12. If the 4-firm concentration ratio is 65, that means that
a. There are only four firms in the industry
b. Each firm in the industry controls 65% of the market
c. Four firms in the industry produce 65 varieties of the product
d. The top four firms in the industry control 65% of the market
13. There are 5 firms in an industry, and each firm has 20% of the market. What is the
Herfindahl-Hirschman Index?
a. 2000
b. 1600
c. 1000
d. 100
14. Which of the following is characteristic for the short run?
a. Employment is fixed
b. A firm may exit the industry and avoid paying fixed costs
c. The quantity of at least one input is fixed
d. All change comes from variation of the plant size
15. In a perfectly competitive industry the demand curve faced by a single firm is
a. Perfectly inelastic
b. Perfectly elastic
c. Positively sloped
d. Negatively sloped
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Fall 2009
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16. If a firm is producing a positive level of output at its profit-maximizing quantity in
the short run, which of the following must be true?
a. ATC is minimized
b. MC=MR
c. AVC is minimized
d. MR=ATC
17. The table shows the total cost of producing monitors in Marions factory. The market
for monitors perfectly is competitive, and monitors currently sell for $175 each.
What are Marions fixed costs of production?
a. $200
b. $250
c. $40
Quantity
Total Cost
d. $20
(monitors per hour)
0
1
2
3
4
5
(Dollars)
200
250
350
500
700
950
18. What is the average variable cost of producing 4 monitors at Marions factory?
a. $1.50
b. $500
c. $200
d. $125
19. What is Marions profit-maximizing output?
a. 2 monitors an hour
b. 0 monitors an hour
c. 3 monitors an hour
d. 1 monitor an hour
20. When Marions factory increases the number of monitors it produces from 6 to7, its
marginal revenue is____.
a. $150
b. $175
c. $1050
d. $1225
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Fall 2009
Exam 2 Pink
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21. If the price falls to $100, Marions will maximize profit by producing _____ monitors
and will earn profit equal to ______.
a. 0; negative $300
b. 2; negative $150
c. 4; $300
d. 5; $750
22. In the long run for a perfectly competitive market, profit is
a. Positive
b. Negative
c. Zero
d. Either a or b
23. In the long run, some firms will exit the market if the price of the good is less than
a. marginal cost
b. average total cost
c. marginal revenue
d. average revenue
24. When marginal cost is above average total cost,
a. Average total cost is rising
b. Total cost is falling
c. Average total cost is falling
d. Average fixed cost is rising
25. A firm's average fixed cost is $10 at 6 units of output, and the average total cost at 10
units of output is $20. What are the fixed costs of production?
a. $200
b. $180
c. $120
d. $60
26. A firm's average fixed cost is $10 at 6 units of output, and the average total cost at 10
units of output is $20. What is the average variable cost at 10 units of output?
a. $10
b. $12
c. $14
d. $16
27. If the price falls below the AVC of production, a competitive firm will
a. Shut down
b. Increase production
c. Lower the price of output
d. Raise the price of output
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Fall 2009
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28. Which of the following is NOT a characteristic of a perfectly competitive market?
a. Firms can freely enter or exit the market
b. No firm has the exclusive right to produce the good
c. The goods offered are the same for consumers
d. All firms earn positive economic profit in the long run
29. For a perfectly competitive industry, if in the short run the equilibrium price is
$100/unit and each firm produces 1000 units of output with average total cost
$80/unit, then in the long run
a. Each firm earns $20,000 of profit
b. Each firm has a loss of $20,000
c. Each firm earns 0 profit and the number of firms increases
d. Each firm earns 0 profit and the number of firms decreases
30. At what point will a single-price monopoly firm maximize its profit?
a. Where the price is equal to marginal revenue
b. Where marginal cost equals average revenue
c. Where price is less than average total cost
d. Where marginal revenue equals marginal cost
31. A monopoly industry is allocatively inefficient because its production is not
a. Where marginal cost equals marginal revenue
b. Where marginal cost equals marginal benefit
c. Where firms profit is zero
d. Where production cost is minimized
32. If a monopolist is currently producing 30 units of output where total revenue is $120,
the marginal cost of production is $12, and profit is positive. What should the
monopolist do to maximize profit?
a. Nothing. The monopolist is already maximizing profit.
b. Increase output
c. Decrease output
d. Exit the market
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Fall 2009
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$
MC
24
22
18
10
D
MR
12
20
33. In the above figure, what is the quantity that a single-price monopolist will produce,
and how much will he charge per output?
a. Q=12, P=$10
b. Q=12, P=$18
c. Q=20, P=$18
d. Q=12, P=$22
34. When the monopoly in the figure above maximizes profit, what is consumer surplus?
a. $24
b. $12
c. $120
d. $60
35. When the monopoly in the same figure above maximizes profit, what is the
deadweight loss associated with the monopoly?
a. $16
b. $48
c. $96
d. $224
36. If, using the same figure, the monopoly can practice perfect price discrimination, the
firm will produce _______ units of output, and deadweight loss will be ___.
a. 12; $96
b. 12; $48
c. 20; $0
d. 20; $48
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Fall 2009
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37. If marginal revenue is negative for a monopoly,
a. Profit must also be negative
b. Demand must be inelastic
c. Price must be negative
d. All of the above
38. Let Ppc and Qpc represent equilibrium price and quantity in a perfectly competitive
market while Pm and Qm represent equilibrium price and quantity in a monopoly.
Which of the following is true?
a. Ppc > Pm and Qpc > Qm
b. Ppc < Pm and Qpc > Qm
c. Ppc > Pm and Qpc < Qm
d. Ppc < Pm and Qpc < Qm
39. A natural monopoly will earn zero profit if
a. It is regulated by a marginal cost pricing rule
b. It is regulated by an average cost pricing rule
c. It experiences economies of scale
d. It experiences diseconomies of scale
40. When a natural monopoly earns zero profit,
a. Deadweight loss is also $0.
b. The monopoly produces more than the efficient level of output.
c. Marginal cost is greater than the average cost.
d. None of the above.
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Fall 2009
Exam 2 Pink
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