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AGB212 f07 test2

AGB212 f07 test2 - AGB 212 Agricultural Economic Analysis...

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Unformatted text preview: AGB 212 Agricultural Economic Analysis - 3— Test #2 Name fig DIRECTIONS: You have 50 minutes to complete this test. Work quickly but thoroughly. Be sure to read each question carefully to ensure you answer it correctly. Ask Wayne if something isn’t clear. Good luck. True or False. If the statement is mostly true mark A on your scantron and mark B if the statement is mostly false. 2 points each. ,1., ~ The price of a product and marginal revenue are identical under conditions of " perfect competition. T or F? 2. The production possibilities frontier represents the technically efficient combination of two products a firm can produce in the current period given its existing resources and technology. T or F? 3. Excess supply gives the market signals to raise price to clear the market. T or F? 4. Supply is always more elastic in the long run. T or F? 5. Total revenue increases as you move down an iso-revenue line. T or F? 6. The tangency between an isoquant and an iso-cost line indicates the least-cost combination of inputs required to produce a given level of output. T or F? 7. “Economies of size” refers to the increasing costs firms incur as they increase their level of output. T or F? 8. Prices and quantities will converge towards equilibrium in a cobweb model of adjustment as long as supply is more elastic than demand. T or F? 9. In a long-run competitive market, prices will tend towards firms’ minimum average cost. T or F? 10. Consumer surplus and producer surplus decrease as new technology increases supply. T or F? Multiple Choice. Choose the correct answer. 4 points each 1. What conditions must exist for a market to be perfectly competitive? a. All firms producing a homogeneous product. b. Lots of producers. c. Lots of buyers. d. Free entry and exit. e. All of the above. 2. At market equilibrium price a. Firms produce a quantity that consumers are willing and able to buy at that price. b. Consumers are willing to buy more of the good at a higher price. c. The market has signals to lower the price. d. All firms are making economic rents. Equipm - nt Labor r? Figure 1. Graphical representation of labor and equipment need to 10 (110) and 20 (120) pallets of packed oranges per hour. 3. Given the iso-cost line DE, the firm depicted in Figure 1 can minimize costs by packing a. 10 pallets of packed oranges using 1 unit of equipment and 5 units of labor. b. 10 pallets of packed oranges using 2 units of equipment and 8 units of labor. c. 20 pallets of packed oranges using 1 unit of equipment and 5 units of labor. (1. 20 pallets of packed oranges using 2 units of equipment and 8 units of labor. e. Not enough information to say. 4. Points A and B represent a. Least cost combinations of equipment and labor for different amounts of pallets packed. b. Two points of the expansion path for the firm depicted in Figure 1. c. Combinations of equipment and labor required to pack 10 and 20 pallets of packed oranges. d. All of the above. e. None of the above. 5. Moving from isoquant 110 to isoquant 120 indicates an increase in output, which requires a 100% increase in equipment but only a 60% increase in labor. The reason the increase in labor is less than the increase in equipment is because a. b. c. (1. Equipment and labor have different marginal physical products over that range of production. Labor and equipment are perfect substitutes. Labor and equipment have fixed rates of substitution. Not enough information to say. You are setting up a packing line for your company. Table 1 reports the trade off between labor and capital; i.e., you can lease more equipment and use less labor, or use more labor and lease less equipment. Finish the table to answer the following questions. Table 1. Combinations of equipment and labor needed to pack 400 cases per hour. _-__ _n—.r _——-u-zs a. .ao 5-30 m w H: (6} If labor costs $14/hour and equipment costs $5 .60/hour, what is the least cost combination of labor and equipment to use? a. b. c. Combination #2 Combination #4 Combination #6 d. Not enough information to say. 7. If labor prices started to rise, at which point would you decide to use more equipment and less labor? (i.e., the lowest labor price at which you would change from the combination identified in the previous question?) a. $16.00 ‘ b. $17.50 c) c. $19.00 q‘ ‘49” cl. $20.00 («a e. not enough information to say. \ng _ fa ‘ O Merlot . (03“ Cabernet Figure 2. Production possibilities for Merlot and Cabernet grapes at Hannah’s Happy Vines. Merlot Cabernet MRT + “E- Table 2. Production possibilities for Merlot and Cabernet grapes at Hannah’s Happy Vines. \- J /- Figure 2 represents a. the least cost combination of merlot and cabemet grapes to produce a blended red wine. b. The optimum combination of merlot and cabemet grapes to offer on a wine list at a restaurant. c. The combination of merlot and cabemet grapes that Hannah’s Happy Vines can produce to maximize their revenue. d. Not enough information to say. If Hannah can get contract prices of $850/ton for merlot and $770/ton for cabemet, what mix of grapes should she grow to maximize her revenue? a. 130 merlot and 50 cabemet. b. 110 merlot and 90 cabemet. c. 80 merlot and 130 cabemet. d. 0 merlot and 180 cabemet. e.. Not enough information to say. m A firm’s supply curve corresponds to a. the average total cost curve. b. The marginal cost curve above the minimum variable cost curve. c. The average variable cost curve. d. The marginal cost curve. 10. Given an increase in supply a. Quantity demanded will decrease. b. Demand will increase. . c. Quantity supply will decrease. (1. Quantity demanded will increase. £111) The Marginal Rate of Substitution is ‘___,/ A . Used to determine the least-cost combination of inputs when set equal to the price ratio of the inputs. ‘b The slope of the isoquant curve. a . Equal to the ratio of the marginal physical products of the inputs. 0 . All of the above. 1/ . None of the above. Figure 3. Market for kumquats. Prices in dollars per box and quantities in 1000 boxes. 13. In Figure 3 above, the total welfare for the kumquat market is: a. 15 b. 25 c. 40 d. 50 e. 100 If the supply of kumquats were to increase, most likely a. the increase in consumer surplus would be greater than the increase in producer surplus. b. The increase in consumer surplus would be greater than the decrease in producer surplus. c. Consumer and producer surplus would decrease by about the same amount. d. We can’t say anything without more information. Thompson seedless grape prices decreased from $500/ton to $250/ton, which resulted in grape growers decreasing the quantity they supplied from 500,000 tons to 400,000 tons. The elasticity of supply over that range of prices is a. 0.11 b. 0.33 c. ' 0.66 d. 1.11 e. can’t be determined from the available information /fit\ 15} Which of the following would you expect to have the most inelastic supply? a. lettuce. b. Chicken c. Pork d. Beef Short Answer (points as indicated) 1. On the graph provided, clearly indicate equilibrium price and quantity. Show what happens to price and quantity given an increase in demand. (4) \/ 2. Give two reasons why demand for a good or service might increase (2) OW £0? (1.03m or SuvitQ. finial/0" human. dam. in 6332.03QPOJ‘HN3) «Cw moon/\VKL L450) and more \mbor nglrfl mix/2.5+ mam 0" more. 30$ dNYiwj VQMOH geaW\.Or CD DOC *0 CL pvicg, 6J0? in W Cgocd‘ OY WWW- ‘QW “mom, “4' M QYVUL. Oi“ b32529 always ‘Lwl\\ Of) Mr? W)? ‘Qoflba 3. Using the graph below, explain why agricultural prices are so volatile. Be sure to label your graph. (6) vo\OL.:HK9. (“9.ij 1 Wk Ono-Hw mechum Q? q 3° 3 “A“ 1-1: 4. Why are perfectly competitive markets considered efficient? Be very specific. (8) . . _ RDZXQILOHS compah’n've. (warms OJ/a constcmred QQQQW Wm. We, GYQQdOm 1m 2 . he! % UH”, \o’rs <39 PYOWS' and \m 0p bugUS. W39, (5? W3 prociucoxs can 32’” ~ . moun‘r" of, onduqu' fiflwfl ch carom / flare. is o. \o-\' a? ”UW3/flm buy onoi' $9ch m+ mm Pr ””6 exam bananas; ' ' ' “ma; Sold W2- wk“ v b2. no lwld u? who Lou/vii uQ. wooing. .3 ‘f-\./ K ...
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