Practice MT2_F12_(actual Fall-11)

Practice MT2_F12_(actual Fall-11) - MICRO Midterm 2 Econ...

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MICRO Midterm 2 Econ 1011 F11 MICRO Midterm 2 Econ 1011(01 & 02), Fall 2011 Instructor: Dr. Sudeshna C. Bandyopadhyay Date: 11/14/11 Time: 1½ hours Last Name: _____________________________ First Name: ___________________________ Student I.D. Number: _____________________ ECON 1011 Section Number: ____________ Section A: Multiple Choice, 30 Questions. For each question, fill in the appropriate bubble on your Scantron sheet. Each question is worth 1.9 points. Total Section A points = 57% (2% extra credit) John owns and manages a café in Collegetown whose annual total revenue is $5,000. John could also earn $1,000 per year as a recycler of aluminum cans. Annual expenses are as follows: Hired Labor $2,000 Food and Drink $500 Electricity $100 Vehicle lease $150 Rent $500 Interest on $10,000 loan at 10% annual interest (loan taken to finance machine purchase) $1,000 The next three questions are based on the chart above. 1. What is John’s annual accounting profit? A. + $5,000 B. - $4,250 C. - $5,000 D. + $750 E. + $250 2. It turns out that John prefers to run the café. In fact John would be willing to pay up to $275 per year to be able to run the café rather than recycle. What is John’s annual economic profit? 3. Suppose John did not have to take a loan to purchase the machine that he uses in the café. He used his past savings to buy the machine for the café. Interest rates on savings and loans are still 10%. How will this information change your answers to Questions 1 and 2 above? 4. You have the opportunity to buy an apple orchard that produces $25,000 per year in total revenue. To run the orchard you have to give up your current job which pays $10,000 per year. If you find both jobs equally satisfying, and the annual 1
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MICRO Midterm 2 Econ 1011 F11 interest rate is 4%, what is the highest price you would be willing to pay for the orchard? 5. The statement "If a deal is too good to be true, it probably is not true" is most closely related to which principle? A. The low-hanging fruit principle B. The no-cash-on-the-table principle C. The cost-benefit principle D. The diminishing marginal returns principle E. The smart for one dumb for all principle.
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