Unformatted text preview: Professor: M. Rush
ECO 2023 SPRING 2006 MIDTERM 2 Read all instructions on this page
On the bubble sheet, please enter: 1. Your name and initials 2. Your UF ID number 3. Special Code: 21 4. Test code: A 5. Sign your name on the back of the bubble sheet. This test is governed by UF's academic honesty code. It is intended to have 35 multiple choice questions. Please check to be sure your copy has all 35. There is an extra credit question on the last page. The next is important: Unless you are specifically told otherwise, on this test do not assume that demand or supply is either perfectly elastic or perfectly inelastic. Do not ask questions of me or the TA's; in the interest of fairness I have instructed them not to answer any questions during the exam. I have become increasingly concerned that some students are at a real disadvantage because they are unwilling to ask questions during the exam while others ask a lot of questions. Hence, to level the playing field, I have decided to eliminate all questions during the test. I don't like this policy, but it seems the fairest policy. TURN OFF ALL CELL PHONES AND OTHER COMMUNICATION DEVICES
You will have one hour (60 minutes) to complete the exam and bubble in all your answers. This time includes completing the extra credit question if you choose to answer it. When the TAs say that time is up, you must hand in your exam. We will not give extra time to finish bubbling in the answers, so be sure you are done when the 60 minutes are up. Of course, you may hand in your test at any time before the 60 minutes are up. An answer key will be posted on the Web later this evening. The test scores will be on the Web within a few days. Check that the test code, special code, and UF ID number you bubbledin are correct now. Also check to be sure your name is correct--do it now. As I said on the last exam, I heard rumors that the ability to correctly record the test code has been mastered by a few students at FSU. I am still checking this out. But in the meanwhile a friend told me that accounting majors have been known to be able to record this letter, often correctly. Plus, I have heard of one journalism major who could get the special code right at least 30% of the time! While I doubt this last rumor, because the special code involves numbers which means it is close to being math, nonetheless I think that the skill of correctly bubbling in the test code and special is not too difficult to acquire. ECO 2023 MIDTERM 2 SPRING 2006 CHECK YOUR TEST CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE WRONG, YOU TEST MIGHT NOT BE GRADED OR YOU WILL LOSE 5 POINTS! After the scores are posted, if you think your posted score is incorrect, email the grader at the email address on the syllabus. You have one week after the curved score is posted to request a grade check. After a week, the score will not be changed. If the web reports what you bubbled in for each question and you ask the grader to check an answer because you believe you bubbled in something other that what is reported and the reported answer on the web is correct, you will lose 1 additional question. EXTRA CREDIT QUESTION INSTRUCTIONS There is an extra credit question on the last page. You can earn up to 5 points added to your final exam test score. If you choose to answer the extra credit question, be sure to follow all the instructions on the page with the extra credit question and provide all the required information. DO IT LEGIBLY IF WE CANNOT READ YOUR NAME AND/OR UF ID, YOU WILL NOT GET ANY EXTRA CREDIT! When you hand in your test, you must hand in the extra credit page. You may copy your answer to the extra credit question in the space below. I will announce in class when the extra credit questions are graded and will post the grades on the class page but it will take several weeks. Do not email me, the grader, or the email address for questions about when the extra credit will graded. I will announce this in class. THERE IS NO APPEAL ABOUT THE GRADE--IT IS WHAT IT IS. 2 ECO 2023 MIDTERM 2 SPRING 2006 1) Which of the following forms of business organization have limited liability? i. Proprietorship ii. Partnership iii. Corporation A) i only. B) ii only. C) iii only. D) i and ii E) ii and iii. Labor Total product (workers) (units per hour) 0 1 2 3 4 5 0 8 20 33 40 44 2) In the table above, what is marginal product of labor of the 2nd worker? A) 20 B) 8 C) 10 D) 12 E) None of the above answers are correct. 3) In the long run, it ____ possible for a monopoly to earn an economic profit and in the long run, it ____ possible for a firm in monopolistic competition to earn an economic profit. A) is; is B) is; is not C) is not; is D) is not; is not 4) One difference between oligopoly and monopolistic competition is that A) a monopolistically competitive industry has fewer firms. B) in monopolistic competition, the products are identical. C) monopolistic competition has barriers to entry. D) fewer firms compete in oligopoly than in monopolistic competition. 3 ECO 2023 MIDTERM 2 SPRING 2006 5) For a monopoly, the industry demand curve is the firm's A) supply curve. B) marginal revenue curve. C) demand curve. D) profit function. E) None of the above answers are correct. Cost schedule Output Total Labor (units per variable cost Total cost (workers) day) (dollars) (dollars) 0 1 2 3 4 5 0 3 8 12 14 15 0 20 40 60 80 100 30 50 70 90 110 130 6) In the above table, the total fixed cost at 3 units of output is A) $0. B) $30. C) $60. D) $90. E) None of the above answers are correct. 7) In the above table, when output increases from 8 to 12 units, the marginal cost of one of those 4 units is A) $1.20. B) $2.00. C) $5.00. D) $15.00. E) None of the above answers are correct. 4 ECO 2023 MIDTERM 2 SPRING 2006 Fox Disney Thanksgiving Christmas release release Thanksgiving D: $100 D: $105 release F: $80 F: $95 Christmas D: $110 D: $95 release F: $100 F: $85 8) Disney and Fox must decide when to release their next films. The profits earned by each studio depends on when the other studio releases its film. Each studio can release its film at Thanksgiving or at Christmas. The profits received by each studio, in millions of dollars, are depicted in the payoff matrix above. To maximize its profit, which of the following statements correctly describes Fox's strategy given what Disney's release choice may be? A) If Disney chooses a Thanksgiving release, Fox should choose a Christmas release. B) If Disney chooses a Christmas release, Fox should choose a Thanksgiving release. C) Fox should release on Christmas regardless of what Disney does. D) Both answers A and B are correct. E) None of the above answers are correct. 9) For a monopolistically competitive firm, the marginal revenue from a unit of output ____ the price for this unit of output. A) greater than B) equal to C) less than D) sometimes greater than, sometimes less than, and sometimes equal to 10) A titfortat strategy can be used in A) a singleplay game or a repeated game. B) a singleplay game but not a repeated game. C) a repeated game but not a singleplay game. D) neither a repeated game nor a singleplay game. 5 ECO 2023 MIDTERM 2 SPRING 2006 11) Which of the following statements is true for a perfectly competitive industry and a singleprice monopoly with the same costs? A) A perfectly competitive industry produces more output and charges a lower price than a singleprice monopoly. B) A perfectly competitive industry produces more output and charges the same price as a singleprice monopoly. C) A perfectly competitive industry produces less output and charges a lower price than a singleprice monopoly. D) A perfectly competitive industry produces less output and charges the same price as a singleprice monopoly. 12) In perfect competition, barriers to entry into an industry A) apply to both capital and labor. B) apply to labor but not to capital. C) exist in the long run but not the short run. D) do not exist. 13) The donut market is perfectly competitive. The figure shows the costs of a typical donut producer. The donut producer's supply curve is the curve running from point ____ to point E. A) A B) B C) C D) D 6 ECO 2023 MIDTERM 2 SPRING 2006 14) The figure above shows the cost, marginal revenue, and demand curves of Golden Chow, a producer of dog food. The market for dog food is monopolistic competition. In the short run, Golden Chow sells 400 cans of dog food per day and makes ____. Other firms have ____ incentive to enter the industry. A) an economic profit of $200 a day; an B) an economic profit of $400 a day; an C) normal profit of $200 a day; no D) an economic profit of $400 a day; no 15) Because of a decrease in the wage rate it must pay, a perfectly competitive firm's marginal costs decrease but its demand curve stays the same. As a result, the firm A) decreases the amount of output it produces and raises its price. B) increases the amount of output it produces and lowers it price. C) increases the amount of output it produces and does not change its price. D) decreases the amount of output it produces and lowers its price. 16) An indifference curve is a line that shows combinations of goods among which a consumer A) needs equally. B) does not care which combination he or she receives. C) can afford. D) has readily available. 7 ECO 2023 MIDTERM 2 SPRING 2006 17) Intel increases its dividend and its stock price does not change. As a result, Intel's PE ratio ____ and Intel's dividend yield ____. A) rises; rises B) rises; does not change C) does not change; rises D) falls; falls E) does not change; does not change 18) Firms that can price discriminate between customers do so to ____. A) increase consumer surplus B) increase employment C) increase their profit D) decrease the quantity they produce 19) A firm's total cost is $600, its average fixed cost is $30, and its output is 10 units. Its average variable cost is A) less than $10. B) between $10.01 and $20. C) between $20.01 and $40. D) more than $40.01. 20) Consider the monopolist depicted in the figure above. The profit maximizing amount of output for a singleprice monopolist is A) 7. B) 10. C) 13. D) 20. 8 ECO 2023 MIDTERM 2 SPRING 2006 21) If the above figure illustrated a perfectly competitive industry, the equilibrium industry output would be equal to A) 7. B) 10. C) 13. D) 20. 22) In the above figure, if a singleprice monopolist maximized its profit, the deadweight loss in the market is equal to the area A) ace. B) acg. C) ecg. D) bch. 23) When firms exit a perfectly competitive industry in which firms are incurring an economic loss, the industry supply curve shifts ____, the market price ____, and each firm's economic loss ____. leftward; rises; increases rightward; rises; increases rightward; falls; shrinks leftward; falls; shrinks leftward; rises; shrinks A) B) C) D) E) 24) (This is an outofthebook question.) A firm pays $10,000 for insurance each month. This cost is an example of an i. opportunity cost. ii. implicit cost. iii. explicit cost. A) i only. B) ii only. C) iii only. D) i and iii. E) i, ii, and iii. 25) If the ATC curve has a positive slope, then the MC curve must be A) horizontal. B) vertical. C) above the ATC curve. D) below the ATC curve. E) More information is needed to answer the question. 9 ECO 2023 MIDTERM 2 SPRING 2006 26) Sarah's Garage Cleaning is a monopoly that currently cleans 40 garages a week. Sarah's marginal cost is $40, her price is $40, and her average total cost is $40. Sarah is A) maximizing her profit and is earning an economic profit. B) not maximizing her profit but is earning an economic profit anyway. C) maximizing her profit and is earning a normal profit. D) not maximizing her profit and is incurring an economic loss. E) not maximizing her profit but is earning a normal profit anyway. 27) A price discriminating monopolist charges lower prices to customers with A) lower supply elasticities. B) higher supply elasticities. C) lower average willingnesstopay. D) higher average willingnesstopay. 28) In a prisoners' dilemma duopoly, the total economic profit of both firms is largest if both firms comply with the collusive cartel agreement. However, the deadweight loss imposed on society is smaller if both firms cheat on the collusive cartel agreement. A) Both sentences are correct. B) Only the first sentence is correct. C) Only the second sentence is correct. D) Neither sentence is correct. 29) Tammy sells woolen hats in a perfectly competitive market. The marginal cost of producing 1 hat is $24. The marginal cost of producing a second hat is $26 and the marginal cost of producing a third hat is $28. The market price of a hat is $26. To maximize profit, Tammy produces ____ a day. A) 1 hat B) 3 hats C) 2 hats D) as many hats as possible E) To answer the question more information is needed about the marginal revenue of a hat. 10 ECO 2023 MIDTERM 2 SPRING 2006 Walmart Lower prices Sears Don't lower Lower prices prices S: $5 million W: $5 million S: $1 million W: $8 million S: $8 million W: $9 million Don't S: $10 million lower W: $9 million prices 30) Sears and WalMart must decide whether to lower their prices, based on the potential economic profits shown in the table above. Who has a dominant strategy? A) Walmart has a dominant strategy but Sears does not. B) Sears has a dominant strategy but Walmart does not. C) Both Walmart and Sears have dominant strategies. D) Neither Walmart nor Sears has a dominant strategy. 31) Any point above a given budget line is definitely i. inferior to any point on the budget line. ii. preferred to any point on the budget line. iii. affordable. iv. unaffordable. A. i only. ii only. B. C. iii only. D. iv only. E. both ii and iv. 32) The demand for a product produced in a perfectly competitive market permanently increases. In the short run the price A) rises and each firm produces less output. B) rises and each firm produces more output. C) does not change as new firms enter the industry. D) does not change because each firm produces more output. 11 ECO 2023 MIDTERM 2 SPRING 2006 33) For the unregulated, singleprice monopoly shown in the figure above, when its profit is maximized, output will be A) 4 units and the price will be $6. B) 4 units and the price will be $4. C) 6 units and the price will be $4. D) 4 units and the price will be $2. E) None of the above answers is correct. 34) The unregulated, singleprice monopoly shown in the figure above has a total cost of A) $24. B) $16. C) $8. D) $4. E) None of the above answers are correct. 35) After the scores are posted, if you have a question about your test score, email the grader at [email protected] and the director is so stupid (HINT: Be SURE to answer this question because you'll get credit for any answer.) A) his brain was donated to science and science rejected it. B) climbed over a chain link fence so he could see what was on the other side. C) broke his leg raking leaves when he fell out of the tree. D) he tried to drown a fish. 12 ECO 2023 MIDTERM 2 SPRING 2006 EXTRA CREDIT QUESTION _____________________________ (Name) PRINT your name and UF ID in the spaces above. YOU MUST WRITE ___________________________ (UF ID) YOUR NAME AND UF ID LEGIBLY TO RECEIVE CREDIT FOR THIS QUESTION. When you have answered the question, hand in this page and ONLY THIS PAGE. Keep the rest of the test to help you study for the final exam. 1. Draw a diagram illustrating a perfectly competitive firm that is incurring an economic loss but still stays open. LEGIBILY label the axes and all curves. Label the quantity the firm produces and the price the firm sets. Indicate the amount of the economic loss by shading the appropriate area or line. 13 ...
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