summer 06 midterm 2

summer 06 midterm 2 - Professor: M. Rush ECO 2023 SUMMER...

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Unformatted text preview: Professor: M. Rush ECO 2023 SUMMER 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 SUMMER 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. 2 ECO 2023 MIDTERM 2 SUMMER 2006 1) Which of the following forms of business organization generally or always have unlimited liability? i. Proprietorship ii. Partnership iii. Corporation A) i only. B) ii only. C) iii only. D) i and ii E) ii and iii. 2) In the long run in a perfectly competitive industry, firms (HINT: Draw the appropriate diagram.) A) produce less output than the amount that minimizes average total cost. B) produce so that MR is larger than P. C) can earn a large economic profit. D) produce a level of output such that MC = P. E) None of the above answers are correct. 3) In the short run, it ____ possible for a perfectly competitive firm to earn an economic profit and in the long run, it ____ possible for a perfectly competitive firm to earn an economic profit. A) is; is B) is; is not C) is not; is D) is not; is not 4) A firm's average variable cost is $10, its total fixed cost is $3,000, and its output is 500 units. Its total cost is A) less than $20. B) between $21 and $2,999. C) between $3,000 and $3,011. D) between $3,012 and $3,501. E) more than $3,502. 3 ECO 2023 MIDTERM 2 SUMMER 2006 5) A firm in what type of industry is necessarily characterized by the following conditions? P equals the minimum ATC, and P = MC. A) Monopoly in the long run. B) Monopoly in the short run. C) Monopolistic competition in the long run. D) Perfect competition in the long run. 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 0 2 7 10 0 20 40 60 30 50 70 90 6) In the above table, the average fixed cost at 10 units of output is A) $0. B) $3. C) $6. D) $9. E) None of the above answers are correct. 7) In the above table, when output increases from 2 to 7 units, the marginal cost of one of those 5 units is A) $25. B) $70. C) $10. D) $4. E) None of the above answers are correct. 4 ECO 2023 MIDTERM 2 SUMMER 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: $100 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? A) If Disney chooses a Thanksgiving release, Fox should choose a Thanksgiving 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) Suppose the marginal cost for a monopolistically competitive firm increases so that its marginal cost curve shifts upward. As a result, the firm ____ its price and ____ its output. A) raises; increases B) does not change; decreases C) lowers; decreases D) does not change; increases E) raises; decreases 10) Entry and exit continue in monopolistic competition until the remaining firms are A) earning economic profits. B) incurring economic losses. C) earning less than normal profits. D) earning zero economic profits, that is, earning a normal profit. 5 ECO 2023 MIDTERM 2 SUMMER 2006 11) A singleprice monopoly can sell 2 units for $8.50 per unit. In order to sell 3 units, the price must be $8.00 per unit. The marginal revenue from selling the third unit is A) $24.00. B) $8.50. C) $8.00. D) $7.00. E) $6.50 Price and cost (dollars per hamburger) 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 10 MC MR D 20 30 40 50 Quantity (hamburgers per hour) 12) The Busy Bee Caf is a monopolist selling hamburgers in Miconopy. The above figure represents the demand, marginal revenue, and marginal cost curves for this establishment. In order to maximize profit, the Busy Bee should produce ____ hamburgers per hour and set a price of ____ per hamburger. A) 20; $3.00 B) 20; $1.00 C) 30; $2.00 D) 30; $4.00 E) None of the above answers are correct 13) If it does not shut down, a perfectly competitive firm produces where marginal cost is equal to the marginal revenue A) only in the short run. B) only in the long run. C) always to maximize its profit. D) only if it is not possible to produce where price equals average variable cost. E) only if it is not possible to produce where marginal cost equals average total cost. 6 ECO 2023 MIDTERM 2 SUMMER 2006 14) (An outofthe book question from Chapter 12.) With perfect price discrimination, a monopolist can charge the ____ price each customer is willing to pay and thereby obtain the entire ____ surplus. A) maximum; consumer B) minimum; producer C) maximum; producer D) minimum; consumer 15) If a natural monopoly is regulated, then A) a marginal cost pricing rule leads the firm to produce less output than if it were unregulated. B) an average cost pricing rule means the firm will produce more output than it would if it faced a marginal cost pricing rule. C) a marginal cost pricing rule maximizes the profit for the firm. D) an average cost pricing rule, while producing less output than a marginal cost pricing rule, allows the firm to earn a normal profit. 16) A cartel is a collusive agreement among a number of firms that is designed to A) expand output and lower prices. B) restrict output and lower prices to a predatory level. C) restrict output and raise prices. D) expand output and raise prices. 17) Dr. Khan starts his own dental practice after quitting his $150,000 job at The Mall Dental Clinic. His revenues for the first year are $500,000. He paid $90,000 in rent for the dental office, $60,000 for his office manager's salary, $24,000 for the dental hygienist, $150,000 for insurance, and $6,000 for other miscellaneous costs. The normal profit from running his business is $20,000. i. His explicit costs are $330,000. ii. His implicit costs are $170,000. iii. His economic profit is zero. A) i only. B) ii only. C) iii only. D) ii and iii. E) i, ii, and iii. 7 ECO 2023 MIDTERM 2 SUMMER 2006 18) Tying arrangements are A) illegal if they substantially lessen competition. B) used by regulators to force a monopoly to produce an efficient amount of production. C) used by regulators to force a monopoly to charge an efficient price. D) illegal according to the Sherman Act. E) always illegal. 19) If two duopolists can stick to a cartel agreement, then both A) earn greater profits than if they did not collude. B) price at marginal cost. C) price below average total cost. D) decrease their economic profits. Revenue and cost (dollars per unit) MC 25 20 15 10 5 ATC 0 10 20 30 40 50 Output (thousands of units per year) 20) The above figure shows a perfectly competitive firm. If the market price is $10, the firm A) is incurring an economic loss. B) is earning an economic profit. C) is earning a normal profit. D) will immediately shut down. 21) A perfectly competitive firm can A) sell all of its output at the prevailing market price. B) sell at a higher price to customers willing to pay more. C) raise its price in order to increase its total revenue. D) None of the above answers is correct. 8 ECO 2023 MIDTERM 2 SUMMER 2006 Price and cost (dollars per unit) a S=MC P1 P2 P3 e MR D 0 Q1 Q2 Q3 Quantity (units per hour) b c d 22) In the above figure, if the market is perfectly competitive the price will be ____ and if the market is a singleprice monopoly the price ____. A) P1 and the quantity will be Q1; P2 and the quantity will be Q2 B) P2 and the quantity will be Q2; P2 and the quantity will be Q1 C) P3 and the quantity will be Q3; P1 and the quantity will be Q1 D) P2 and the quantity will be Q2; P3 and the quantity will be Q1 E) P2 and the quantity will be Q2; P1 and the quantity will be Q1 23) When firms enter a perfectly competitive industry in which firms are earning an economic profit, the industry supply curve shifts ____, the market price ____, and each firm's economic profit ____. A) leftward; rises; increases B) rightward; rises; increases C) rightward; rises; shrinks D) leftward; falls; shrinks E) rightward; falls; shrinks 24) Cafe Director is a (sleazy) bar featuring tasteless entertainment in a small local town. If the bar maximizes its profit and earns an economic profit in the long run, then for this bar A) MR = MC, P > ATC B) MR > MC, P > ATC C) MR = MC, P = ATC D) MR > MC, P = ATC E) MR = MC, P < ATC 9 ECO 2023 MIDTERM 2 SUMMER 2006 25) Sarah's Garage Cleaning is a perfectly competitive firm that currently cleans 50 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. Price and cost (dollars per client) 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0 2 4 MC ATC MR D 6 8 10 Quantity (clients per day) 26) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. Kevin will train how many clients per day? A) 2 B) 4 C) 6 D) 8 E) 10 27) Kevin owns a personal training gymnasium in Orlando. The above figure shows the demand and cost curves for his firm, which competes in a monopolistically competitive market. What price will Kevin charge per session? A) $100 B) $60 C) between $41 and $59 D) $40 E) $20 10 ECO 2023 MIDTERM 2 SUMMER 2006 28) A disadvantage of the corporation relative to other forms of business organization is i. its limited liability ii. the tax laws affecting its income iii. the number of options it has for raising funds A) i only. B) ii only. C) iii only. D) i and ii. E) ii and iii. Walmart Sears Don't lower Lower prices prices S: $1 million W: $8 million S: $8 million W: $9 million Lower S: $5 million prices W: $11 million Don't S: $10 million lower W: $9 million prices 29) Sears and Walmart must decide whether to lower their prices, based on the potential economic profits shown in the table above. (The "S" in the table refers to Sear's profits and the "W" refers to Walmart's profits.) 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. 30) In the long run, a firm that incurs an economic loss will remain open and not close down in A) a perfectly competitive industry. B) a monopolistic competitive industry. C) a monopoly industry. D) an oligopoly industry E) None of the above; that is, in the long run, any firm that incurs an economic loss will close down. 11 ECO 2023 MIDTERM 2 SUMMER 2006 31) A perfectly competitive wheat farmer initially is in longrun equilibrium. The price of wheat rises. In the short run, the wheat farmer ____. A) earns an economic profit. B) earns only a normal profit. C) incurs an economic loss. D) earns either an economic profit or a normal profit, depending on the number of its competitors. 32) In a perfectly competitive industry, after a permanent increase in demand the increase in the equilibrium level of the industry's output is larger in the _____ run. A) short B) long C) Both of above because the increase in output is the same in both the short run and long run. D) None of the above because there is no change in output in either the short run or long run. 33) Jay set up his hot dog stand near the business district. His total variable cost includes the A) annual insurance for the hot dog stand. B) cost of buying the hot dog stand. C) cost of the hot dogs and condiments. D) interest he pays on the funds he borrowed to pay for advertising. E) All of the above are part of Jay's total variable cost. 34) Compared to a perfectly competitive industry, a singleprice monopoly ____ consumer surplus, ____ economic profit, and ____ the deadweight loss. A) increases; increases; increases B) decreases; decreases; increases C) decreases; decreases; decreases D) decreases; increases; increases E) increases; decreases; increases 35) After the scores are posted, if you have a question about your test score, email the grader at ECO2023.Grader@cba.ufl.edu and the director is so stupid (HINT: Be SURE to answer this question because you'll get credit for any answer.) A) he sits on the TV and watches the couch. B) threw a bird off a cliff to kill it. C) it takes him an hour to cook a three minute egg. 12 ...
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