Econ 101 - Practice Midterm 2.1

# Econ 101 - Practice Midterm 2.1 - Midterm 2 Morning Exam...

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Midterm 2 Morning Exam 11/14/06 Use the following graph to answer the next three questions. 1. What quantity does a profit-maximizing monopolist produce? a. Q1 b. Q2 c. Q3 d. Q4 2. What is the value of the monopoly mark-up relative to the price of the good if this market was characterized as a perfectly competitive market? (in other words, how much more than the perfect competition price does the monopolist charge for each unit consumed?) a. P3-P1 b. P2-P1 c. P3-P2 d. P4-P2 3. What is the deadweight loss due to this monopoly? a. (P3-P1)(Q3-Q1)/2 b. (P3-P2)(Q3-Q1)/2 c. (P3-P1)(Q4-Q1)/2 d. (P2-P1)(Q4-Q1)/2

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4. Suppose Masa’s income is \$100, the price of good Y is \$5 and the price of good X is \$12.5. Which of the following equations represents Masa’s budget line? (Assume that good X is on the horizontal axis.) a. 4x + 5y = 100 b. 5x + 2y = 40 c. 5x + 2y = 100 d. 4x + 5y = 40 5. Say that when a firm doubles all of its inputs, it triples the amount of output it produces. Then this firm a. Is experiencing increasing returns to scale. b. Is experiencing diminishing returns to scale. c. Is experiencing constant returns to scale. d. Is experiencing diseconomies of scale. 6. The market for a medicine is perfectly competitive. Suppose the ATC curve is minimized at \$10. Marginal cost for the firm is given by the equation MC=(1/2)*Q. Market demand for this medicine is perfectly inelastic at 100. How many firms will be in this market in the long run? a. 1 firm b. 5 firms c. 10 firms d. 20 firms 2
7. The substitution effect resulting from a change in the price of good X is equal to the __________ that can be attributed exclusively to the resulting change in relative prices. a. change in the quantity of substitute good Y demanded. b. change in the demand curve for good X. c. change in the quantity of good X demanded. d. change in the price of substitute good Y. 8. Suppose Sonny loves ham sandwiches as long as they are made with exactly one slice of ham and two slices of bread. Suppose that the price of one slice of ham is \$2 and the price of a slice of bread is \$1. If Sonny has exactly \$20 to spend on bread and ham, how much money should he spend on bread to maximize his consumption of sandwiches? a. \$5 b. \$10 c. \$20 d. \$15 9. Which of the following statements is true ? a. The short run is the period of time over which only two resources are variable. b. The long run is the period of time over which only one resource is fixed. c. The long run profit is always greater than the short run profit. d. The short run is the period of time over which at least one resource is held fixed. 10. Which of the follow is NOT a limitation of the CPI as a measure of inflation? a. The CPI uses an unchanging market basket of goods. b.

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Econ 101 - Practice Midterm 2.1 - Midterm 2 Morning Exam...

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