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Econ 101 - Practice Midterm 2.7 Spring

# Econ 101 - Practice Midterm 2.7 Spring - Second Midterm...

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Second Midterm 04.06.2006 Prof. Kelly Econ 101 Use the following information to answer the next question. Suppose that a firm uses wood in the production of wooden chairs. The details about the technology are displayed in the table below. Inputs Wood (pieces) 4 8 12 Outputs Chairs 1 2 4 1. According to the information given above, in the range of production between 1 and 2 chairs, the technology displays a. Increasing returns to scale. b. Decreasing returns to scale. c. Constant returns to scale. d. Economies of scale. 2. Average total cost equals average variable cost when: a. The marginal cost is zero. b. Marginal cost equals average variable cost. c. Marginal cost equals average total cost. d. Fixed costs are zero. 3. Which of the following must be always true as the quantity of output increases? a. Marginal cost must rise. b. Average total cost must rise. c. Average variable cost must rise. d. Average fixed cost must fall. 1

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Use the following information to answer the next three questions. In the perfectly competitive market for cellular telephones, the demand is given by the following equation: Pd = 80 – 3*Q d , and the marginal cost curve for each identical firm is given by: MC = Q s + 4, and the long-run equilibrium price in the market is \$8. 4. What quantity of output will each firm produce in the long-run equilibrium? a. 2 units b. 4 units c. 6 units d. 8 units 5. How many firms will be in the market in the long-run equilibrium? a. 1 firm b. 2 firms c. 4 firms d. 6 firms 6. Suppose that in the short-run the price in the market is \$6. Which of the following is true? a. Firms will make zero economic profit in the short-run. b. There will be exit of firms in the long-run. c. Firms will make negative profits in the long-run. d. There will be entry of firms in the short-run. 2
Use the following graph to answer the next two questions. 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 1 2 3 4 5 6 7 8 9 10 11 12 Quantity Price/Cost MC ATC AVC 7. Suppose the market for concrete is perfectly competitive, and the price in the market is currently \$50. Which of the following best characterizes the state of the market? a. There are positive profits in the short-run. b.

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Econ 101 - Practice Midterm 2.7 Spring - Second Midterm...

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