Mid3W07 - vl Name Third Midterm Examination Economics 101...

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Unformatted text preview: vl Name April 17, 2007 Third Midterm Examination Economics 101 This exam has 33 questions. Unless a question explicitly says otherwise, assume that all supply curves slope upward and all demand curves slope downward. True/False. Mark box A for True and box B for False. Each correct answer adds 2 points to your score. Each blank answer gives you 1 point. 1. In the case of a positive externality, at the competitive equilibrium, the marginal social benefit from consuming the good is less than the marginal cost of its production. 2. If firms are required to have a permit to emit pollution, and if two firms have different marginal costs of abatement at their current level of pollution, then these two firms can both benefit from the trading of pollution permits. revenue is equal to the price of the good within a market. 3. With third degree price discrimination, a monopolist's marginal 4. If a monopolist has fixed costs of $1000 and no variable costs, it will maximize revenue and profit at the same output level. 5. With third degree price discrimination, the price is higher in the market that has more inelastic demand. 6. In a long—run equilibrium in a monopolistically competitive industry, firms produce where price equals the minimum of the average total cost curve. Page # 7. When sellers know more about the value of the good they are selling than buyers know, some of their output cannot be sold. 8. If Country A can produce more turnips than Country B, then Country A has absolute advantage in the production of turnips. country world includes points where both countries produce both goods. 9. The combined PPF for two countries producing in a 2 good, 2 10. A tariff on shrimp in the US makes people who eat shrimp better off. Multiple Choice. Mark the box corresponding to the best answer. Each correct answer adds 5 points to your score. Each blank answer gives you 1 point. 11. loss due to the subsidy? $A / / Benefit Quantity of Presentations a decrease represented by area A+D a decrease represented by area G+H a decrease represented by area A an increase represented by area B an increase represented by area C+D // M9+ Subsidy Marginal Social Benefit Marginal Private ; i . . l— 1— ' _—_. Page # The graph below represents the GSI—Presentation industry. Notice the government has subsidized this industry due to the external benefits. What is the change in deadweight 3 12. Given the information in the graph below, which of the following measures would eliminate the deadweight loss caused by the externality? Marginal Social Cost Marginal Private Cost Marginal Benefit per unit tax of $6 per unit tax of $9 per unit tax of $15 per unit subsidy of $9 per unit subsidy of $15 $5333 m anm m Page # Page # 13. The graph below represents the market for pork. People like to eat pork, but pig farms cause an enormous amount of untreated livestock manure that pollutes nearby drinking water. Which of the following correctly labels the curves in the graph? (a) I is the marginal private cost, II is the marginal social cost, and III is the marginal benefit. (b) I is the marginal social cost, II is the marginal private cost, and III is the marginal benefit. (c) I is the marginal social benefit, II is the marginal private benefit, and III is the marginal cost. (d) I is the marginal private benefit, II is the marginal social benefit, and III is the marginal cost. (e) I doesn't belong in the graph, II is the marginal benefit, and III is the marginal cost. Page # 14. ___ The graph below represents the market for water—saving toilets. If the government grants a subsidy resulting in the efficient number of toilets, in equilibrium, what is the price that suppliers get for a water—saving toilet? $ MC 340 ...... 320 .................. 3GB -------------------------- 280 —————————— 250 ................. 232 _______ 22D ................ ' EUU .................. magmapmmmaawm ___———I—__ ——__.|-.-——-|——— ——____|__ 400 500 560 600 mefiw (a) $250 (b) $280 (C) $220 (d) $300 (e) $320 15. A monopolist provides the following information: Profits=$lOOO The price elasticity of demand is —1 The demand curve is linear Price=$12 ATC=$1O MC=$8 To maximize profits, the firm should: (a) Do nothing (b) Increase the price because it will reduce total cost while increasing total revenue and profits. (c) Increase the price because it will reduce total cost and total revenue while increasing profits. (d) Lower the price because it will reduce total cost while increasing total revenue and profits. (e) Lower the price because it will reduce total cost and total revenue while increasing profits. Page # 16. ___ Based on the information given below for a monopolist, which is the best recommendation to increase profits? TC=$lO, OOO Q=5, OOO MR=$4 Profits=$15,000 ATC is at its mimimum (a) The firm is in the correct position. (b) The firm should shut down immediately. (c) The firm should increase price and decrease output. (d) The firm should decrease price and increase output. (e) The firm is in the correct position for the short run only. In the long run it should exit the market. 17. The following graph depicts the average total cost and marginal cost curves of a natural monopoly. Initially the monopoly is unregulated. If the government imposes average cost pricing, then producer surplus will by . $ 35 30 15 10 “no Denmnd (a) increase; $2,500 (b) decrease; $2,400 (c) increase; $1,000 (d) decrease; $1,500 (e) increase; $1,600 18. 19. Page # Suppose there is only one company in the market selling football tickets. The company can perfectly price discriminate among buyers. The following graph depicts the market for football tickets. (Note: this is a market demand curve.) When the monopolist maximizes profits, which of the following is TRUE? PHce($) T 25 15 ___________ ________ Demandcuwefor football tickets 10 ————+————fi 20 tickets are 30 tickets are 30 tickets are The deadweight (DQ-OU‘SJJ Suppose we have three markets in which firms have the same cost sold sold sold loss Consumer surplus is MC —.——p 30 Quantity and profits are $40 and the price of all tickets is $15 and producer surplus is $300 is $300 $300 structure and face the same market demand curve. Market C is served by a large number of competitive firms, market D by a duopoly (not colluding), and market M by a monopolist (not price discriminating). If the firms and their markets are ranked on the basis of the following characteristics: market output and price, ranking? (a) output: M>C>D; (b) output: D>M>C; (c) output: M>C>D; (d) output: C>D>M; (8) output: C=M>D; price: price: price: price: price: which of these is the correct M>C>D D>C=M M>C=D M>D>C D>C=M 8 Page # Matsuzaka maximizes profit given the market and production information below. Suppose demand for gyroballs increases. Specifically, every buyer is willing to pay $5 more at every level of output. What is Matsuzaka's profit after the increase in demand? 20. Matsuzaka, Inc. has a monopoly in the market for gyroballs. Pro ductiun Demand Quantity Total Cost Quantity Price ——__t___l 0 10 0 " (a) $25 (b) $21 (c) $18 (d) $11 (e) $10 Page # 10 21. ___ Bob owns a local amusement park. The marginal cost of a ride is constant and equal to $1. Given Bill's willingness to pay for rides listed in the table below, when Bob prices to get as much producer surplus as possible, what is Bob's producer surplus? Willingness to pay for rides ($) 9 (a) $0 (b) $17 (c) $10 ((1) $9 (e) $4 22. Page # 11 Consider John's and Nick's strategies in the game presented below. The numbers in the table represent fines they will have to pay in each outcome. (For example, if both John and Nick confess, Nick will pay a $100 fine.) Nick Confess Don’t confess If there is a dominant strategy, then which of the following could be values of X and Y? X=$250; Y=$250 X=$lOO; Y=$100 X=$50; Y=$5 X=$300; Y=$lO X=$O; Y=$O milo U9 Page # 12 23. ___ NeoTango and Comme—Il—Faut and are the only two suppliers of tango shoes in Ann Arbor. NeoTango assumes that Comme—Il—Faut will always produce 3 pairs of shoes, no matter what NeoTango produces. NeoTango has a marginal cost of $8 for each pair of shoes. Given the market demand schedule in the table below and assuming that NeoTango's conjecture about Comme—Il—Faut is correct, what is the total output of pairs of tango shoes? (DO-00%)) mmawm Page # 13 24. ___ Consider a duopolist, Firm B, facing the LINEAR market demand curve through the points given below. Firm B assumes the other duoplist will produce an output of 3. Which of the following (price, output) combinations is on Firm B's strategic demand curve? (a) (9,3) (b) (15,5) (c) (8,6) (d) (6,9) (e) (7,12) Page # 14 25. ___ Cheesy Wine is a small wine producer in a competitive market. Its only variable cost is labor. Details regarding Cheesy Wines' production are given in the table below. In addition, the price of a bottle of wine is $10 and a worker's hourly wage is $9. It follows that the firm's optimal decision is to employ __ worker hours. Worker Hours Marginal Product of Labor 10 20 3O 4O Cannot be determined from the information available. (DQ-OC‘CU 26. If the market supply for labor is upward sloping, then which of the following correctly describes the labor supply curve for individuals in this market? (a) There cannot be any individuals with a backward—bending supply curve. (b) All individual supply curves must be backward-bending. (c) Leisure must be an inferior good for all individuals in this market. (d) Leisure cannot be an inferior good for any individuals in this market. (e) Some of the individual supply curves could be backward—bending. Page # 15 27. The respective valuations of sellers and buyers for lemons and peaches are given in the table below. If, in equilibrium, a buyer pays $1800 for a car, then what is the probability that the car is a lemon? (a) 0.10 (b) 0.25 (c) 0.90 (d) 0.50 (e) 0.75 28. ___ Alpha and Bravo both produce HDTVs and laptops. Their PPFs are shown below. Suppose that together they produce 700 HDTVs and 200 laptops. Then, which of the following is true? HDTV HDTV 600 200 400 laptop 400 laptop Alpha Bravo (a) Bravo produces both goods while Alpha produces only HDTVS (b) Alpha produces both goods while Bravo produces only HDTVs (c) Bravo produces both goods while Alpha produces only laptops (d) Alpha produces both goods while Bravo produces only laptops (e) Both countries must produce both goods Page # 16 29. ___ The graph below represents the market for coconuts in the United States. Coconuts are grown in the US (in Hawaii) and also imported from several countries. If the current world price is $3 and there are no trade barriers, ___ domestically—grown coconuts will be purchased. If the government imposed a $1 tariff on imported coconuts, then domestically-grown coconuts would be sold. ___..- '——'l"——"‘— I I I I I J I I I I J I I I I I I I I I 'l I l I I 1 I I I I 4 I I I I 4 I I I l 10 25 40 55 70 Q (thousands) (a) 10,000; 25,000 (b) 0; 25,000 (C) 10,000; 10,000 (d) 10,000; 50,000 (e) 70,000; 50,000 30. The graph below shows the domestic market for chocolate. world price of chocolate is $4 per pound. Due to heavy political pressure, the government imposes a tariff of $2 per pound. Compared with free trade, the sum of producer and consumer surplus will by . P Domemm ’0 (lbs) (a) increase; $2 (b) increase; $3 (c) decrease; $0 (d) decrease; $8 (e) decrease; $12 Page # 17 The Page # 18 31. The following facts are about the trade of Spoons, Cups and Tables between Countries A, B and C. I. All of the countries can produce all three goods and no two countries have the same production technology. II. Country A exports Spoons to Country B and C. III. Country A can produce all three goods with the least amount of labor and has the largest labor force. IV. Country B exports Tables to Country A and C. Which of the following is false? (a) Country A has the absolute advantage in producing Cups. (b) Country C imports Tables from Country B. (c) Country B has the absolute advantage in producing Tables. (d) Country A imports Cups from Country C. (e) Country C has the comparative advantage in producing Cups. 32. ___ The example used in lecture to discuss whether a merger would create market power was: (a) The proposed merger of XM and Sirius satellite radio companies. (b) The rumored buyout of the biggest US ethanol producer, Archer Daniels Midland. (c) The speculation that Wrigley might buy Hershey and monopolize the market for chocolate. (d) Ethiopia's attempt to patent their coffee brands. (e) The impact of UPS's new package tracking technology on production costs. You will only get credit for the following question if your answer is correct for the lecture that you are enrolled in. 33. The topic of one of the end—of—term GSI presentations in your lecture was: Low fertility in Korea Overfishing in Japan The one child policy in China Logging in Washington State Labor unions in Germany (DQJOU'SD Third Midterm Examination Economics 101 April 17, 2007 Answer Key — Version 1 Number Answer 1 False 2 True 3 False 4 True 5 True 6 False 7 False 8 False 9 False 10 False 11 C 12 B 13 B 14 D 15 C 16 D 17 D 18 C 19 D 20 A 21 B 22 B 23 D 24 D 25 C 26 E 27 B 28 A 29 A 30 D 31 C 32 A 33 A ...
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