Test22006 - Page 1 of 5 Last Name First Name Student Number...

Page 1 of 5
Last Name: ____________________
First Name: ____________________
Student Number: ________________
Economics 100
Professor James E. Pesando
Term Test 2 – December 8, 2006
Length: 55 minutes
Answer ALL questions in the space provided
Aids: Pen/ Pencil and non-programmable calculator
______________________________________________
please enter the multiple choice answers in the box below :
1 2 3 4
5 6 7 8 9
examiner’s report:
question points
1
2
3
4
5
total
Page 2 of 5

Part I (14 points)
The market for peanuts is perfectly competitive and in long-run equilibrium.
There is an increase in the demand for peanuts.
a) In the short-run, what happens to a representative firm’s marginal cost
schedule, demand schedule, level of output, and level of profits? Illustrate
your answer with an appropriate diagram for this representative firm .
b) Will the market price remain at its new level in the long-term? Explain your
answer.
Part II (14 points)
A perfectly competitive firm has a factory, and hires workers to produce widgets.
a) If the wage rate paid by this single firm increases, what will happen to this
firm’s level of output and profits? Explain your answer.
b) To encourage the production of widgets, the government provides all firms in the
industry with a lump-sum grant of $10,000. In the short-run, what happens to the
level of each firm’s profits and to the market price of widgets? Explain your
answer.
Page 3 of 5

Part III (20 points)
A monopolist has a patent for an important drug. The monopolist is in long-run
equilibrium and earning an economic profit.