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test2_july27 - Department of Economics University of...

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Page 1 of 11 Department of Economics Prof. Gustavo Indart University of Toronto July 27, 2006 ECO 100Y – L0201 INTRODUCTION TO ECONOMICS Midterm Test # 2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 4. Aids allowed: a simple calculator. 5. Write with pen instead of pencil. DO NOT WRITE IN THIS SPACE Part I /30 Part II 1. /5 2. /5 3. /5 Part III 1. /30 2. /25 TOTAL /100
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Page 2 of 11 PART I (30 marks) Instructions : Enter your answer to each question in the table. Only the answer recorded in the table will be marked. Table cells left blank will receive a zero mark for that question. Each question is worth 3 (three) marks. No deductions will be made for incorrect answers. 1. Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $2, fixed costs = $10,000, variable costs = $1000, and marginal cost = $1.10. To maximize profits in the short-run , the firm should A) reduce output B) expand output C) shut down D) increase the market price E) not change output 2. In the short-run, a decrease in a perfectly competitive firm’s fixed costs should lead to 3. Suppose a typical competitive firm has the following data in the short-run : price = $10; output = 100 units; ATC = $12; AVC = $7. 4. Assume that a perfectly competitive industry has a perfectly inelastic supply curve. The government introduces a specific commodity tax of $2.50 per unit of output. As a result, which one of the following statements would be correct? 1 2 3 4 5 6 7 8 9 10
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