test2_july27 - Department of Economics University of...

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Page 1 of 13 Department of Economics Prof. Gustavo Indart University of Toronto July 27, 2004 ECO 100Y – L0201 INTRODUCTION TO ECONOMICS Term Test #2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. This exam consists of three parts. 3. This question booklet has 13 (thirteen) pages. 4. Write with pen instead of pencil. 5. Aids allowed: a simple calculator. DO NOT WRITE ON THIS SPACE Part I /16 Part II 1. /6 2. /6 3. /6 Part III 1. /12 2. /12 3. /12 TOTAL /70
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Page 2 of 13 PART I (16 marks) Instructions : The multiple choice questions are to be answered using a black pencil or a black or blue ball-point pen on the separate (SCANTRON) sheet being supplied. Be sure to fill in your name and student number on the SCANTRON sheet! When you finish your examination, place the SCANTRON sheet inside the question booklet . Each question is worth 2 (two) marks. No deductions will be made for incorrect answers. You may use the question booklet as a worksheet to answer questions, and then transfer your answers onto the SCANTRON sheet. Make sure that all your answers are transferred onto the SCANTRON sheet. In case of a disagreement, the answer to be marked is the one in the SCANTRON sheet. 1. If a profit-maximizing firm in perfect competition is earning economic losses, then it must be producing a level of output where a) price is greater than marginal cost b) price is greater than marginal revenue c) marginal cost is greater than marginal revenue d) average total cost is greater than marginal cost e) price is greater than variable cost 2. In a perfectly competitive industry, all firms in the short-run are currently making economic profits. At the current output, the marginal cost for each firm is $8 and the industry price is $9. According to this information which one of the following statements is correct when the goal of each firm is to maximize profits: a) each firm should maintain its present output b) since the marginal cost for each firm would be reduced at lower outputs, each firm should produce a smaller output c) each firm should produce a larger output to a point where average total cost equals industry price d) each firm should produce a larger output until marginal cost equals industry price e) none of the above are correct 3. A perfectly competitive industry is in short-run equilibrium. Each firm is initially making economic profits of $100,000 per year. Now, each firm faces an increase in property taxes of $40,000 per year. As a result of this shock, which one of the following statements is correct; a) each firm will shut down b) each firm will produce an unchanged output and make economic profits of $60,000 c) each firm will produce an increased output and make economic profits of more than $100,000
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test2_july27 - Department of Economics University of...

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