test2_solns - Department of Economics University of Toronto...

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Department of Economics Prof. Gustavo Indart
University of Toronto July 27, 2004
SOLUTIONS
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

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:
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;