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test2_solns - Department of Economics University of Toronto...

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Page 1 of 10 Department of Economics Prof. Gustavo Indart University of Toronto July 19, 2005 SOLUTION 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 45 minutes. 2. This exam consists of two parts. 3. This question booklet has 10 (ten) pages. 4. Aids allowed: a simple calculator. DO NOT WRITE IN THIS SPACE Part I /30 Part II 1. /20 2. /16 3. /18 4. /16 TOTAL /100
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PART I (40 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. Suppose that in a perfectly competitive industry, the market price of the product is $12. Firm A is producing the output level at which average total cost equals marginal cost, both of which are $10. To maximize its profits, Firm A should a) reduce output b) expand output c) leave output unchanged d) increase its advertising e) change the price of its product 2. If the average product curve is rising, then the marginal product curve 3. Suppose fixed costs are $100 and average variable costs are constant regardless of output. Which of the following is then true? 4. Suppose that in a perfectly competitive industry, the market price of the product is $6. Firm A is producing the output level at which average total cost equals marginal cost, both of which are $8. Average variable cost is $5. To achieve its optimum output, firm A should
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