test2_solns - Department of Economics University of Toronto...

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Page 1 of 8 Department of Economics Prof. Gustavo Indart University of Toronto January 23, 2004 ECO 100Y – L0301 INTRODUCTION TO ECONOMICS Midterm Test 2 LAST NAME FIRST NAME STUDENT NUMBER INSTRUCTIONS : 1. The total time for this test is 50 minutes. 2. This exam consists of two parts. 3. This question booklet has 8 (eight) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE P a r t I /25 Part II 1. /20 2 . /15 T O T A L /60 SOLUTIONS
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Page 2 of 8 PART I (25 marks) Instructions : Circle the most appropriate answer . Each question is worth 2.5 (two and one-half) marks. No deductions will be made for incorrect answers. 1. When marginal product is at a maximum a) average product is falling b) total product is at a maximum c) marginal cost is at a maximum d) marginal cost is at a minimum 2. If a firm's fixed cost is $100, and its total cost is $200 to produce one unit and $310 to produce two units, the firm is a) already facing diminishing returns b) not yet facing diminishing returns c) facing constant returns d) already facing increasing returns 3. A competitive industry has two firms. Firm A produces 15 units of output at a marginal cost of $6 and an average cost of $5. Firm B produces 20 units of output at a marginal cost of $6 and an average variable cost of $7. What is the output supplied by this industry at $6? a) 15 units b) 20 units c) 35 units d) 40 units 4. A perfectly competitive industry is initially in long-run equilibrium. The industry has a constant cost long run supply curve. The government introduces a commodity tax of $1.50 per unit of output. This tax will cause which of the following in the long-run ? a) there will be an increase in the consumer price by less than $1.50 b) there will be no change in industry output c) the full burden of the tax will be imposed upon consumers d) the tax revenue will be equal to the initial industry output times the tax 5. At the output where marginal revenue for a monopolist equals zero, a) monopoly profits are maximized b) efficiency loss is zero c) demand curve is unit elastic d) monopoly profits are zero 6. A perfectly competitive and constant cost industry is in long-run equilibrium. Which one of the following events would increase the quantity supplied by each firm and decrease the quantity supplied by the industry in the long-run? a) an increase in the price of a substitute good in consumption b) an increase in variable cost by exactly the same amount for each unit of output c) an increase in fixed costs d) a decrease in income for a normal good
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Page 3 of 8 7. A specific commodity tax of $2.00 per unit of output is imposed upon a perfectly competitive industry. Which one of the following statements is correct:
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test2_solns - Department of Economics University of Toronto...

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