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test2_solns

# test2_solns - Department of Economics University of Toronto...

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Page 1 of 7 Department of Economics Prof. Gustavo Indart University of Toronto December 3, 2004 ECO 100Y – L0101 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 7 (seven) pages. 4. Aids allowed: a simple calculator. 5. Use pen instead of pencil . DO NOT WRITE IN THIS SPACE P a r t I /15 Part II 1. /15 2. /20 T O T A L /50 /100 SOLUTIONS

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PART I (15 marks) Instructions: Circle the best answers to each question. Each question is worth 3 (three) marks. No deductions will be made for incorrect answers. 1. A profit-maximizer firm will shut down production if price is A. below minimum total average cost but above minimum average variable cost B. below minimum average variable cost C. above minimum average fixed cost D. below minimum average revenue E. below minimum total average cost 2. If the average product curve is rising, then the marginal product curve A. must lie above the average product curve and must also be rising B. must be above the average product curve C. can be either above or below the average product curve although it must be rising over the entire range D. must lie below the average product curve E. none of the above 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 would shut down B. each firm would produce an unchanged output and make economic profits of \$60,000 C. each firm would produce an increased output and make economic profits of more than \$100,000 D. each firm would produce a lower output and make economic profits of less than \$100,000 E. none of the above are correct 4. Assume a firm is now employing 100 units of labour and 50 units of capital to produce 200 units of "fax" machines. The price of labour is \$10 per unit and the price of capital is \$5 per unit. The MP L equals 2 and MP K equals 5. In this circumstance A. the firm is profit maximizing and cost minimizing B. the firm should increase the use of both inputs C. the firm could lower its production costs by decreasing labour inputs and increasing capital input D. the firm could increase output at no extra cost by increasing capital input and decreasing labour input E. none of the above 5. Which of the following would occur if a single farm in pure competition lowered its price below the equilibrium market price?
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test2_solns - Department of Economics University of Toronto...

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