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Unformatted text preview: Professor: M. Rush
ECO 2023 SPRING 2008 MIDTERM 2 Read all instructions on this page
On the bubble sheet, please enter: 1. Your name and initials 2. Your UF ID number 3. Special Code: 21 4. Test code: A 5. Sign your name on the back of the bubble sheet. This test is governed by UF’s academic honesty code. It is intended to have 34 multiple choice questions. Please check to be sure your copy has all 34. There is an extra credit question on the last page. ♦ The next is important: Unless you are specifically told otherwise, on this test do not assume that demand or supply is either perfectly elastic or perfectly inelastic. Do not ask questions of me or the TA’s; in the interest of fairness I have instructed them not to answer any questions during the exam. I have become increasingly concerned that some students are at a real disadvantage because they are unwilling to ask questions during the exam while others ask a lot of questions. Hence, to level the playing field, I have decided to eliminate all questions during the test. I don’t like this policy, but it seems the fairest policy. TURN OFF ALL CELL PHONES AND OTHER COMMUNICATION DEVICES
You will have one hour (60 minutes) to complete the exam and bubble in all your answers. This time includes completing the extra credit question if you choose to answer it. When the TAs say that time is up, you must hand in your exam. We will not give extra time to finish bubbling in the answers, so be sure you are done when the 60 minutes are up. Of course, you may hand in your test at any time before the 60 minutes are up. An answer key will be posted on the Web later this evening. The test scores will be on the Web within a few days. Check that the test code, special code, and UF ID number you bubbled‐in are correct now. Also check to be sure your name is correct—do it now. As I said on the last exam, I heard rumors that the ability to correctly record the test code has been mastered by a few students at FSU. I am still checking this out. But in the meanwhile a friend told me that accounting majors have been known to be able to record this letter, often correctly. Plus, I have heard of one journalism major who could get the special code right at least 30% of the time! While I doubt this last rumor, because the special code involves numbers which means it is close to being math, nonetheless I think that the skill of correctly bubbling in the test code and special is not too difficult to acquire. ECO 2023 MIDTERM 2 SPRING 2008 CHECK YOUR TEST CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE WRONG, YOU TEST MIGHT NOT BE GRADED OR YOU WILL LOSE 5 POINTS! After the scores are posted, if you think your posted score is incorrect, email the grader at email@example.com. Please do not email me because I won’t have the grades; email the grader! You have one week after the curved score is posted to request a grade check. After a week, the score will not be changed. If the web reports what you bubbled in for each question and you ask the grader to check an answer because you believe you bubbled in something other that what is reported and the reported answer on the web is correct, you will lose credit for 1 additional question. EXTRA CREDIT QUESTION INSTRUCTIONS There is an extra credit question on the last page. You can earn up to 3 points added to this test score. If you choose to answer the extra credit question, be sure to follow all the instructions on the page with the extra credit question and provide all the required information. DO IT LEGIBLY IF WE CANNOT READ YOUR NAME AND/OR UF ID, YOU WILL NOT GET ANY EXTRA CREDIT! When you hand in your test, you must hand in the extra credit page. You may copy your answer to the extra credit question in the space below. I will announce in class when the extra credit questions are graded and will post the grades on the class page but it will take several weeks. Do not email me, the grader, or the email address for questions about when the extra credit will graded. I will announce this in class. THERE IS NO APPEAL ABOUT THE GRADE—IT IS WHAT IT IS. 2 ECO 2023 MIDTERM 2 SPRING 2008 1) Which of the following forms of business organization generally have limited liability? i. Proprietorship ii. Partnership iii. Corporation A) i only. B) ii only. C) iii only. D) i and ii E) ii and iii. Labor Total product (workers) (units per hour) 0 1 2 3 4 5 0 8 20 33 40 44 2) In the table above, suppose that labor is the only variable input. If the fixed cost is $100 and workers are paid $40, what is the marginal cost per unit of increasing production from 40 to 44 units? A) $6.50 per unit B) $10.00 per unit C) $1.00 per unit D) $6.82 per unit E) None of the above answers are correct. 3) In the table above, suppose that labor is the only variable input. If the fixed cost is $100 and workers are paid $40, what is the average cost per unit of producing 20 units? A) $5.00 per unit B) $4.00 per unit C) $20.00 per unit D) $9.00 per unit E) None of the above answers are correct. 3 ECO 2023 MIDTERM 2 SPRING 2008 4) When a monopoly produces the quantity such that marginal revenue equals marginal cost, the firm finds that its price is less than its average variable cost. In this case, the firm A) is earning an economic profit. B) is incurring an economic loss but the loss would be larger if it shut down. C) is incurring an economic loss and the loss would be smaller if it shut down. D) More information is needed to determine if the firm has an economic profit, a normal profit, or an economic loss. 5) A monopoly A) faces a perfectly elastic demand curve. B) can charge any price because it’s the only seller. C) raises the price of its product by increasing the quantity sold. D) raises the price of its product by decreasing the quantity sold. 6) (This is a question from my stock market essays.) A mutual fund is a company that A) buys shares of stocks only in firms that are listed Dow Jones average. B) buys only options. C) uses one person’s saving and invests it in the stock of one company. D) uses many people’s savings and invests it in the stock of one company. E) uses many people’s savings and invests it in the stock of many companies. 7) In a perfectly competitive industry, which of the following determines the market price? A) Market demand and a firm’s supply B) Market supply and a firm’s demand C) A firm’s demand and supply D) Market demand and market supply E) Each firm sets its own unique price. 4 ECO 2023 MIDTERM 2 SPRING 2008 8) (This question is from the stock market essays.) Suppose people think that JCPenny will be more profitable than they had previously believed. As a result, the demand for JCPenny stock ____ and the supply of JCPenny stock ____. A) increases; increases B) increases; decreases C) decreases; increases D) does not change; increases E) increases; does not change 9) (This is an out‐of‐the‐book question from Chapter 19.) Diversification allows an investor to A) increase his or her rate of return. B) increase his or her risk aversion. C) reduce the number of different companies in which the investor owns stock. D) reduce his or her risk. 10) The principal‐agent problem is best explained as A) managers trying to cope with employees that are inefficient. B) proprietors that don’t receive any money payment for their entrepreneurial skills. C) devising penalties that eliminate employee waste. D) devising incentives that encourage employees to act in the owner’s behalf. 11) In the short run, a perfectly competitive firm ____ incur an economic loss and in the long run a perfectly competitive firm ____ incur an economic loss. A) can; can B) can; cannot C) cannot; can D) cannot; cannot 12) In the short run, a monopoly firm ____ incur an economic loss and in the long run a monopoly firm ____ incur an economic loss. A) can; can B) can; cannot C) cannot; can D) cannot; cannot 5 ECO 2023 MIDTERM 2 SPRING 2008 13) If the price of the good measured on the vertical axis rises, a consumer’s budget line A) rotates inward and becomes flatter. B) rotates inward and becomes steeper. C) shifts rightward and its slope does not change. D) shifts leftward and its slope does not change. E) rotates outward and becomes flatter. 14) In the above figure, a single‐price monopolist charges a price of ___ , resulting in total revenue equal to area ____. A) $10; hbcd. B) $20; fjem. C) $10; fbcg. D) $30; fbcg. E) $30; abc 15) In the above figure, if the single‐price monopolist charges a price that maximizes its profits, consumer surplus is A) area hacd. B) area bac. C) area jae. D) area jbce. E) area cde 6 ECO 2023 MIDTERM 2 SPRING 2008 16) Which of the following statements about the above figure is true? A) Point A is equally preferred to point C. B) Point B is equally preferred to point C. C) Point C is preferred to point A. D) Point A is preferred to point C. E) None of the above answers are correct 17) A perfectly competitive firm’s supply curve is ____ and a monopoly firm’s supply curve is ____. A) its MC curve above the AVC curve; not defined because a monopoly does not have a supply curve. B) not defined because a perfectly competitive firm does not have a supply curve; its ATC curve when it is above the AVC curve C) its AVC curve when it is above the ATC curve; its ATC curve when it is above the AVC curve D) its MC curve above the AVC curve; its ATC curve when it is above the AVC curve E) its MC curve above the AVC curve; its MC curve above the AVC curve 18) Price discrimination takes place when a firm A) charges the same price for all the units of its product that it sells. B) charges different prices for different units of its product. C) is discriminated against by consumers. D) None of the above answers is correct. 7 ECO 2023 MIDTERM 2 SPRING 2008 19) A firm’s total cost is $600, it produces 5 units, and its average variable cost is $30. What is its fixed cost? A) less than $10. B) between $10.01 units and $90.00. C) between $90.01 units and $120.00. D) more than $120.01. 20) If the above diagram showed a single‐price monopoly,the profit maximizing output is ____ and if it is a perfectly competitive market, the output is ____. A) 4 units per day; 6 units per day B) 4 units per day; 5 units per day C) 6 units per day; 6 units per day D) 5 units per day; 6 units per day E) 4 units per day; between 5 and 6 units per day 21) For the single‐price monopoly shown in the figure above, the deadweight loss is A) zero. B) between $0 and $10. C) between $10.01 and $20. D) more than $20.01. 8 ECO 2023 MIDTERM 2 SPRING 2008 22) Suppose that a perfectly competitive industry is in equilibrium and then the demand for the product permanently increases. When does the quantity of output produced in the market change the most? A) In the short run after the increase in demand. B) In the long run after the increase in demand. C) The change in the quantity is the same in both the short run and long run. D) More information is needed to determine when the change in the quantity is the largest. 23) Suppose the price of coffee is $3, the price of a bagel is $2 and a person’s budget is $40. The budget line’s equation is A) $2/Qbagel + $3/Qcoffee = $40. B) C) D) $2(Qbagel ) + $3(Qcoffee ) = $40. Qbagel /$2 + Qcoffee /$3 = $40. Qbagel + Qcoffee = $40/($3 + $2). 24) Explicit costs differ from implicit costs in that A) explicit costs are what an accountant would consider costs and are usually less than implicit costs. B) explicit costs are paid in money, but implicit costs are often non‐paid opportunity costs. C) implicit costs always present while some firms do not have any explicit costs. D) implicit costs are more important than explicit costs E) explicit costs are more important than implicit costs. 25) (This is an out‐of‐the‐book‐question from Chapter 10.) Economies of scale A) lead to rising long‐run average costs as output increases. B) occur if output more than doubles when all inputs are doubled. C) occur if output less than doubles when all inputs are doubled. D) occur when management complexity brings rising average cost. 26) Jane’s Garage Cleaning is a perfectly competitive firm that currently cleans 40 garages a week. Jane’s marginal cost is $40, her price is $40, and her average total cost is $35. Jane is A) maximizing her profit and is incurring an economic loss. B) not maximizing her profit but is earning an economic profit anyway. C) not maximizing her profit and is earning a normal profit. D) not maximizing her profit and is incurring an economic loss. E) maximizing her profit and is earning an economic profit. 9 ECO 2023 MIDTERM 2 SPRING 2008 27) (This is an out‐of‐the‐book‐question from Chapter 19.) Moral hazard and adverse selection are the result of A) poorly functioning markets. B) government intervention. C) private information. D) treachery. 28) Which of the following shifts the MC curve upward at the Burrito Brothers? i. An increase in the hourly wage that Burrito Brothers pays its workers. ii. An increase in productivity of the workers hired by Burrito Brothers. iii. An increase in the fixed amount of liability insurance premiums that Burrito Brothers pays for its business. A) i only. B) ii only. C) iii only. D) i and iii only. E) i, ii, and iii. 29) Which of the following prices is said to follow a “random walk”? A) the price of a perfectly competitive firm B) the price in a perfectly competitivemarket C) the price of a monopoly D) the price of shares of stock 10 ECO 2023 MIDTERM 2 SPRING 2008 30) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. The firm’s profit is maximized when the firm produces A) 90 units of output. B) 130 units of output. C) 170 units of output. D) 210 units of output. 31) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. The price the firm charges is A) $4 per unit. B) $8 per unit. C) $16 per unit. D) None of the above answers is correct. 32) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. When the firm maximizes its profit, its economic profit is A) equal to zero, that is, the firm has a normal profit. B) negative, that is, the firm has an economic loss. C) greater than zero and less than $1,364. D) greater than $1,365. 11 ECO 2023 MIDTERM 2 SPRING 2008 33) (This is an out‐of‐the‐book question from Chapter 19.) If there is a cost to acquiring information then consumers will A) always seek information on prices and on the quality of goods and services. B) search for information as long as the expected marginal benefit from the search is less than the marginal cost of the search. C) search for information as long as the expected marginal benefit of the search exceeds the marginal cost of the search. D) None of the above answers are correct. 34) After the scores are posted, if you have a question about your test score, email the grader at ECO2023.Grader@cba.ufl.edu and the director is so stupid (HINT: Be SURE to answer this question because you’ll get credit for any answer.) A) he ordered a cheeseburger from McDonald’s and said “Hold the cheese.” B) he got hit by a parked car. C) he bought a solar powered flashlight. 12 ECO 2023 MIDTERM 2 SPRING 2008 EXTRA CREDIT QUESTION _____________________________ (Name) PRINT your name and UF ID in the spaces above. YOU MUST WRITE ___________________________ (UF ID) YOUR NAME AND UF ID LEGIBLY TO RECEIVE CREDIT FOR THIS QUESTION. When you have answered the question, hand in this page and ONLY THIS PAGE. Keep the rest of the test to help you study for the final exam. 1. Draw a diagram showing the demand and supply of a stock. LEGIBILY label the axes and all curves. Suppose that the risk from owning the stock increases. Show what happens in the market and tell whether the price rises or falls. 13 ...
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- Spring '08