Unformatted text preview: Professor: M. Rush
ECO 2023 SUMMER 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 32 multiple choice questions. Please check to be sure your copy has all 32. For each question, choose the best answer. (There are also 4 research related questions on the last page. While these questions do not count toward your grade, please answer them to help the graduate student with her research.) ♦ 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 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. 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 ECO 2023 MIDTERM 2 SUMMER 2008 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. 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 protected] 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 than what is reported and the reported answer on the web is correct, you will lose credit for 1 additional question. 2 ECO 2023 MIDTERM 2 SUMMER 2008 1) Which of the following forms of business organization generally have their profit taxed only once? 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 30 36 40 2) In the table above, suppose that labor is the only variable input. If the fixed cost is $1,000 and workers are paid $50, what is the marginal cost per unit of increasing production from 20 to 30 units? A) $5.00 per unit B) $100.00 per unit C) $150.00 per unit D) $38.33 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 $1,000 and workers are paid $50, what is the average total cost when 20 units are produced? A) $55.00 per unit B) $5.00 per unit C) $50.00 per unit D) $1,100 per unit. E) None of the above answers are correct. 3 ECO 2023 MIDTERM 2 SUMMER 2008 4) Price discrimination by a monopoly firm A) eliminates the producer surplus. B) turns consumer surplus into economic profit for the monopoly. C) decreases output below the monopoly’s profit‐maximizing level. D) lowers a the monopoly’s economic profit. 5) (This is a question from my stock market essays.) If you sell a stock short, you ____ and you ____. A) buy shares of the stock; sell call options on the stock B) sell shares of the stock; buy call options on the stock C) sold every share of the stock you owned; make a profit if the price of the stock falls D) borrowed shares of the stock and sold them; make profit if the price of the stock falls 6) In a budget line/indifference curve diagram, at the consumer’s equilibrium at the best affordable point, which of the following statements is correct? A) Any movement upward or downward on the budget line will move the consumer to a less preferred point. B) Any movement to the northeast to higher indifference curves moves the consumer to a less preferred point. C) The indifference curve the consumer is on cuts the budget line at two points. D) All of the above statements are correct. 7) In a budget line/indifference curve diagram, which of the following statements is correct? i) All points beyond the consumer’s budget line are definitely preferred to the consumer’s best affordable point. ii) All points beyond the consumer’s budget line are definitely not affordable. A) i only. B) ii only. C) both i and ii. D) Neither i nor ii. 4 ECO 2023 MIDTERM 2 SUMMER 2008 8) The above figure shows the demand and cost curves for a monopoly. The firm maximizes its profit by A) producing 8 units at a price of $5 each. B) producing 8 units at a price of $15 each. C) producing 4 units at a price of $20 each. D) producing 12 units at a price of $10 each. E) producing 4 units at a price of $15 each. 9) Homer’s Holesome Donuts has determined that its profit‐maximizing quantity is 12,000 donuts per year. Homer’s sells each doughnut hole for $1. Homer’s has two costs. First he pays $16,000 in annual rental payments for its five‐year lease on its store. Second Homer incurs an additional cost of $5,000 for ingredients. Should Homer’s shut down in the short run? A) Yes, because he is earning an economic loss. B) Yes, because he cannot cover all of his fixed costs. C) No, because is earning positive economic profit. D) No, because he can pay all of his variable costs. E) More information is needed whether Homer’s is a monopoly or a perfectly competitive firm. 10) 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 $50, and her average total cost is $40. Jane is A) maximizing her profit and is earning an economic profit. B) not maximizing her profit but is earning an economic profit anyway. C) maximizing her profit and is earning a normal profit. D) not maximizing her profit and is incurring an economic loss. E) not maximizing her profit but is earning a normal profit anyway. 5 ECO 2023 MIDTERM 2 SUMMER 2008 Labor (workers per day) 0 1 2 3 4 5 Total product (hats per day) 0 4 10 18 25 30 11) The above table shows the total product of producing baseball hats. The marginal product of the 4th worker is equal to A) 25 baseball hats. B) 21 baseball hats. C) 7 baseball hats. D) 6.25 baseball hats. 12) An example of a perfectly competitive industry is A) a big city police department. B) the market for corn in the United States. C) the market for French impressionists’ paintings. D) the National Football League. 13) Monopolies can earn an economic profit in the long run because A) there are close substitutes for the product. B) of free entry and exit into the market. C) consumers ‘ demand is inelastic. D) the monopoly’s supply is perfectly inelastic. E) there are barriers to entry. 14) Compared to a similar perfectly competitive industry, a single‐price monopoly A) creates a deadweight loss and decreases economic profit. B) produces more output. C) creates a deadweight loss and decreases producer surplus D) creates a deadweight loss and decreases consumer surplus. E) is more efficient because there is no wasteful competition. 6 ECO 2023 MIDTERM 2 SUMMER 2008 15) Which of the following is NOT necessary for a monopoly to price discriminate among groups of buyers? A) The firm must be able to separate different buyer types. B) The firm must be able to identify each individual consumer’s precise willingness to pay. C) Each group of buyers must have a different average willingness to pay. D) Resale of the product is difficult or unlikely. 16) Suppose Susan consumes only Pepsi and pizza. If her budget line is drawn with the quantity of Pepsi on the vertical axis, then an increase in the price of pizza A) shifts her budget line inward and its slope does not change. B) rotates her budget line outward and it becomes flatter. C) rotates her budget line outward and it becomes steeper. D) rotates her budget line inward and it becomes flatter. E) rotates her budget line inward and it becomes steeper. 17) A perfectly competitive firm’s supply curve is ____ and moving along this curve an increase in the price ____. A) its MC curve above the AVC curve; creates a movement upward along the supply curve B) its ATC curve above the AVC curve; creates a movement upward along the supply curve C) its MC curve below the ATC curve; shifts the firm’s supply curve rightward D) its MC curve above the AVC curve; shifts the firm’s supply curve rightward E) None of the above answers is correct because not defined because a perfectly competitive firm does not have a supply curve only a perfectly competitive market has a supply curve. 18) A perfectly competitive firm is producing at the point where its marginal cost equals its marginal revenue. If the firm boosts its output, its total revenue will A) rise and its total cost will rise even more. B) rise and its total cost will rise, but not by as much. C) fall but its total cost will rise. D) fall and its total cost will fall, but not by as much. 7 ECO 2023 MIDTERM 2 SUMMER 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) (This is a question from my stock market essays.) If you own shares of a mutual fund, you A) cannot suffer a capital loss. B) are buying put options on the stocks owned by the mutual fund. C) definitely own all the stocks in the Standard and Poors 500. D) have violated the idea that the stock market is efficient. E) None of the above answers is correct 21) If the costs and the market demand are the same, the deadweight loss is larger for a ____ than for a ____. A) perfectly competitive market; single‐price monopoly B) perfectly competitive market; price discriminating monopoly C) single‐price monopoly; price discriminating monopoly D) None of the above answers is correct. 22) (This is a question from my stock market essays.) If the expected return from owning a share of stock increases, the demand for that stock ____ and the supply of that stock ____. A) increases; increases B) increases; does not change C) increases; decreases D) decreases; does not change E) decreases; increases 23) (This is an out‐of‐the‐book question from Chapter 9.) A large part of the principal‐agent problem stems from the desire of A) agents to work hard. B) agents to avoid working. C) principals to work hard. D) principals to avoid working. 8 ECO 2023 MIDTERM 2 SUMMER 2008 24) Suppose the demand for cotton permanently increases. When would a perfectly competitive cotton farm increase its production the most? A) A perfectly competitive farm increases its production the most in the short run rather than in the long run. B) A perfectly competitive farm increases its production the most in the long run rather than in the short run. C) A perfectly competitive farm increases its production by the same amount in the short run and in the long run. D) It is impossible to determine when the increase is the largest without more information. 25) Suppose the demand for cotton permanently increases. When would a perfectly competitive market increase its production the most? A) A perfectly competitive market increases its production the most in the short run rather than in the long run. B) A perfectly competitive market increases its production the most in the long run rather than in the short run. C) A perfectly competitive market increases its production by the same amount in the short run and in the long run. D) It is impossible to determine when the increase is the largest without more information. 26) When the marginal product of labor is greater than the average product of labor, A) the marginal product of labor must be increasing as labor increases. B) the average product of labor must be increasing as labor increases. C) the total product must be increasing at an increasing rate as labor increases. D) None of the above answers is correct. 9 ECO 2023 MIDTERM 2 SUMMER 2008 27) (This is a partially an out‐of‐the‐book question.) Greg, a landscaper, is planning on opening his own landscaping company. He currently earns $40,000 per year working for his uncle but he must quit to open his business. He plans to use $10,000 in savings to pay for the equipment he needs, though even after use he could sell the equipment for what he paid, $10,000. The current interest rate on savings is 5 percent. What is total implicit cost incurred by Greg when he opens his own business? A) $10,000 B) $40,500 C) $40,000 D) $50,000 E) None of the above answers is correct 28) (This is an out‐of‐the‐book question.) For a monopoly, if a decrease in price and the resulting increase in quantity increase the firm’s total revenue, then over this range of the demand curve the A) firm’s demand is elastic. B) firm’s demand is inelastic. C) firm’s demand is unit elastic. D) law of demand is violated. 29) When a perfectly competitive firm increases its output, its marginal revenue ____ and its marginal cost ____. A) increases; increases B) increases; does not change C) does not change; decreases D) does not change; does not change E) does not change; increases 10 ECO 2023 MIDTERM 2 SUMMER 2008 30) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. When the firm maximizes its profit, its total revenue equals A) $1,040. B) $2,080. C) $2,720. D) $3,360. E) None of the above answers is correct. 31) The figure above depicts the marginal revenue and costs of a perfectly competitive firm. What change might occur and result in the firm producing 130 units? A) the average cost curve shifts upward while the marginal cost curve does not change. B) the price of the product falls to $8 per unit. C) No change is necessary because the firm is already producing 130 units. D) The firm will never produce 130 units, so none of the above answers is correct. E) The firm might produce 130 units, but none of the above answers is correct. 32) After the scores are posted, if you have a question about your test score, email the grader at [email protected] and the director is so stupid (HINT: Be SURE to answer this question because you’ll get credit for any answer.) A) he sent me a fax with a stamp on it. B) he thought the Internet was something you use to catch fish. C) he tried to wake up a sleeping bag. 11 ECO 2023 MIDTERM 2 SUMMER 2008 This time the graduate student working on her research emailed me her questions in advance. (Recall that for midterm 1 I had to pass them out on a separate sheet of paper.) As before, these questions do not affect your grade, so please answer them honesty. Thanks very much in advance. 77) How do you take the class? A. Go to live class B. Watch on WebCT C. Alternate between A and B D) Learn by myself 78) In which category is your major? A) Economics Related (Accounting, Decision and Information Sciences, Economics, Food & Resource Economics, Finance, Marketing, Management) B) Mathematics and Physics Related (Mathematics, Physics, Statistics) C) Computer Science and Engineering Related D. Other 79) Are you a ____ A) Freshman B) Sophomore C) Junior D) Senior E) Graduate Student 80) Do you have a scholarship? A) Yes B) No 12 ...
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- Spring '08
- Microeconomics, producer, graduate student, perfectly competitive market