Unformatted text preview: ANSWER KEY Econ 101 Quiz 2 Summer 2010 Prof. A. Chaudhuri
1. Please read each question carefully. Each question is worth 1 point unless indicated
otherwise. Total points=50.
2. There are 8 printed pages.
3. You have 90 minutes to complete this quiz.
A firm produces and sells staplers. Last year, it produced 5,000 staplers and sold each stapler for $8. In producing the 5,000 staplers, it incurred variable costs of $30,000 and a total cost of $45,000. (Use this information to answer Questions 1 through 5) 1. The firm’s fixed costs amounted to a. $15,000. b. $30,000. c. $40,000. d. $50,000. 2. In producing the 5,000 staplers, the firm’s average fixed cost was a. $3. b. $4. c. $5. d. $7. 3. In producing the 5,000 staplers, the firm’s average variable cost was a. $2. b. $4. c. $6. d. $8. 4. In producing the 5,000 staplers, the firm’s average total cost was a. $6. b. $7. c. $8. d. $9. 5. The firm’s economic profit for the year was a. $–35,000. b. $–5,000 c. $10,000. d. $40,000. The figure below depicts the cost structure of a profit‐maximizing firm in a competitive market. Use the figure to answer questions 6 and 7. 6. (2) Which line segment best reflects the long‐run supply curve for this firm? a. AB b. BC c. CD d. None of the above, the long‐run supply curve requires knowledge of the average variable cost structure. 7. This firm will exit the market for any price on the line segment a. AB. b. BC. c. CD. d. None of the above are correct. 8. Let L represent the number of workers (input) hired by a firm and let Q represent that firm’s quantity of output. Assume two points on the firm’s production function are (L = 12, Q = 122) and (L = 13, Q = 130). Then the marginal product of the 13th worker is a. 8 units of output. b. 10 units of output. c. 122 units of output. d. 130 units of output. 9. Round‐trip airline tickets are usually cheaper if you stay over a Saturday night before you fly back. What is the reason for this price discrepancy? a. Airlines are practicing price discrimination to raise their profits. b. Airlines charge a different rate based on the different nature of peoples’ travel needs. c. Airlines are attempting to charge people based on their willingness to pay. d. All of the above are correct. 10. (2) When a firm in a perfectly competitive market receives $500 in total revenue, and has a marginal revenue of $10, what is the price, and how many units were sold? a. $5 and 100 b. $10 and 50 c. $10 and 100 d. The answer cannot be determined from the information given. 2 Answer questions 11‐13 using the graph below: 11. In the graph shown below, the price sellers receive after the tax is a. $24. b. $14. c. $10. d. $8. 12. In the graph shown, the amount of the tax imposed is a. $16. b. $14. c. $8. d. $6. 13. The loss in total surplus as a result of the tax would be equal to a. $210. b. $420. c. $560. d. $980. 14. Economies of scale occur when a. long‐run total costs are constant as output increases. b. long‐run average total costs are constant as output increases. c. the firm's long‐run average costs fall as output increases. d. the firm's long‐run average costs rise as output increases. 15. Monopolistically competitive firms are typically characterized by a. many firms selling products that are similar, but not identical. b. many firms selling identical products. c. a few firms selling products that are similar, but not identical. d. a few firms selling highly different products. 3 16. Marginal revenue for a monopolist is computed as a. average revenue divided by quantity sold. b. average revenue times quantity divided by price. c. total revenue divided by quantity sold. d. change in total revenue per one unit increase in quantity sold. 17. The efficient scale of the firm is the quantity of output that a. maximizes marginal product. b. maximizes profit. c. minimizes average total cost. d. minimizes average variable cost. 18. A natural monopoly arises when a. there are constant returns to scale over the relevant range of output. b. there are economies of scale over the relevant range of output. c. one firm owns a key natural resource. d. the government gives a single firm the exclusive right to produce a particular good or service. 19. For a monopolist, a. average revenue is always greater than the price of the good. b. marginal revenue is always less than the price of the good. c. marginal cost is always greater than average total cost. d. All of the above are correct. A firm in a competitive market has the following cost structure: Output Total Cost 0 $5 1 $10 2 $12 3 $15 4 $24 5 $40 20. (2) If the market price is $4, in the short run the firm will produce a) 2 b) 3 c) 4 d) 5 21. (2) In the long run, at a market price of $4 per output, will this firm stay or exit from this industry? a) Exit b) Stay c) Not enough information 22. Ted can wax 6 cars per day or wash 5 cars. Tom can wax 5 cars per day or wash 10 cars. What is Tom’s opportunity cost of washing cars? 4 a)
d) 2 ½ 1.2 0.8 23. If Shawn can produce donuts at a lower opportunity cost than Sue, then a) Shawn has a comparative advantage in the production of donuts. b) Sue has a comparative advantage in the production of donuts. c) Shawn should be retrained to produce a different product. d) Shawn is capable of producing more donuts than Sue. 24. Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten‐year period because a) buyers tend to be much less sensitive to a change in price when given more time to react. b) buyers will have substantially more income over a ten‐year period. c) buyers tend to be much more sensitive to a change in price when given more time to react. d) None of these answers are correct. 25. If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a a) 4.0 percent decrease in the quantity demanded. b) 10 percent decrease in the quantity demanded. c) 40 percent decrease in the quantity demanded. d) 400 percent decrease in the quantity demanded. 26. (2) When the local used bookstore prices economics books at $15.00 each, they generally sell 70 per month. If they lower the price to $7.00 each they sell 90. Given this, we know that the elasticity of demand for economics books is a. 2.91, so this store should lower price to raise total revenue. b. 2.91, so this store should raise price to raise total revenue. c. 0.34, so this store should lower price to raise total revenue. d. 0.34, so this store should raise price to raise total revenue. 27. (2) If a 6 percent increase in income results in a 10 percent increase in the quantity demanded of pizza, then the income elasticity of demand for pizza is a. negative and therefore pizza is an normal good. b. negative and therefore pizza is a inferior good. c. positive and therefore pizza is an inferior good. d. positive and therefore pizza is a normal good. 28. If a consumer is willing and able to pay $20.00 for a particular good but only has to pay $14.00, the consumer surplus is a. $6.00. b. $14.00. c. $20.00. d. $34.00. 5 29. (2) Suppose the demand for nachos increases. What will happen to producer surplus in the market for nachos? a. It increases. b. It decreases. c. It is unaffected by this change in market forces. d. It decreases briefly, then increases. 30. Rank the 4 market types from most to least number of firms. a. Monopoly, perfect competitive, monopolistic competitive, oligopoly. b. Perfect competitive, oligopoly, monopolistic competitive, monopoly. c. Monopoly, oligopoly, monopolistic competitive, perfect competitive. d. Perfect competitive, monopolistic competitive, oligopoly, monopoly. 31. Which of the following demonstrates the law of demand? a. Jon buys more pretzels at $1.50 each since he got a $1 raise at work. b. Melissa buys fewer muffins at $0.75 each than at $1 each. c. Dave buys more donuts at $0.25 each than at $0.50 each. d. Kendra buys fewer Snickers at $0.60 each since the price of Milky Ways fell to $0.50 each. 32. An increase in the number of scholarships issued for college education would a. increase the supply of education. b. decrease the supply of education. c. increase the demand for education. d. decrease the demand for education. 33. Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase. Answer questions 34 and 35 using following graph. 6 34. (2) To maximize its profit, a monopolist would choose which of the following outcomes? a. 100 units of output and a price of $10 per unit b. 100 units of output and a price of $20 per unit c. 150 units of output and a price of $15 per unit d. 200 units of output and a price of $20 per unit 35. The deadweight loss caused by a profit‐maximizing monopoly amounts to a. $150. b. $200. c. $250. d. $300. Answer questions 36‐39 using the following graphs: 36. Which of the four graphs represents the market for peanut butter after a major hurricane hits the peanut‐growing south? a) A b) B c) C d) D 37. Which of the four graphs represents the market for winter boots in June? a) A b) B c) C d) D 38. Which of the four graphs represents the market for pizza delivery in a college town in September? a) A 7 b) B c) C d) D 39. Which of the four graphs represents the market for cars after new technology was installed on assembly lines? a) A b) B
c) C d) D Suppose there is a baseball park with 10,000 seats and a demand for seats in the park as
Price per Ticket
$20 2,000 $16 4,000 $12 6,000 $8 8,000 $6 10,000 $4 12,000 $2 40. Quantity Demanded 14,000 (2) Referring to the information given above, the supply of seats
a. is perfectly elastic.
b. is perfectly inelastic.
c. increases as price increases.
d. decreases as price increases. 41. Referring to the above table, notice that lowering the price from $8 to $6 per ticket
decreases revenue by $4,000. In the $6 to $8 price range, demand for baseball tickets
a. price inelastic
b. price elastic
c. price unit elastic
d. income elastic 8 ...
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- Spring '08
- Supply And Demand, d. Kendra