Mid2V1F10 - Name: _ Second Midterm Examination Economics...

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Version 1 Page 1 Name: ___________________________________ Second Midterm Examination Economics 101 November 10, 2010 This exam has 33 questions. Unless a question explicitly says otherwise, assume that all demand curves slope downward, all supply curves slope upward, and there are no externalities. True/False. Mark box A for True and box B for False. Each correct answer adds 2 points to your score. Each blank answer gives you 1 point. 1. In the range of output where there are increasing returns to scale in production, a firm’s long-run average total cost curve is downward sloping. 2. The marginal utility and marginal benefit are both equal to the product's price at the optimal quantity. 3. The break-even price is the price at which producer surplus is equal to zero. 4. For a price ceiling for a product to be binding, it must be lower than the product's equilibrium price. 5. When there is a tax in an industry that exhibits constant costs, comparing the new long- run equilibrium to the original one, the producer price increases by the entire amount of the tax. 6. If the price of gasoline increases and the income effect of this price change leads to a decrease in gasoline consumption, then gasoline is a normal good. 7. When an industry exhibits constant costs, its long-run supply curve is perfectly elastic.
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Version 1 Page 2 8. When a firm's economic profit is negative, its total revenue is exactly equal to the amount it spends on all of its inputs. 9. If a firm’s fixed cost increases (still fixed, but higher), its marginal cost curve does not shift. 10. A profit-maximizing company should always produce in the short run as long as it covers all of its fixed cost. Multiple Choice. Mark the box corresponding to the best answer. Each correct answer adds 5 points to your score. Each blank answer gives you 1 point. 11. Suppose the government sets a binding price floor of $4 per gallon on gasoline. Furthermore, the government enforces the price floor by setting a tax to keep the price from falling below $4 per gallon. With this policy in place, this price floor guarantees that: A) Producers' total revenue increases. B) Producer surplus will increase. C) Consumer surplus will increase. D) Producer surplus will decrease. E) More than one of the above 12. Consider the marginal product of labor (MPL) and average product of labor (APL) for a firm with typical U-shaped cost curves. Which of these circumstances could NEVER be observed? A) MPL > APL, and APL is increasing with labor. B) MPL < APL, and MPL is decreasing with labor. C) MPL > APL, and MPL is decreasing with labor. D) MPL and APL are both increasing with labor. E) MPL < APL, and APL is increasing with labor.
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Version 1 Page 3 13. Jan and Paula sell pizzas for $1.50 per slice on South University Street. They are paid a salary of $1,000 each no matter how much pizza they sell. Cheese costs $0.50 per slice, and dough costs $0.30 per slice. It is a small shop, so rent is only $400. When they sell
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This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Mid2V1F10 - Name: _ Second Midterm Examination Economics...

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