7/27/2019 FALL 2013 Midterm 2

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Professor: M. Rush

ECO 2023

FALL 2013

MIDTERM 2

Read all instructions on this pageThis test is governed by UFs academic honesty code. It is intended to have 30

multiple choice questions. Please check to be sure your copy has all 30. MAKE

CERTAIN THAT YOU LOOK AT BOTH SIDES OF THE LAST PAGE!! Choose

the best answer for each question.

The next is important: Unless you are specifically told otherwise, on this test do

notassume that demand or supply is either perfectly elastic or perfectly inelastic.

On the bubble sheet, please enter:

1. Your name and initials

2. Your UF ID number3. Form code: A

4. Sign your name on the bubble sheet.

Check that the form code and UF ID number you bubbled-in are correct now. Also check

to be sure your name is correctdo it now. I have heard a rumor that the ability to

correctly record these had been mastered by a few students at FSU as well as a couple of

accounting and journalism students. I will investigate these rumors but in the

meanwhile,

CHECK YOUR FORM CODE AND UF ID NUMBER. IF YOU GET EITHER OF

THESE WRONG, YOUR TEST MIGHT NOT BE GRADED AND IF IT IS GRADED,

YOU WILL LOSE 3 POINTS!

TURN OFF ALL CELL PHONES AND OTHERCOMMUNICATION DEVICES

Youmay notuse a cell phone or any other sort of device that allows for communication

as your calculator.

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 allquestions

during the test. I dont like this policy, but it seems the fairest policy.Do not ask questions of me or the TAs; in the interest of fairness I

have instructed them not to answer any questions during the exam.You will have one hour (60 minutes) to complete the exam andbubble in all your

answers. When the TAs say that time is up, you musthand 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.

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An answer key will be posted on the class web page after 10 PM.

The test scores will be on class web page within a few days.Once you see the answer key, you might have a question about why one answer

is right and another is wrong. For these questions, email me at

mark.rush@warrington.ufl.edu Do NOT email the grader about these questions!

After the scores are posted, if you think your posted score is incorrect, then email

the grader at eco2023.grader@warrington.ufl.edu If you email me about your test

score, I will not forward the email nor respond to youyouMUSTemail 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 reportswhat 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 1 additional question.

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1) A farmer discovers that the total cost of growing 50 acres of eggplant is $50,000 andthat the total cost of growing 51 acres of eggplant is $52,000. The marginal cost ofthe 51st acre of eggplant is

A) $52,000.

B) $50,000.

C) $2,000.D) $1,019.61

E) $1,000.

2) A perfectly competitive firm incurs an economic loss but continues to operate if

A) P > ATC.

B) P < ATC andP < AVC.

C) P < ATC andP > AVC.

D) P = ATCand P > AVC.

E) None of the above because whenever a firm incurs an economic loss, it immediatelycloses.

3) A firms average variable cost is $6, its total fixed cost is $300, and its output is 60

units. Its average total cost isA) less than or equal to $5.00.

B) between $5.01 and $7.00.

C) between $7.01 and $34.00

D) between $34.01 and $75.00.

E) more than or equal to $75.01.

4) Which of the following shifts LeonardosATCcurve upward?

A) An increase in the hourly wage that Leonardos pays its workers.

B) A decrease in the hourly wage that Leonardos pays its workers.

C) An increase in the fixed amount of liability insurance premiums that Leonardos pays.

D) Both answers A and C are correct.

5) All points above a consumers budget line are

A) inferior to every point on the budget line.

B) preferred to every point on the budget line.

C) affordable.

D) unaffordable.

E) Both answers B and D are correct.

6) All of the perfectly competitive firms in a market are incurring economic losses. Ifsome of the firms exit the market, then the

A) market supply curve shifts rightward.

B) price of the product falls.

C) economic losses of the remaining firms decrease.

D) economic losses of the remaining firms increase.

E) None of the above are correct.

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7) To maximize its profit, the unregulated, single-price monopoly shown in the figureabove will produce _____ units of output.

A) 5

B) 10

C) 15

D) 20

E) None of the above are correct.

8) To maximize its profit, the unregulated, single-price monopoly shown in the figureabove will set a price of _____ per unit.

A) $10

B) $20

C) $30D) $40

E) None of the above are correct.

9) If a natural monopoly is regulated using an average cost pricing rule, the firm

A) earns a positive economic profit, and there is a deadweight loss.

B) earns zero economic profit, and there is no deadweight loss.

C) earns zero economic profit, and there is a deadweight loss.

D) incurs an economic loss, and there is no deadweight loss.

10) If both firms in a duopoly cheat on a cartel agreement, the prices ____ and bothfirms profits ____.

A) fall; rise

B) rise; fall

C) fall; fall

D) rise; rise

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Output

(units per hour)

Total Cost

(dollars per hour)

0 $4.00

1 $7.00

2 $8.00

3 $12.004 $17.00

5 $24.00

6 $36.00

11) In the above table, the firms average total cost when 6 units are produced is

A) $6.00.

B) $11.00.

C) $36.00.

D) More information is needed to answer the question.

E) Enough information is given to answer the question but none of the answers are

correct.

12) In the above table, the firms average variable cost when 5 units are produced is

A) $4.00.

B) $7.00.

C) $24.00.

D) More information is needed to answer the question.

E) Enough information is given to answer the question but none of the answers arecorrect.

13) Because of an advance in technology, a monopolysMCcurve shifts downward. Thefirm will ____ its price and ____ the quantity it produces.

A) raise; increase

B) raise; decrease

C) lower; increase

D) lower; decrease

E) not change; not change

14) A single-price monopoly can sell 2 units for $10.00 per unit. In order to sell 3 units,the price must be $9.00 per unit. The marginal revenue from selling the third unit is

A) $27.

B) $10.

C) $9.

D) $7.E) None of the above answers is correct.

15) A price discriminating monopolist charges a lower price to customers with

A) lower supply elasticities.

B) higher supply elasticities.

C) lower willingness-to-pay.

D) higher willingness-to-pay.

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16) In the long-run, in a perfectly competitive market, the firms

A) can make an economic profit.

B) produce at the minimum average total cost.

C) produce at the maximum average total cost.

D) produce at the minimum marginal cost.

17) (This is an out of the book question.) In the relationship between the associates whosell on the floor of JCPenney and the stores manager, the associates are the ____and the stores manager is ____.

A) agents; the principal

B) agents; also an agent

C) principals; the agent

D) principals; also a principal

18) In the short run, it ____ possible for a monopolistically competitive firm to make aneconomic profit and in the short run, it ____ possible for a firm in perfectcompetition to make an economic profit.

A) is; is

B) is; is notC) is not; is

D) is not; is not

19) If the regulator imposes a marginal cost pricing rule on the firm in the above figure,the firm would provide service to _____ million households and the price would be

_____ per month.

A) 6; $26

B) 6; $10

C) 10.5: $10D) 10.5; $15

E) 12.5; $10

20) (This an out-of-the-stock-market readings question.) In an efficient market,

A) big profits can be earned indefinitely.

B) there are no transaction costs.

C) price changes are easily predicted.

D) price changes are not easily predicted.

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21) Janes Garage Cleaning is a perfectly competitive firm that currently cleans 50garages a week. Janes marginal cost is $50, her price is $40, and her average totalcost is $45. Jane is

A) maximizing her profit and is making an economic profit.

B) not maximizing her profit and is making an economic profit.

C) maximizing her profit and is making a normal profit.

D) not maximizing her profit and is making a normal profit.E) None of the above are correct.

22) The profit maximizing condition for a firm in monopolistic competition is toproduce so that

A) marginal cost equals marginal revenue.

B) marginal cost equals price.

C) average total cost equals price.

D) price equals marginal revenue.

E) average total cost equals marginal revenue.

American

Cheat Comply

National

Cheat A: $600

N: $300

A: $200

N: $400

Comply A: $100

N: $200

A: $300

N: $500

23) There are two can companies, American and National, which have entered into acollusive agreement. The payoff matrix of economic profits is above. American

_____ a dominant strategy and _____ a dominant strategy.

A) has; has

B) has; does not have

C) does not have; has

D) does not have; does not have

24) A natural monopoly occurs when

A) one firm owns all the vital resources needed in the production process of a particulargood.

B) one firm can supply the entire market at a lower cost per unit than two or more firmscan.

C) a few firms collude to act as a single firm.

D) one firm captures the all the consumer surplus.

E) a cartel is able to control the market price.

25) If a monopolistically competitive firm is producing a level of output such thatmarginal cost exceeds marginal revenue, to increase its profits the firm should _____its price and _____ its output.

A) raise; decrease

B) lower; increase

C) lower; decrease

D) raise; increase

E) raise; not change

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26) Suppose that Pepsi and Coke, two competitors, agree to charge the same prices fortheir soft drinks. In the United States, this practice is

A) always legal under the antitrust laws.

B) legal as long as Herfindahl-Hirschman index is less than 1,000.

C) legal as long as the firms had a cost justification for setting prices.

D) always illegal under the antitrust laws.

27) Which one of the following statements is TRUE for BOTH perfect competition andmonopolistic competition?

A) Each type of firm faces a downward sloping demand curve.

B) Each type of firm produces a product identical to that of its competitors.

C) In the long run, firms in both industries earn zero economic profit.

D) Each type of firm competes on product quality and price.

28) Compared to a perfectly competitive market, a single-price monopoly with the samecosts will

A) create less consumer surplus.

B) create less economic profit.

C) create a deadweight loss.D) Both answers A and C are correct.

29) Monopolies can earn an economic profit in the long run because of

A) rent seeking by competitors.

B) the elastic demand for the monopolys product.

C) the cost-savings gained by the monopoly.

D) barriers to enter the monopolys market.

E) None of the above are correct.

30) After the scores are posted, if you have a question about your test score, email thegrader at ECO2023.Grader@warrington.ufl.edu and the director is so fat that (HINT:

Be SURE to answer this question because youll get credit for any answer.)A) every time he puts an apple in his mouth, people try to roast him.

B) he are a whole Pizza Hut.

C) his shadow weighs 35 pounds.

D) when he lies down on the beach, Greenpeace tries to haul him back into the water.

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