practiceexam2A.pdf

ECO NO O O 251Exam#2 Pi n k Fall 2009( Pr act i c e Exam#2Af or S pr i n g 2010) 1. Adri e nnec onsum e s o n l y pas t a a nd r i c e . Wi t h her $50we e kly i ncom e , s h e c a n a f f or d t obuy5 poundsof r i c e or 10 pounds of pas t a . T his i m pli e s h e r budget l i ne e qua t i on i s whic h of t he f oll o wi ng?a . Q pas t a = - 2 Q r i c e + 10 b. Q pas t a = 2 Q r i c e + 10c . Q r i c e = - 2 Q pas t a + 10 d. Q r i c e = 2 Q pas t a + 10 Br i a n c ons um e s o n l y burr i t os a n d C okewi t h his $20we e kly i ncom e . T he t a ble bel ow des c r i b e shis m a r ginal u t i l i t y f or e a c h qua nt i t y. Q u a nt i t y per we e k Ma r ginal uti l i t y burr i t os Gl a s s e s of C oke1 50 60 2 40 503 20 30 4 10 205 5 10 2. I f bur r i t os a r e $5 e a c h a nd C okei s $2 per gla s s , whic h c om binat i on m a xim i z e s h i s uti l i t ygiven h i s $20i ncom e ? a . ( 1 burr i t os, 2 c okes )b. ( 2 burr i t os, 4 c okes ) c . ( 2 burr i t os, 5 c okes )d. ( 4 burr i t os, 5 c okes ) 3. When t he c ons um e r i s a t his or her bes t a f f or dable c onsum pt i on point, t he m a r ginal r a t eof s ubst i t ut i on i s a . gre a t e r t han t he r a t i o of t he pri c e o f good? x ? t o t he pri c e o f g ood ? y ? ( P x / P y)b. e qual t o t he r a t i o of t he pri c e of good? x ? t o t he pri c e of good? y ? ( P x / P y) c . l e s s t han t h e r a t i o of t he pri c e of g ood ? x ? t o t he pri c e of g ood ? y ? ( P x/P y)d. m a xim i z e d . 4. Whic h o f t he f oll o wi ng i s gener a l l y t r ue a bout a n i ndif f e r e nce c u r ve:a . I t h a s a negat i ve s l ope b. I ndif f e r e nce c urves wi t h higher uti l i t y a r e c l ose s t t o t he ori ginc . T he s l ope o f t he i ndif f e r e nce c u r ve get s s t e e per a s c ons um pti o n of g ood ? x ? i ncr e a s e sd. Bot h a a nd b 5. Ac c or ding t o t he s hape of t he i ndif f e r e nce c urves r e pre s e nte d i n t he g r a ph bel ow, whatc a n we s a y a boutt he t w o goods, P e psi a nd C oke: Q Co k e Q P e p s i a . T hey a r e per f e c t s ubst i t ut e sb. T hey a r e per f e c t c om ple m e nts c . T hey a r e Gi f f e n goodsd. N one o f t he a bove 6. Adam has a n i ncom e o f $50a nd c onsum e s only P i z z a a nd c oke. T h e pri c e f or onepiz z ai s $7 a n d a bott l e of c okec ost s $6. Wh a t i s t he s l opeof Adam ? s budget l i ne i f t he quanti t y of piz z a i s m e a s ur e d on t he x a xis ?a . - 6/7 = - 0.86 b. - 7/6 = - 1.17c . - 25/3 = - 8.3 d. - 50/7 = - 7.1 7. J e nnif e r has a n i ncom e of $40per we e k a n d c ons um e s o n l y s a l a d a nd s oup.O n e s a l a dc ost s $8 a nd a c up of s oup c ost s $4. Wh a t i s t he opport unit y c ost t o J e n nif e r of buying a c up of s oup?a . 2 s a l a ds b. 10 s a l a dsc . ½ of a s a l a d d. 5 s a l a ds 8. J e nnif e r has a n i ncom e of $40per we e k a n d c ons um e s o n l y s a l a d a nd s oup.O n e s a l a dc ost s $8 a nd a c up of s oup c ost s $4. Wh a t i s her m a r ginal r a t e of s u bst i t uti o n when s he i s m a xim i z i ng her u t i l i t y? ( As s um e t he qua nt i t y of s a l a d i s m e a s ur e d on t he Y- a x i s a nd t h equanti t y of s oup i s m e a s ure d o n t he X- a x i s .) a . 2b. 5 c . 10d. 0.5 9. Ba s e d on t he g r a ph bel ow r e pre s e nti ng c onsum pt i on c h oic e s , whic h of t he f oll o wi ngm ust be t r ue: I C1 I C2 I C0 Qx B Qy A D C a . A i s pre f e r r e d t o B a nd Cb. B i s pre f e r r e d t o A a nd C c . D i s pre f e r r e d t o A, B a nd Cd. Bot h b a nd c a r e c orr e c t 10. An i ncr e a s e i n t he wa ge w i l l r e s ult i n a dec r e a s e i n t he qua nt i t y of l a bor s uppli e d i fa . t he i ncom e e f f e c t of t he wa ge c h a nge i s s t r onger t han t he s ubst i t ut i on e f f e c t of t h e wa ge c h a nge.b. l e i s ure i s a n i nfe r i or good. c . t he s u bst i t uti o n e f f e c t o f t he wa ge c hange i s s t r onger t han t he i ncom e e f f e c t of t h ewa ge c h a nge. d. t he wa ge i ncr e a s e m a kes t h e budget l i ne f l a t t e r . 11. Ba s e d on t he g r a ph bel ow, t he i ncom e e f f e c t of t h e dec r e a s e i n t he pri c e of m i l k s hakes______t he qua nt i t y of m i l k s hakes dem a nded f r om ______. a . i ncr e a s e d; 2 t o 5b. i ncr e a s e d; 2 t o 3 c . i ncr e a s e d; 3 t o 5d. dec r e a s e d; 5 t o 2 12. Ba s e d on t he g r a ph bel ow, what i s t he m a r ginal r a t e of s u bst i t uti o n a t point c ? a . 1b. 2 c . 1/2d. 8 O u t put T C AT C MC0 1 14 42 6 3 284 9.5 13. I n t he t a ble a bove, what i s t he m a r ginal c ost of t he t hir d unit of output?a . $10 b. $9.33c . $8 d. $9 14. Us i ng t he i nform a t i o n i n t he t a ble a bove, what i s t he a v e r a ge v a r i a ble c ost of produci ngf our u nit s of output? a . $8b. $7 c . $9d. $10 15. T he t a ble bel ow s hows t he m a r ket s har e of e a c h f i r m i n t he s hoei ndust r y. T he f our- f i r mc once ntr a t i o n r a t i o i n t his i ndust r y i s ____,a nd t he He r f i nda hl- Hi r s c hm a n I n dex i n t his i ndust r y i s ______. a . 50, 750b. 73, 1688 c . 100,1688d. 73, 1419 16. As a f i r m use s m ore of t he v a r i a ble f a c t or w i t h a given qua nt i t y of t he f i xed f a c t or ofproduct i o n, t he m a r ginal product o f t he var i a ble f a c t or e ventual l y f a l l s . We c a l l t h i s : a . T he L a w of Di m i nis hing Ma r ginal Ut i l i t yb. T he Ma r ginal Ra t e of S u bst i t uti o n c . T he L a w of Di m i nis hing Re t ur nsd. T he L a w of De m a nd F i r m A B C D E F G Ma r kets har e 15 20 10 5 25 12 13 17. T he t a ble bel ow provides c ost dat a f or a f i r m t hat oper a t e s i n a per f e c t l y c om pet i t i vei ndust r y. Us i ng t he i nfor m a t i on, what i s t he m a r ginal c ost o f produci ng t he 3rd h e a dse t ? Q u a nt i t y( hea dse t s per hour) T ota l C ost( Doll a r s ) 0 301 40 2 603 102 4 1805 300 a . $60b. $102 c . $42d. $30 18. I n t he m a r ket f or h e a dse t s a bove, f i xed c ost s a r e _______,i ndic a t i ng t hat t he f i r m i soper a t i ng i n t he _____. a . $10;s hort r unb. $20;s hort r un c . $30;s hort r und. $0; l ong r un 19. I f t he m a r ket f or hea dse t s i s per f e c t l y c om pet i t i ve, a n d t he m a r ket pri c e f or hea dse t s i s$79,what l e vel of product i o n m a xim i z e s profi t f or t his f i r m ? a . 2 hea dse t s per h ourb. 3 hea dse t s per h our c . 4 hea dse t s per h ourd. Be t we e n 3 a nd 4 hea dse t s per h our 20. Us i ng t he a bove i nfor m a t i on a boutt he m a r ket f or h e a dse t s , what c a n be s a i d a boute ntr y/ e xit dec i s i o ns i n t he l ongr un? a . N e w f i r m s w i l l e n t e r t he m a r ket bec a use f i r m profi t s a r e posi t i ve i n t he s hort r unb. F i r m s w i l l e xit t he m a r ket bec a use f i r m profi t s a r e n e gat i ve i n t he l ongr un c . N o f i r m w i l l e nte r or e xit bec a use profi t s a r e e xac t l y z e r od. N o f i r m c a n e nte r bec a use t her e a r e l e gal bar r i e r s t o e n t r y i n t he m a r ket f or hea dse t s 21. I n t he s hort - r un, a per f e c t l y c om pet i t i ve f i r m ? s s upply c u r ve i sa . T he whole m a r ginal c ost c u r ve. b. T he par t of m a r ginal c ost c u r ve whic h i s a bovet he a v e r a ge var i a ble c ost c u r ve.c . T he par t of a ver a ge t o t a l c ost c urve whic h i s a bovet he m a r ginal c ost c u r ve. d. T he whole a ver a ge v a r i a ble c ost c urve. 22. Whic h o f t he f oll o wi ng i s N O T t r ue r e gar ding profi t ( ? ) ?a . ? = T R ? T C b. ? = q(p ? AV C ) ? F Cc . ? = q(p ? AT C ) d. ? = q(p ? AF C ) ? T C 23. I n t he l ongr un,a . P r ofi t i s z e r o f or a per f e c t l y c om pet i t i ve f i r m b. Ma r ginal r e venuei s m a xim i z e d f or a per f e c t l y c om pet i t i ve f i r mc . F i xed c ost s a r e posi t i ve d. P r ofi t i s m a xim i z e d wher e a ver a ge var i a ble c ost i s e qual t o a ver a ge f i xed c ost 24. Whic h o f t he f oll o wi ng i s t r ue i n t he L ong Run but not t r ue i n t he S h or t Run?a . MC i nte r s e c t s AT C a t i t s m i nim um b. AT C = AV Cc . T C = T V C + T F C d. Bot h b a nd c 25. Under whic h of t he f oll o wi ng s c e nar i o s w i l l a f i r m oper a t e i n t he s hort r un but not i n t hel ongr un? a . T R < T V Cb. T V C ? T R < T C c . T C ? T Rd. N one o f t he a bove 26. I f f i r m s ? c ost s i ncr e a s e a s new f i r m s e n t e r t he m a r ket , t hen t his i s i ndic a t i on of:a . E xt e r nal e c onomi e s b. E xt e r nal dis e c onomi e sc . Mi nim um e f f i c i e nt s c a l e d. E c onomi e s of s c a l e 27. T he f i gure bel ow s hows t he s h or t - r un c ost c urves f or a per f e c t l y c om pet i t i ve f i r m .S u ppose t hat t he m a r ket pri c e i s $4. T hen t he f oll o wi ng m ust be t r ue a bout t he profi t s of t he f i r m : P ( $ ) output MC AT C AV C 2 3 4 5 5 0 6 5 7 0 6 8 0 C B A a . P r ofi t s a r e z e r ob. P r ofi t s a r e negat i ve, but t he f i r m produce s 70 u nit s c . P r ofi t s a r e e qual t o negat i ve $70d. P r ofi t s a r e posi t i ve 28. Ba s e d on t he s a m e gra ph a bove, what a r e t he f i xed c ost s of produc t i on f or t his f i r m ?a . $280 b. $210c . $195 d. $100 29. Us i ng t he s a m e g r a ph a bove, t he f i r m w i l l c hoose t o s hut down i f t he pri c e f a l l s bel owa . $3 b. $4c . $5 d. $6 30. T he f i gure a boves hows i nfor m a t i on f or a s i ngle - pri c e m onopoli s t who i s m a king posi t i veprofi t . T he m onopoli s t m a xim i z e s profi t by produci ng ______unit s of out put a nd c har ging a pri c e of _____.a . 9; $10 b. 7; $6c . 7; $12 d. 0; $0 31. I f t he m onopoly pra c t i c e s per f e c t pri c e dis c r i m i nat i o n, what i s t he pri c e of t he l a s t unitproduce d by t he f i r m , a n d h ow m a ny out puts does t he f i r m produce ? a . P *= $12,Q *= 7b. P *= $10,Q *= 7 c . P *= $10,Q *= 9d. P *= $6, Q *= 7 32. When t he m onopoly pra c t i c e s per f e c t pri c e dis c r i m i nat i o n, c onsum e r s urplus i s e qual t o_____,a nd dea dwe i ght l oss i s e qual t o ______. a . $0; $0b. $45;$0 c . $22.50;$4d. $9.50;$6 33. T he dem a nd c urve f or a m onopoli s t i s :a . hori z onta l b. t he s a m e a s t he m a r ket dem a nd c urvec . per f e c t l y e l a s t i c d. noneof t he a bove 6 10 7 9 12 P Q DMR MC 15 34. A s i ngle - pri c e m onopoly n e ver produce s :a . a t qua nt i t i e s wher e MR< 0 b. on t he i nel a s t i c port i o n of dem a ndc . both a a n d b d. noneof t he a bove 35. Whic h o f t he f oll o wi ng r e quir e m e nt s i s ( a r e ) nec e s s a r y f or e f f e c t i ve pri c e dis c r i m i nat i o n:a . Re s a l e m ust be prohibit e d b. Buyer s m ust be s e par a ble i nto g r oupsc . P r oduct i o n c ost s m ust dif f e r a c r oss u nit s of t he s a m e g ood d. Bot h a a nd b 36. I n both m onopoly a n d per f e c t c om pet i t i o n, t he profi t - m a xim i z i ng quanti t y i s dec i ded bys e t t i ng: a . P = MCb. MR = MC c . P = AT Cd. N one o f t he a bove 37. Whic h o f t he f oll o wi ng i s t r ue?a . A m onopoli s t a l wa ys produce s m ore out put t han would be produce d i n a per f e c t l y c om pet i t i ve m a r ketb. A m onopoli s t c h a r ges a higher pri c e t han per f e c t l y c om pet i t i ve f i r m s would c . T he c ons um e r s urplus f r om m onopoly i s g r e a t e r t han t he c onsum e r s u r plus of ac om pet i t i ve m a r ket d. A l l of t he a bove 38. A m onopoly i s c urr e nt l y produci ng 100u nit s of handma de qui l t s a t t he pri c e o f $250perquil t . I f t he m a r ginal c ost i s a l s o e qua l t o $250a n d t he a ver a ge var i a ble c ost i s e qual t o $100,what s hould t he m onopoly do t o m a xim i z e profi t ?a . r a i s e t he pri c e b. l owe r t he pri c ec . i ncr e a s e product i o n d. s hut down 39. A n a t ura l m onopoly e x i s t s when t her e a r ea . Di s e c onomi e s o f s c a l e b. E xt e r nal dis e c onomi e sc . E c onomi e s of s c a l e d. E xt e r nal e c onomi e s 40. P r ofi t i s z e r o f or a nat ura l m onopoly i f t he m onopoly i s r e gula t e d t o produc e wher ea . P r i c e e qua l s a v e r a ge c ost b. P r i c e e qua l s m a r ginal c ostc . P r i c e e qua l s m a r ginal r e venue d. A l l of t he a bovegener a t e z e r o profi t f or a n a t ura l m onopoly T he F a l l 2009e x a m #2 c over s only c h a pt e r s 7- 11. S i nce y our e xam w i l l a l s o c over c hapte r 12,her e a r e a ddit i o nal ques t i o ns on m onopoli s t i c c om pet i t i o n. Your e xam w i l l s t i l l o n l y have 40 ques t i o ns. 41. I n a m onopoli s t i c a l l y c om pet i t i ve i ndust r y,a . T her e i s a s m a l l n um b e r o f f i r m s b. F i r m s a r e i denti c a lc . F i r m s e ngage i n a dver t i s i ng t o dif f e r e nti a t e t hei r product s d. A l l of t he a bovea r e t r ue 42. F i r m s i n m onopoli s t i c c om pet i t i o n produce wi t h ? e x c e s s c a pac i t y ? . T his m e a ns t hata . F i r m s produce m ore t han t he e f f i c i e nt l e vel of out put b. F i r m s produce t he l e vel of out put t hat m i nim i z e s a ver a ge c ost s i n t h e l ong r un c . F i r m s produce l e s s t han t he e f f i c i e nt s c a l e d. A l l of t he a boveocc ur 43. I n whic h of t he f oll o wi ng i ndust r i e s a r e t her e N O bar r i e r s t o e n t r y? a . Monopoly b. O l i gopoly c . Monopoli s t i c c om pet i t i o n d. Duopoly 44. A f i r m i n m onopoli s t i c c om pet i t i o n i s produci ng wher e m a r ginal r e venue i s e qual t o $8, m a r ginal c ost i s e qual t o $10,a nd a ver a ge var i a ble c ost i s e qual t o $8. What s hould t he f i r m do t o m a xim i z e i t s profi t ? a . I ncr e a s e output b. De c r e a s e out put ( but s t a y i n busi nes s ) c . S h ut down d. T he f i r m i s a l r e a dy m a xim i z i ng profi t , s o i t s houldn? t c h a nge a nything. 45. T he f oll o wi ng gra ph s hows dem a nd, m a r ginal c ost a n d a v e r a ge t o t a l c ost of a f i r m i nm onopoli s t i c c om pet i t i on. Ba s e d on t his gra ph, a . T he f i r m produce s 60 unit s of out put a nd e a r ns a n e c onomi c profi t of $60.b. T he f i r m i s oper a t i ng a t a l ong-r un e quil i b r i um . c . T he f i r m produce s 60 unit s of out put a nd e a r ns $30i n e c onomi c profi t .d. T he f i r m produce s 80 unit s of out put a nd profi t s a r e z e r o. swinstall ECON 251