1 Econ 226, Section 4 Fall, 22 Dr. Kathryn Wilson NAME Midterm Exam 2 Green Instructions 1. Do not turn this page until you are instructed to do so. 2. Put away all books and papers by placing them under your seat. You may use a calculator for the exam. 3. If you have a question, raise your hand. There are no trick questions, so if something seems unclear, please ask me about it. 4. Print your name and Student ID# in the spaces provided on the answer sheet. In the spot labeled Call No. put In Test Code put 2. Also fill in the circles that correspond to the letters and numbers. 5. The exam consists of 4 multiple choice questions. 6. For each question, fill in the circle for the correct answer on the answer sheet. If more than one answer is filled in, the question will be marked incorrect. 7. Before handing in the exam and answer sheet, please check it to make sure it includes your name, student number, call no., test code, and the answer to 4 questions. 8. MAKE SURE THE ANSWER SHEET IS THE SAME COLOR AS THE EXAM! Good Luck!!!
2 1. A market that is characterized by perfect competition will have a price and consumer surplus than any of the other three market structures. a. higher; more b. higher; less c. lower; more d. lower; less Use the following graphs to answer the next four questions. The first graph shows the costs for a representative firm in perfect competition. The second graph shows the industry supply curve and demand curve Firm Marginal Cost 8 Average Total Cost Industry Quantity Supply Demand 2. What will the firm sell in the short run to maximize profits? a. 15 b. 4 c. 7 d How much are the firm's short-run profits? a. b. 25 c. 5 d What will be the long run price and the long run sold for the industry? a. price = 1; Quantity = 6, b. price = 1; Quantity = 15, c. price = 25; Quantity = 1,5 d. price = 25; Quantity = 18,
3 5. How many firms are there in the long run? a. 1 b. 15 c. 225 d When the marginal cost curve is increasing (upward sloping) it is because a. specialization is resulting in workers having less productivity. b. specialization is resulting in workers having more productivity. c. the law of diminishing returns is resulting in workers having less productivity. d. the law of diminishing returns is resulting in workers having more productivity. 7. A firm maximizes profits by selling the where a. total revenue = total cost b. average revenue = average total cost c. marginal revenue = marginal cost d. marginal benefit to society = marginal cost to society 8. A firm is economic efficient (no deadweight loss) if they produce the where a. marginal revenue = marginal cost b. total revenue = total cost c. marginal benefit to society = marginal cost to society d. total benefit to society = total cost to society 9. When a fast-food restaurant only has one worker in the kitchen, the worker can serve 1 customers per hour. When the fast-food restaurant has two workers, one concentrates on cooking the hamburgers while the other concentrates on all the other food needs and the two workers can serve 25 customers per hour. When there are three workers, they can serve 5 customers per hour. This is an example of a. the law of diminishing return b. specialization of workers increasing productivity c. fixed costs of a fast-food restaurant d. all of the above 1. Average total cost is equal to a. total cost / marginal cost b. change in total cost / change in output c. total cost / total output d. total cost / number of workers 11. Which of the following is true for all four market structures? a. firms maximize profits where marginal revenue equals marginal cost b. long run profits will be zero or very close to it c. marginal revenue is equal to price d. a firm will shut down in the short run any time it has negative profits
4 12. Which of the following is an example of a fixed cost for a wheat farmer? a. the hourly wages he pays the part-time workers on his farm b. the cost of the seeds that he plants c. the property taxes he pays on his land d. the cost of fertilizer he uses to help his wheat grow 13. The marginal revenue of a firm is equal to its price if the firm is a. perfect competition b. monopolistic competition c. monopoly d. oligopoly e. all of the above 14. If a monopoly is earning positive profits in the short run a. new firms will enter b. the firm's demand curve will shift in c. the firm's profits will go down d. all of the above e. none of the above 15. A firm in monopolistic competition will face a demand curve that is a. downward sloping but not as elastic as the demand curve for a monopoly b. downward sloping and more elastic than the demand curve for a monopoly c. a horizontal line (flat at the market price) d. a vertical line (straight up and down at the market ) 16. A firm in perfect competition will face a demand curve that is a. downward sloping but not as elastic as the demand curve for a monopoly b. downward sloping and more elastic than the demand curve for a monopoly c. a horizontal line (flat at the market price) d. a vertical line (straight up and down at the market ) 17. If firms in an oligopoly industry form a cartel, the industry will sell a and charge a price compared to if the firms in the industry compete with each other. a. higher, higher b. higher, lower c. lower, higher d. lower, lower 18. Tyann quit her job as a teacher to start her own gymnastics club. She earned 35, as a teacher. Her economic profits at the gymnastics club are 1,. Which of the following statements is true? a. Tyann should go back to being a teacher because 1, economic profits is not enough to live on. b. Tyann should keep the gymnastics club because she is earning 1, more than she would as a teacher (her next best alternative). c. Tyann should only keep the gymnastics club if she can get economic profits to be 35, or more. d. Tyann is earning 1, accounting profits in the gymnastics club.
5 Use the following table to answer the next three questions. The table shows the amount of output that can be produced depending on how many workers are employed. # of workers Total Output What is the marginal physical product of the 4th worker? a b. 3 c. 6 d Which of the following statements is true for the table above? a. The law of diminishing marginal returns is not present because marginal output is increasing. b. The law of diminishing marginal returns is not present because total output is increasing. c. The law of diminishing marginal returns is present because marginal output is increasing by smaller amounts as workers are added. d. The law of diminishing marginal returns is present because total output is increasing by smaller amounts as workers are added. 21. Based on the numbers in the table above, we know that the marginal cost of making the 9th unit is the marginal cost of making the 35th unit because of a. less than; the law of diminishing returns b. less than; specialization of workers c. more than; the law of diminishing returns d. more than; specialization of workers Use the following table to answer the next question. Firm B chooses high price Firm A chooses high price Firm A gets 1 profit Firm B gets 1 profit Firm A chooses low price Firm A gets 15 profit Firm B gets 1 profit Firm B chooses low price Firm A gets 1 profit Firm B gets 15 profit Firm A gets 5 profit Firm B gets 5 profit 22. The table above shows the profits for two firms in an oligopoly depending on the price each firm charges. The dominant strategy for Firm A is a. to charge a high price b. to charge a low price c. to charge whatever price Firm B charges d. to charge the opposite price of what Firm B charges
6 Use the following graph to answer the next four questions. The graph shows the demand curve and cost curves for a firm in monopolistic competition. Price Marginal Cost 1 2 Demand Quantity 7 8 ATC 23. What will the firm sell and what price will it charge in order to maximize profits? a. = 4; price = 1 b. = 4; price = 3 c. = 5; price = 13 d. = 5; price = 25 e. = 65; price = How much are the firm's maximum profits? a. 2 b. 4 c. 6 d What would the firm have to sell for there to be no excess capacity? a. 4 b. 5 c. 65 d. 7 e What would be efficient (have no deadweight loss)? a. 4 b. 5 c. 65 d. 7 e In the United States, an oligopoly is most related to which game? a. solitaire, where each firm acts on its own b. rolling dice, where chance determines the outcome c. chess, where one firm's best choice depends on what the opponent does d. pictionary, where everyone works together as a team to reach a common goal 9 1
7 28. Tim paints houses. Before he painted the last house, Tim's average total cost of painting houses was 2. Tim figured that it cost him 1 to paint the last house. Including the last house painted, Tim's average total cost of painting houses is 2. a. less than b. equal to c. more than d. either less than or more than 29. Clyde's Cycling shop has fixed costs of 1,, variable costs of 8,, and total revenue of 9,. Which of the following statements is true for Clyde in the short run? a. Clyde should shut down because total revenue is less than total costs. b. Clyde should shut down because total revenue is less than fixed costs. c. Clyde should stay open because total revenue is greater than total costs. d. Clyde should stay open because total revenue is greater than variable costs. Use the following table to answer the next three questions. fixed costs variable costs total cost marginal costs average total cost The average total cost of the 1th unit is a. 1 b. 2 c. 4 d The marginal cost of the 12th unit is a. 45 b. 6 c. 7 d The variable cost of the 14th unit is a. 5 b. 7 c. 9 d The difference between fixed costs and variable costs is a. fixed costs change depending on the being produced but variable costs do not change b. variable costs change depending on the being produced but fixed costs do not change c. variable costs include opportunity costs but fixed costs don't include opportunity costs d. variable costs are included in total costs but fixed costs are not included in total costs
8 34. Long ago AT&T used to be the only telephone company. The government broke up their monopoly and now there are a lot of different long distance companies that fight for your business. Given what we know about market structure, we know that the of phone calls are and the price of phone calls are with many firms compared to when the phone industry was run by a monopoly. a. greater; higher b. greater; lower c. fewer; higher d. fewer; lower Use the following table and information to answer the next three questions. The table shows the total costs of production for a firm. The firm is in perfect competition and the market price for the product is 5. Quantity Total Cost What should the firm sell to maximize profits? a. b. 2 c. 4 d How much are the maximum profits this firm can earn? a. -14 (14 loss) b. -6 (6 loss) c. 6 d Which of the following statements is true for this firm? a. The firm should raise its price above 5 in order to increase profits. b. The firm should lower its price below 5 in order to increase profits. c. The firm should shut down in the short run. d. none of the above is true
9 Refer to the following graphs to answer the next question. A B C D 38. Which graph shows an average fixed cost curve? a. A b. B c. C d. D 39. The firm's short run supply curve for an industry that is perfect competition is a. the firm's marginal cost curve above average total cost b. the firm's marginal cost curve above average variable cost c. the firm's average total cost curve above marginal cost d. the firm's average variable cost curve above marginal cost 4. Which of the following is an example of an industry that is perfect competition? a. wheat b. pizza c. automobile manufacturing d. cable television company
10 Answer Key Green 1. c 2. c 3. d 4. b 5. d 6. c 7. c 8. c 9. b 1. c 11. a 12. c 13. a 14. e 15. b 16. c 17. c 18. b 19. b 2. a 21. b 22. b 23. b 24. c 25. b 26. c 27. c 28. a 29. d 3. c 31. c 32. a 33. b 34. b 35. c 36. a 37. d 38. a 39. b 4. a