ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION

Transcription

1 YOUR NAME Row Number ECO201: PRINCIPLES OF MICROECONOMICS SECOND MIDTERM EXAMINATION Prof. Bill Even April 20, 2016 FORM 1 Directions 1. Fill in your scantron with your unique-id and the form number listed on this page. Proper completion of this step of the directions is worth the equivalent of one question. 2. There are 45 multiple choice questions. All answers should be recorded on the scantron sheet. No credit will be given for answers placed elsewhere. Record your answers on the exam as well because this will be the record of your answers which you can use to determine which questions you got right or wrong on the exam. 3. A calculator is allowed. Cell phones or any other electronic device are prohibited. Access to any electronic device other than a calculator (including a smart watch) will be treated as a case of academic dishonesty. 4. You have until the end of the class period to finish the exam and complete the scantron. Additional time may be purchased at a price of 5 percentage points per minute. 1

2 The figure shows the domestic market for computer chips in the United States. 1) In the figure above, if the world price of a computer chip is $60, the United States computer chips per year. A. imports 40,000 B. imports 20,000 C. exports 20,000 D. none of the above. 2) Suppose that in the figure above the world price of computer chips is $60. Compared to the case where there is no international trade allowed, free trade in computer chips will producer surplus in the United States by. A. increase; $2.0 million B. decrease; $800,000. C. decrease; $2.0 million D. none of the above. 3 Suppose that in the figure above the world price of computer chips is $60. Compared to the case where there is no international trade allowed, free trade in computer chips will consumer surplus in the United States by. A. increase; $2.0 million B. decrease; $800,000. C. decrease; $1.2 million D. none of the above 4) The Chinese government has recently announced plans to subsidize the production of computer chips in China. Considering the effect of this on the world price of computer chips, we should expect that the new policy will U.S. imports of computer chips and U.S. production of computer chips. A. increase; increase. B. increase; decrease C. decrease; decrease D. Decrease; increase 2

3 The figure shows the domestic supply and demand for computer chips in the United States. 5) Suppose that the world price of computer chips is $60. If a $20 tariff is imposed on the import of computer chips into the U.S., A. U.S. exports would rises by 40,000 per day. B. U.S. imports would fall by 40,000 per day. C. U.S. imports would fall by 20,000 per day. D. none of the above. 6) Suppose that the world price of computer chips is $60. If a $20 tariff is imposed on the import of computer chips into the U.S., consumers surplus in the U.S. would fall by per day. A. $1.0 million B. $1.1 million C. $1.2 million D. none of the above. 7) Suppose that the world price of computer chips is $60. If a $20 tariff is imposed on the import of computer chips into the U.S., producers surplus in the U.S. would per day. A. rise by $400,000 B. rise by $500,000 C. fall by $400,000 D. none of the above. 8) Suppose that the world price of computer chips is $60. If a $20 tariff is imposed on the import of computer chips into the U.S., producers surplus in the U.S. would per day. A. rise by $400,000 B. rise by $500,000 C. fall by $400,000 D. none of the above. 9) Suppose that the world price of computer chips is $60. If a $20 tariff is imposed on the import of computer chips into the U.S., the tariff would generate tax revenue of per day and create a deadweight loss of. A. $400,000; $200,000; B. $500,000; $400,000 C. $500,000; $400,00 D. none of the above. 3

4 The figure shows the domestic supply and demand for computer chips in the United States. 10) Suppose that initially, the world price of computer chips is $60. If the U.S. imposes a quota limiting the number of imported computer chips to no more than 20,000 per day, the quota will: A. have no effect on the U.S. computer chip market since the quota will not be binding. B. increase the price of computer chips to $80 in the U.S. C. increase the price of computer chips to $100 in the U.S. D. none of the above. 11) Which of the following groups would benefit from a U.S. import quota on computer chips? A. foreign computer chip manufacturers. B. U.S. computer chip manufacturers. C. U.S. computer chip buyers D. none of the above. 12) Suppose that the U.S. exports corn to the rest of the world. Which of the following would cause U.S. exports of corn to fall? A. an increase in the world price of corn B. an increase in demand for corn in the U.S. C. an increase in the supply of corn in the U.S. D. all of the above. 4

5 13) Suppose that the U.S. imports oil from the rest of the world. Which of the following would cause U.S. oil imports to fall? A. an increase in the demand for oil in the rest of the world. B. an increase in the supply of oil by U.S. producers. C. a decrease in the supply of oil by the rest of the world D. all of the above. 14) Mary takes $5,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $5,000 for her business. At the end of the year the computer is worth $3,000. Mary pays an implicit rental rate of a year for her computer in the first year. A) $2,250 B) $ 250 C) $5,000 D) none of the above 15) Heidi quit her job as a chef making $60,000 per year to start her own restaurant. The first year, Heidi's restaurant earned $500,000 in revenue. Heidi pays $325,000 per year in wages to the waitresses and hostess and $120,000 per year to buy food and rent the building. What is Heidi's economic profit for the year? A) $55,000 B) -$55,0000 C) 5,000 D) none of the above 16) Emma owns a firm that produces umbrellas. Currently, Emma produces 2,500 umbrellas a day. Emma cannot produce more umbrellas in a day unless she purchases another machine or else hires more workers. Based on this information alone, we can conclude that Emma is efficient. A) economically B) technologically C) both economically and technologically D) neither economically or technologically Techniques that produce 100 sweaters Technique Labor (hours) Capital (machines) A B C D ) In the above table, the technique that is definitely technologically inefficient A) B B) C. C) D. D) Techniques B & C 18) Using the data in the above table, if the price of an hour of labor is $30 and the price of a unit of capital is $20, then the most economically efficient technique for producing 100 sweaters is A) A. B) B. C) C. D) D. 19) Which types of firms have unlimited liability? A) proprietorships B) corporations and partnerships C) partnerships and proprietorships D) corporations 5

6 20) account for the largest portion of all firms; account for most of the total revenue received by businesses. A) Corporations; proprietorships B) Proprietorships; partnerships C) Partnerships; corporations D) Proprietorships; corporations 21) Which of the following is a DISADVANTAGE of a corporation relative to a proprietorship? A. the manner in which its profits are taxed. B. its lack of access to large amounts of financial capital. C. its unlimited liabilility. D. none of the above are a disadvantage for the corporation. 22) Suppose there are five firms in the regional hotel industry with the following market shares: 40; 20; 20; 10; 10. The Herfindahl-Hirschman Index in this industry is A) 90. B) 900. C) D) ) According to the assigned reading from the Economist magazine, over the past 20 years, U.S. industry has become concentrated and U.S. regulatory authorities have become willing to allow mergers. A. more; more. B. more; less C. less; more. D. less; less. 24) If two companies want to merge and the Department of Justice is questioning the merger, the chance of approval will be lower if A) the geographic definition of the market is narrowed. B) the products included in the market definition are narrowed. C) the ability that firms can monitor each other's prices is improved. D) all of the above 6

7 Output (ounces of gold per day) Marginal cost (dollars) Total cost (dollars) ) The above table gives some of the costs of the Ace Gold Company. What is the average fixed cost of producing 4 ounces of gold daily? A. $150 B. $250 C. $500 D. $750 26) The above table gives some of the costs of the Ace Gold Company. What is the average total cost of producing 4 ounces of gold daily? A. $150 B. $500 C. $900 D. $ ) A firm's price for its product is $40, its marginal cost is $30, its average variable cost is $25, its average total cost is $50, and its output is 800 units. If it increases production to 801 units, its ATC will, its AVC will, and its AFC will. A. fall; fall; fall B. fall; rise; fall C. rise; rise; fall. D. none of the above. 28) A firm's price for its product is $40, its marginal cost is $30, its average variable cost is $25, its average total cost is $50, and its output is 800 units. If it increases production to 801 units, its profits will A. rise $10 B. rise $15 C. fall $10 D. none of the above. 7

8 29) Dustin's copy shop can use four alternative plants. The figure above shows the average total cost curves for Plant 1 (ATC1), Plant 2 (ATC2), Plant 3 (ATC3), and Plant 4 (ATC4). Dustin's Plant 3 will be economically efficient if the firm produces A) 8,000 copies per day. B) 4,000 copies per day. C) 2,000 copies per day. D) none of the above 30) If there are economies of scale in the production of corn, as a farmer s corn production rises: A. long run ATC of corn will fall. B. short run ATC of corn will fall. C. short run ATC of corn will rise. D. long run ATC of corn will rise. 31) Based on class discussion, the minimum efficient scale for a firm has been falling over time in which industry? A. farming B. commercial printing C. software manufacturing D. all of the above. 8

9 32) A monopolist emerges in a market where the efficient scale of a single producer is relative to the demand for the good or service. A) maximum; small B) minimum; small C) maximum; large D) minimum; large 33) If a firm is faced with diminishing marginal returns, its marginal product of labor must as it hires more workers and its marginal cost of output must as it increases production. A. rise; rise B. rise; fall C. fall; fall D. fall; rise. 34) In the above figure, if the price is $10 per unit, how many units will a profit maximizing perfectly competitive firm produce in the short run? a) 0 b) between 10 and 20 c) between 21 and 30 d) more than 30 35) In the above figure, this firm would shut down and produce no output in the short run if and only if the price is a) below $4 b) below $8 c) below $12 d) below $16 36) In the above figure, if the price is $10 per unit and it is a constant cost industry, in the long run we would expect A) firms would enter and the price would eventually settle below $10 B) firms would not enter or exit and the price would stay at $10 C) firms would exit and the price would eventually settle above $12 D) firms would exit and price would eventually settle at $12 9

10 37) In the above figure, if the price is $10 per unit and it is an increasing cost industry, in the long run we would expect A) firms would exit and the price would eventually settle below $12 B) firms would not enter or exit and the price would stay at $10 C) firms would exit and the price would eventually settle above $12 D) none of the above 38) Suppose that the avocado industry is perfectly competitive and in a long run equilibrium with a price of $3 per pound. If the avocado industry is a constant cost industry and there is a permanent decrease in the demand for avocados. In the short run, this decrease in demand will cause firms to the amount of avocados produces and cause economic profits to A. not change; not change. B. not change; decrease C. decrease; decrease. D. none of the above. 39) Suppose that the avocado industry is perfectly competitive and in a long run equilibrium with a price of $3 per pound. If the avocado industry is a constant cost industry and there is a permanent decrease in the demand for avocados. In the long run, this decrease in demand will cause the price of avocados to and the amount of avocados produced by the typical firm to. A. fall; fall. B. fall; not change. C. not change; fall. D. not change; not change 10

11 40) Suppose that the avocado industry is perfectly competitive and in a long run equilibrium with a price of $3 per pound. If the avocado industry is a decreasing cost industry and there is a permanent decrease in the demand for avocados. In the long run, this decrease in demand will the price of avocados and economic profits. A) not affect; increase. B) decrease; increase C) not affect; not affect. D) incresae; not affect. 41) Suppose that the avocado industry is perfectly competitive and in a long run equilibrium with a price of $3 per pound. If the avocado industry is a constant cost industry and the government adds a $1 tax per pound of avocados. In the short run, the total price of avocados paid by consumers (including the tax) will and the profits of the typical avocado farmer will. A) increase to $4; not change B) increase to less than $4; fall C) not change; fall.. D) none of the above. 42) Suppose that the avocado industry is perfectly competitive and in a long run equilibrium with a price of $3 per pound. If the avocado industry is a constant cost industry and the government adds a $1 tax per pound of avocados. In the long run, the total price of avocados paid by consumers (including the tax) will and economic profits of avocado producers will relative to the profits they earned prior to the tax. A. rise $1; fall. B. rise $1; not change. C. rise less than $1; fall. D. none of the above. 43) Suppose that the price of fertilizer used for growing avocados falls and results in a $.50 decrease in the marginal and average variable cost per mile for avocados. Assume the avocado industry is a constant cost industry. This will cause the price of avocados to a) fall by less than $.50 in the short run. b) cause avocado farmer profits to rise in the short run c) cause avocado prices to fall more in the long run than in the short run d) all of the above 11

12 To answer the next two questions, suppose that a city imposes a ban on the construction of any new rental housing. Also, assume that the industry is initially in a competitive long run equilibrium and apartments rent for $1000 per month. 44) The price that a landlord can sell an existing rental property for would likely fall if A. the demand for rental housing fell B. the cost of maintaining rental properties increased C. the cost of insuring rental properties increased. D. all of the above. 45) Suppose that city s demand for rental housing rises over time and city council suddenly decides to remove the ban on construction of new rental housing. The removal of the ban should: A. reduce the rent paid for rental housing. B. increase the price a landlord can get for the sale of his/her rental property. C. reduce the economic profits of new landlords in the area. D. all of the above 46) Fill in your unique id and form number correctly on your scantron to get credit for a correct answer. 12

13 1 a 2 d 3 a 4 b 5 c 6 b 7 b 8 b 9 a 10 b 11 b 12 b 13 d 14 a 15 d 16 b 17 d 18 a 19 c 20 d 21 a 22 d 23 a 24 d 25 d 26 d 27 b 28 a 29 d 30 a 31 b 32 d 33 d 34 c 35 b 36 d 37 a 38 c 39 d 40 d 41 b 13

14 42 b 43 d 44 d 45 a 14