QUEEN'S UNIVERSITY AT KINGSTON

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1 f12-my Page 1 of 21 Name: Student Number: Turn in exam question paper QUEEN'S UNIVERSITY AT KINGSTON FACULTY OF ARTS AND SCIENCE Department of Economics ECONOMICS 110/111 Mid-Year/Final Examination December 14, 2012 Course Sections and Instructors: Econ 110 Section 001 Prof Lorne Carmichael Econ 110 Section 002 Prof Ian Cromb Econ 110 Section 003 Prof Ian Cromb Econ 111 Section 001 (evening) Prof Ugurhan Berkok Time Limit: 3 Hours Permitted Calculators: Pre-Approved: Casio 991 Stickers: Blue and Gold Instructions: This exam is printed on both sides of the page. Mark your selections on the multiple choice answer card in PENCIL. If you make changes, be sure to erase completely. Please record your name, student number, course number, and section number on the multiple choice answer card. Part A consists of questions surveying the course material. Parts B-F each have a series of questions related to a particular problem or situation. Try to do these questions in order since some of the answers depend on the answers to previous questions in the series. Marking Scheme: Notes: Part A [40 marks] FORTY multiple-choice questions surveying the course- 1 mark each Parts B-F [40 marks] FORTY multiple-choice questions in 5 series - 1 mark each Proctors are unable to respond to queries about the interpretation of exam questions. Do your best to answer exam questions as written. This material is copyrighted and is for the sole use of students registered in Econ 110, Econ 111, and Econ 112 and writing this exam. This material shall not be distributed or disseminated. Failure to abide by these conditions is a breach of copyright and may also constitute a breach of academic integrity under the University Senate's Academic Integrity Policy Statement.

2 f12-my Page 2 of 21 Part A [40 marks] This section consists of 40 questions that survey the course material. Answer all 40 questions; each question is worth 1 mark. Use the multiple choice answer card provided. Shade IN PENCIL the area corresponding to the best answer. If you make changes, be sure to erase completely. Please record your name, student number, course number and section number on the multiple choice answer card. 1) The concept of scarcity in economics usually refers to a condition A) where society is not employing all of its available resources in an efficient manner. B) where people's wants can never be satisfied by the available resources. C) that afflicts only poor countries. D) where too many frivolous goods and services are produced at the expense of socially desirable goods and services. E) where production is efficient, but distribution is inefficient. 2) Suppose there are three alternatives to attending a social event: read a novel (you value this at $10), go to work (you could earn $20), or watch videos with some friends (you value this at $25). The opportunity cost of attending the social event is A) zero. B) $10. C) $20. D) $25. E) $45. The diagram below shows two production possibilities boundaries for Country X. FIGURE 1-3 3) Refer to Figure 1-3. That the production possibilities boundaries are drawn concave to the origin reflects the A) decreasing opportunity cost of producing more of either good. B) scarcity of resources in the economy. C) constant opportunity cost of producing more of either good. D) unfair distribution of resources in the economy. E) increasing opportunity cost of producing more of either good.

3 f12-my Page 3 of 21 4) Which of the following is a normative statement? A) The higher is the level of taxes, the lower is consumption spending. B) The higher is the level of taxes, the higher are wage demands. C) A reduction in export taxes on petroleum would result in higher wages. D) Tuition fees should be waived for low-income students. E) A free-trade agreement between two countries will result in an increase in trade. 5) Choose the statement that best describes how endogenous variables differ from exogenous variables. A) An endogenous variable is explained within the theory, while an exogenous variable influences the endogenous variables but is determined outside the theory. B) An endogenous variable is a flow, while an exogenous variable is a stock. C) An endogenous variable is explained outside the theory and influences an exogenous variable while an exogenous variable is explained within the theory. D) An exogenous variable is a function of the endogenous variable, and both are flow variables. E) An endogenous variable is a function of the exogenous variable, and both are stock variables. 6) Suppose that a particular theory predicts that on sunny days consumption of ice cream will rise and that on cloudy days consumption of ice cream will fall. If an economist tests this theory and finds that over a six-month period the theory predicts accurately, the economist would likely say A) the theory has been proven correct. B) the theory is always reliable. C) the evidence fails to reject the theory. D) the theory shouldn't be taken seriously. E) that the theory is not useful because consumption involves irrational human behaviour. 7) There will be no gains from specialization and trade between two countries if 1) neither country has an absolute advantage in the production of any good; 2) neither country has a comparative advantage in the production of any good; 3) opportunity costs differ too much between the two countries. A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 2 and 3

4 f12-my Page 4 of 21 FIGURE ) Refer to Figure The diagrams illustrate that the is lower in Austria than in Switzerland. A) opportunity cost of producing shoes B) opportunity cost of producing bicycles C) total cost of producing shoes D) average cost of producing bicycles E) comparative advantage in producing bicycles 9) Suppose that the demand curves for goods A, B, and C have the following functional forms:, where Q denotes quantity demanded and P denotes price: QA = PA - 6PB QB = 100-2PB + 3PC QC = PC. Based on these demand curves, which of the following pairs of goods are known to be complements? A) B and C B) A and C C) A and B D) A and C, and B and C E) None of the pairs are complements. 10) Aeronautical engineers are a factor of production for airplanes. What will happen in the world market for airplanes when there is a worldwide shortage of aeronautical engineers? A) price will increase, quantity exchanged will decrease B) price will increase, quantity exchanged will increase C) price will decrease, quantity exchanged will decrease D) price will decrease, quantity exchanged will increase E) there will be no change in price or quantity exchanged

5 f12-my Page 5 of 21 11) Suppose that supply for some good increases and that simultaneously the demand for the same good decreases. The result would be A) a decrease in P and an indeterminate change in Q. B) a decrease in Q and an indeterminate change in P. C) an increase in Q and a decrease in P. D) an increase in Q and an increase in P. E) no change in either P or Q. 12) Suppose that the quantity of lemonade demanded falls from litres per week to litres per week as a result of a 10 percent increase in its price. The price elasticity of demand for lemonade is therefore A) 0.6. B) 6.0. C) D) E) impossible to compute unless we know the before and after prices. 13) Which of the following statements would you expect to be true about price elasticities of demand for T- shirts and clothing? A) Compared with clothing, T-shirts have a lower price elasticity of demand because they are specifically defined. B) Because T-shirts are clothing, but not all clothing is T-shirts, T-shirts would have a lower price elasticity of demand than clothing. C) Clothing has a higher price elasticity of demand because it is a necessity. D) T-shirts would have the same price elasticity of demand as clothing. E) Clothing has a lower price elasticity of demand because it is more broadly defined. 14) If the total expenditure on clothing decreases when the price of clothing falls, the price elasticity of demand is A) greater than one (demand is elastic). B) less than one (demand is inelastic). C) unity (demand is unit elastic). D) not determinable from the information given. E) exactly zero. 15) Producers will bear a larger burden of a sales tax if A) demand is relatively elastic and supply is relatively inelastic. B) demand is relatively inelastic and supply is relatively elastic. C) both demand and supply are relatively inelastic. D) both demand and supply are relatively elastic. E) the tax is collected by firms rather than remitted directly to the government by consumers. 16) In a competitive market, a price ceiling set below the free-market equilibrium price will result in A) a continuation of the free-market equilibrium price and quantity. B) the quantity demanded exceeding quantity supplied and thus a shortage in the market. C) the quantity supplied exceeding quantity demanded and thus a surplus in the market. D) a new free-market equilibrium at a lower price and higher output level. E) excess supply.

6 f12-my Page 6 of 21 17) The Smith family is allocating its monthly household expenditure between only two goods, food and clothing. Suppose that the price of food is $5 per unit, and the price of clothing is $10 per unit and that the marginal utility that the family is receiving from its consumption of food is currently 25. What is the family's marginal utility from its consumption of clothing if it is maximizing its utility? A) 5 B) 10 C) 12.5 D) 25 E) 50 18) Suppose there are only two goods, A and B, and that consumer income is constant. If the price of good A falls and the consumption of good B rises, we can conclude that A) A is a normal good. B) B is a normal good. C) A is an inferior good. D) B is an inferior good. E) both A and B are normal goods. 19) At a garage sale, Dominique purchases a sewing machine for $30 when she was willing to pay $55. If the sewing machine costs $200 new, Dominique's consumer surplus would be. A) $0 B) $25 C) $120 D) $145 E) $170 FIGURE ) Refer to Figure Suppose the consumer begins at E1. The income and substitution effects of the reduction in the price of X are represented as follows: A) the distance Q1d shows the substitution effect and the distance Q2e shows the income effect. B) the distance de shows the income effect and the distance cd shows the substitution effect. C) the distance Q1Q2 shows the income effect and the distance Q2Q3 shows the substitution effect. D) the distance Q1Q2 shows the substitution effect and the distance Q2Q3 shows the income effect. E) the distance Q1Q3 shows the substitution effect and the distance Q2Q3 shows the income effect.

7 f12-my Page 7 of 21 21) An increase in current income will A) increase saving for retirement if consumption in the present is a normal good. B) decrease saving for retirement if the substitution effect is stronger than the income effect. C) increase saving for retirement if consumption in retirement is a normal good. D) have no effect on saving for retirement. E) have an uncertain effect on saving for retirement, no matter what the individual's preferences. 22) The choices listed below involve costs to the firm. For which is the implicit cost potentially different than its explicit cost? A) The use of firm-owned assets. B) The services of hired workers. C) The use of rented land. D) The interest paid on borrowed money. E) The purchase of raw materials used in production. 23) In the short run, the firm's product curves show A) AP is at its minimum when MP = AP. B) TP is at its maximum when MP is at its maximum. C) TP begins to decrease when AP begins to decrease. D) when MP < AP, AP is increasing. E) when the MP curve cuts the AP curve from above, the AP curve begins to fall. 24) In the short run, if average total cost is increasing as output rises, then A) total fixed costs must be increasing. B) average fixed costs must be increasing. C) average variable cost must be increasing. D) marginal cost must be below average total cost. E) average total cost is no longer equal to the sum of average variable cost and average fixed cost. 25) Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. In this situation, A) the firm is minimizing its costs. B) the firm should increase the use of both inputs. C) the firm could lower its production costs by decreasing labour input and increasing capital input. D) the firm could lower its production costs by increasing labour input and decreasing capital input. E) the firm should decrease the use of both inputs. 26) Any point representing a cost and output combination that is below the long-run average cost curve A) may represent actual cost and production levels in the short run. B) represents less efficient cost levels than points on the long-run average cost curve. C) is attainable only when all factors are variable. D) represents unattainable cost levels. E) is attainable if the firm minimizes its costs according to the "principle of substitution".

8 f12-my Page 8 of 21 27) Suppose your trucking firm in a perfectly competitive industry is making zero economic profits in the short run. The federal government imposes a new safety regulation that affects all firms, thus shifting the marginal cost curve upward. As a result your firm's profit maximizing short-run output will A) decrease because the new MC curve will intersect the horizontal demand curve at a lower rate of output. B) remain the same because you will pass on the extra costs to the consumers. C) remain the same since the new regulation does not affect ATC. D) increase as firms will leave the industry at the higher costs, thus driving up the market price. E) increase as price rises in the long run. 28) Consider a perfectly competitive firm in the following position: output = 4000 units, market price = $1, fixed costs = $2000, variable costs = $2000, and marginal cost = $1. To maximize profits the firm should A) reduce its output. B) expand its output. C) shut down. D) increase the market price. E) not change its output. 29) Which of the following is probably NOT an example of price discrimination? A) A doctor charging for his services according to the income of his patients. B) Train fares that are less expensive for weekend travel than weekday travel. C) A theatre charging children under 12 less for a movie ticket than it charges an adult. D) Universities charging out-of-province students higher tuition fees. E) A supermarket charging more for strawberries in December than in June.

9 f12-my Page 9 of 21 The diagram below shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. FIGURE ) Refer to Figure Assume this pharmaceutical firm is practicing perfect price discrimination among its buyers. At its profit-maximizing level of output, it will generate a deadweight loss to society represented by A) areas H+I. B) areas H+I+J+K. C) areas I+J+K. D) - there is no deadweight loss generated. E) - it is not possible to determine with the information provided. 31) When the firms in an oligopoly are in a cooperative equilibrium and are maximizing their joint profits, which of the following statements is true? A) An individual firm could increase profits by cheating. B) P > MC for each individual firm. C) MR > MC for each individual firm. D) The firms in the industry will jointly be earning monopoly profits. E) All of the above statements are true. 32) Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a highwayconstruction contract and each firm is allowed to bid either $100 million or $120 million. If both firms bid the same price, the job is shared equally and each firm earns half the value of its bid. Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero). The non-cooperative outcome (Nash equilibrium) in this situation is A) both firms bid $50 million. B) both firms bid $60 million. C) one firm bids $100 million, the other firm bids $120 million. D) both firms bid $100 million. E) both firms bid $120 million.

10 f12-my Page 10 of 21 33) All points on a country's production possibilities boundary are A) allocatively efficient. B) points at which P = MC for all goods. C) productively efficient. D) Pareto optimal. E) not productively efficient. The diagram below shows the market demand curve and the cost curves for a single firm. FIGURE ) Refer to Figure Suppose this firm is being regulated using a policy of marginal-cost pricing. In this case, the firm would experience represented by the area. A) losses; P1P2bc B) losses; edbc C) losses; 0P2bQ2 D) profits; P2P3ad E) profits; edbc 35) Canada is a net importer of citrus fruit. If severe weather in Florida wipes out the fruit crop for one season, Canada's terms of trade will likely A) deteriorate. B) improve. C) not change. D) improve as long as Canada stops importing citrus fruit from Florida. E) indeterminable with the information provided. 36) Which of the following policy objectives can sometimes lead a government of a small economy to rationally oppose free trade? A) to maximize national income B) to protect against low-wage labour from abroad C) to raise average living standards D) to diversify production in the domestic economy E) to prevent domestic currency from going abroad

11 f12-my Page 11 of 21 37) If all countries try to expand their exports and restrict their imports through the use of export subsidies and import tariffs, the net effect will probably be A) a fall in the volume of trade and an increase in the standard of living in each country. B) a fall in the volume of trade and a decline in the average living standards in each country. C) an increase in the volume of trade but little change in unemployment levels. D) no change in the volume of trade but an increase in the overall unemployment rates. E) no change in the volume of trade but less unemployment. 38) Consider labour that is hired for $18 per hour. If the last hour of labour hired produces 8 units of output which sells for $10 per unit, that labour-hour adds to the firm's profit and so labour should be hired. A) $64; more B) -$64; less C) $62; less D) $62; more E) $0; no 39) The demand for a factor will be more elastic if A) there is little substitutability between factors. B) it is easier to substitute between this factor and others. C) that factor determines a small percentage of total cost. D) the demand for the good being produced is inelastic. E) the supply of the factor is elastic. 40) John Smith plays baseball for $ per year, but if he were not a baseball player, his next best alternative would be to earn $ per year as a sales representative. By playing baseball, Smith is earning economic rent of A) $ B) $ C) $ D) $ E) zero.

12 f12-my Page 12 of 21 Part B [8 marks] Answer all 8 questions; each question is worth 1 mark. The following 8 questions (41-48) relate to the information given below. Try to do the questions in order since the answers for some questions depend on the answers to previous questions in the series. B. Suppose Kingston and Belleville produce and consume only two goods, wine and cheese. Furthermore, suppose that the costs of production in each city are as given in the table below. Cost to produce a unit of: Kingston Belleville Wine $1 $2 Cheese $5 $14 You may wish to use the space below to track of your answers as you work through the series. 41) From the data in the table we can determine: A) nothing about which city has any absolute advantage in the production of Wine or Cheese B) that Belleville has an absolute advantage in the production of both goods C) that Belleville has an absolute advantage in the production of Wine and Kingston in Cheese D) that Belleville has an absolute advantage in the production of Cheese and Kingston in Wine E) that Kingston has an absolute advantage in the production of both goods 42) The opportunity cost of Cheese in terms of Wine in Kingston is: A) 7 B) 5 C) 2 D) 1/5 E) 1/7 43) The opportunity cost of Cheese in terms of Wine in Belleville is: A) 7 B) 5 C) 2 D) 1/5 E) 1/7

13 f12-my Page 13 of 21 44) Kingston has a comparative advantage in and Belleville has a comparative advantage in. A) (Cheese, Cheese) B) (Wine, Wine) C) (Cheese, Wine) D) (Wine, Cheese) E) none of the above. 45) If the two cities were to trade with each other, Kingston and Belleville should specialize, respectively, in and : A) (Cheese, Cheese) B) (Wine, Wine) C) (Cheese, Wine) D) (Wine, Cheese) E) none of the above. 46) At what trade price (units of Wine per unit of Cheese) would both cities be unambiguously better off? A) 14 B) 7 C) 6 D) 5 E) 2 47) Suppose that Kingston has $100 million and Belleville has $84 million to devote to the production the two goods. If each became fully specialized in the production of the good in which it has a comparative advantage, Kingston and Belleville will produce, respectively: A) (100 million units of Wine, 42 million units of Wine) B) (20 million units of Cheese, 42 million units of Wine) C) (100 million units of Wine, 6 million units of Cheese) D) (20 million units of Cheese, 6 million units of Cheese) E) none of the above 48) If the two cities trade at the price identified in question number 46 above, and if we assume that both cities will consume at least some of each good, we can be sure that: A) Kingston will be fully specialized in Wine production B) Kingston will be fully specialized in Cheese production C) Belleville will be fully specialized in Wine production D) Belleville will be fully specialized in Cheese production E) Kingston will be fully specialized in Cheese production and Belleville will be fully specialized in wine production

14 f12-my Page 14 of 21 Part C [8 marks] Answer all 8 questions; each question is worth 1 mark. The following 8 questions (49-56) relate to the information given below. Try to do the questions in order since the answers for some questions depend on the answers to previous questions in the series. C. The supply curve for domestically produced winter boots (in pairs of boots) is given by: Q = 100P. The demand from domestic consumers is given by Q = P. You may find the diagram below useful in working out and keeping track of your answers. P S D Q 49) When there is no trade (autarky) the equilibrium domestic price and quantity will be: A) (P, Q) = (2, 200) B) (P, Q) = (2, 700) C) (P, Q) = (3, 300) D) (P, Q) = (3, 700) E) (P, Q) = (5, 500)

15 f12-my Page 15 of 21 50) Under autarky the Consumers Surplus is given by: A) 200 B) 450 C) 1250 D) 2450 E) ) For the next two questions, suppose that we open up to trade and the world price is $2.00. Our country will import the following number of pairs of boots: A) 100 B) 200 C) 400 D) 600 E) ) The sum of the Producers and Consumers Surplus will be A) 2450 B) 2900 C) 3200 D) 3300 E) ) For the next four questions assume that we impose a tariff of $1.00 per pair on imported boots. This tariff has the same effect as a quota on imports that allows in the following number of pairs of boots. A) 100 B) 200 C) 400 D) 600 E) ) The sum of the Producers and Consumers Surplus will be A) 2450 B) 2900 C) 3200 D) 3300 E) ) Government revenue will be A) 100 B) 200 C) 400 D) 600 E) ) The deadweight loss will be A) 100 B) 200 C) 400 D) 600 E) 800

16 f12-my Page 16 of 21 Part D [8 marks] Answer all 8 questions; each question is worth 1 mark. The following 8 questions (57-64) relate to the information given below. Try to do the questions in order since the answers for some questions depend on the answers to previous questions in the series. D. The diagram below represents Fred s choice between hours of leisure and money to spend on all other goods. Fred has 24 hours in each day and initially he can work as many of those hours as he likes at the wage of $10.00 per hour. Suppose he chooses to be at point a in the diagram. 57) At point a Fred chooses to work A) 7 hours B) 8 hours C) 11 hours D) 13 hours E) 16 hours 58) At point a Fred earns A) $70.00 B) $80.00 C) $ D) $ E) $160.00

17 f12-my Page 17 of 21 59) Suppose Fred s wage increases to $15.00 per hour and Fred chooses to move to point b. At this point Fred will earn A) $80.00 B) $ C) $ D) $ E) $ ) Over the range of wages from $10.00 to $15.00 Fred s labour supply curve is A) Elastic B) Vertical C) Horizontal D) Backward bending E) Upward sloping 61) Suppose now that Fred s employer offers him the chance to work overtime. He must work the first 8 hours of his day at $10.00 per hour and each hour after that he will be paid $ Suppose Fred chooses point c. At this point Fred is A) Better off than at a or b B) Worse off than at a or b. C) Better off than at a and worse off than at b. D) Better off than at b and worse off than at a. E) Indifferent among a, b and c. 62) For Fred, a move from a to b reflects A) A pure income effect. B) A pure substitution effect. C) An income effect that is stronger than the substitution effect. D) A substitution effect that is stronger than the income effect. E) A substitution effect and an income effect that work in the same direction. 63) For Fred, a move from b to c reflects A) A pure income effect. B) A pure substitution effect. C) An income effect that is stronger than the substitution effect. D) A substitution effect that is stronger than the income effect. E) Both a substitution effect and an income effect that work in the same direction. 64) From his choices, we can be certain that for Fred, A) Leisure is a normal good B) Leisure is an inferior good. C) Leisure is a necessity. D) Leisure is a luxury. E) Leisure is complementary with income.

18 f12-my Page 18 of 21 Part E [8 marks] Answer all 8 questions; each question is worth 1 mark. The following 8 questions (65-72) relate to the information given below. Try to do the questions in order since the answers for some questions depend on the answers to previous questions in the series. E. The top panel in the figure below represents a perfectly competitive market. Assume that all firms in the industry are identical to the one shown in the lower panel of the diagram. P ($) S D D' Q $ 15 MC SRAC LRAC q

19 f12-my Page 19 of 21 65) Even though the average variable cost curve is not shown in the diagram for the firm, the relationship between marginal cost and average variable cost allows one to infer that: A) any of the identified prices (15, 11, 10, and 5) is consistent with positive industry output B) a price of 15 is inconsistent with positive industry output C) a price of 11 is inconsistent with positive industry output D) a price of 10 is inconsistent with positive industry output E) a price of 5 is inconsistent with positive industry output 66) Suppose the market is in long run equilibrium at the intersection of S and D in the upper panel. In this long run equilibrium the firm is earning profits equal to: A) 60 B) 36 C) zero D) +30 E) ) In the original long run equilibrium, the number of firms in the industry is equal to: A) 100 B) 84 C) 72 D) 60 E) 50 68) Suppose that the market demand shifts permanently to D in the upper panel. In the new short run equilibrium, the market price will be equal to and the firm will produce output equal to. A) 10; 6 B) 10; 10 C) 15; 6 D) 15; 10 E) 15; 12 69) After the demand shift, in the new short run equilibrium, the firm will be earning profits equal to: A) +50 B) +48 C) +30 D) +24 E) zero 70) After the demand shift, in the new short run equilibrium, the number of firms in the industry is equal to: A) 120 B) 84 C) 72 D) 60 E) 50 71) After the demand shift, in the new long run equilibrium, the market price will be equal to and the firm will produce output equal to. A) 10; 6 B) 10; 10 C) 15; 6 D) 15; 10 E) 15; 12 72) After the demand shift, in the new long run equilibrium, the number of firms in the industry is equal to: B) 120 B) 84 C) 72 D) 60 E) 50

20 f12-my Page 20 of 21 Part F [8 marks] Answer all 8 questions; each question is worth 1 mark. The following 8 questions (73-80) relate to the information given below. Try to do the questions in order since the answers for some questions depend on the answers to previous questions in the series. F. The figure below shows the marginal cost curve (MC), average cost curve (AC), demand curve (D) and marginal revenue curve (MR) facing a monopolist. $ a c e d b MC AC D 30 MR q 73) In the diagram, marginal revenue is less than price at any given level of output because A) of the unique form of the demand curve in this market. B) in order to sell an additional unit of output the firm must lower the price of that marginal unit of output. C) in order to sell an additional unit of output the firm must lower the price on all units of output. D) in order to lower the price the monopolist must restrict output. E) total revenue is always declining with more units sold. 74) The profit maximizing quantity for the monopolist A) is 30. B) is 50. C) is 80. D) is 100. E) is either 50 or 100 depending on the elasticity of demand. 75) The profit maximizing price for the monopolist is A) 5. B) 8. C) 10. D) 11. E) 14.

21 f12-my Page 21 of 21 76) The firm earns profits equal to: A) zero B) 150 C) 240 D) 250 E) ) The deadweight loss in the market is approximately equal to: A) zero B) 30 C) 100 D) 150 E) 225 Note: For the following 3 questions assume that the firm is now one of many firms operating in a differentiated product market characterized by monopolistic competition with free entry to, and exit from, the industry. 78) Given monopolistic competition, the situation depicted in the diagram A) could be a short run equilibrium, but is not a long run equilibrium. B) is not a short run equilibrium, but could be a long run equilibrium. C) could be neither a short run equilibrium nor a long run equilibrium. D) could be both a short run equilibrium and a long run equilibrium. E) is both a short run equilibrium and a long run equilibrium. 79) In order for there to be a long run equilibrium in the monopolistically competitive industry, A) nothing need change since the diagram depicts a long run equilibrium situation. B) exit will take place in the industry and in the diagram the demand for the firm will shift to the right. C) exit will take place in the industry and in the diagram the demand for the firm will shift to the left. D) entry will take place in the industry and in the diagram the demand for the firm will shift to the right. E) entry will take place in the industry and in the diagram the demand for the firm will shift to the left. 80) In the long run monopolistic competition equilibrium, the firm will be operating: A) at the price and quantity combination shown by point a. B) at the price and quantity combination shown by point b. C) at a price and quantity combination like that shown by point c. D) at the price and quantity combination shown by point d. E) at the price and quantity combination shown by point e.

22 f12-my Page 22 of 21 f12-my Answers Part A 1) B 2) D 3) E 4) D 9) C 10) A 11) A 12) A 17) E 18) B 19) B 20) D 25) C 26) D 27) A 28) E 33) C 34) A 35) A 36) D 5) A 6) C 7) B 8) A 13) E 14) B 15) A 16) B 21) C 22) A 23) E 24) C 29) E 30) D 31) E 32) D 37) B 38) D 39) B 40) C Part B Part C Part D Part E Part F 41) E 42) B 43) A 44) C 49) E 50) C 51) D 52) E 57) B 58) B 59) C 60) D 65) E 66) C 67) D 68) E 73) C 74) B 75) E 76) D 45) C 46) C 47) B 48) C 53) C 54) B 55) C 56) A 61) C 62) C 63) A 64) A 69) B 70) D 71) B 72) B 77) E 78) A 79) E 80) C