ECON 2100 (Summer 2013 Section 06) Exam #3 (Version A)

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1 ECON 21 (Summer 213 Section 6) Exam #3 (Version A) Multiple Choice Questions: (3 points each) 1. I am taking of the exam. A. Version A 2. At the most basic level, profit is defined as A. Total Revenues us Total Costs. B. Total Costs us Total Revenues. C. Total Revenues divided by Total Costs. D. Total Costs plus Total Revenues. 3. refers to a practice whereby a seller of a good separates consumers into different groups and then charges each different group of consumers a different constant per unit price for each unit of the good purchased. A. 1 st Degree Price Discriation (or Perfect Price Discriation ). B. 2 nd Degree Price Discriation (or Menu Pricing ). C. 3 rd Degree Price Discriation (or Segmented Pricing ). D. Inverse Elasticity Pricing 4. In a perfectly competitive market, A. there are significant barriers to entry which prevent new firms from entering the market. B. there are many sellers but relatively few buyers. C. all goods offered for sale are identical to each other. D. More than one (perhaps all) of the above answers is correct. 5. Westley Industries (an Australian based pharmaceutical company) produces Iocaine Powder using three inputs, Input A, Input B, and Input C. During the next month they are able to hire any amount of Input A and Input B that they wish, but are restricted to using exactly 5 units of Input C. From this information, it appears as if Westley Industries is operating in the A. Variable Run. B. Short Run. C. Long Run. D. Fixed Run. 6. Consider a firm in a perfectly competitive market with: output price of $6.85 per unit; AVC $5.15; and ATC $7.1. In the short run, this firm should A. shut down, so that it can earn zero profit. B. shut down, since their maximum profit is negative. C. produce a positive quantity, since they can earn a positive profit. D. produce a positive quantity, even though their maximum profit is negative. 7. Producer s Surplus can be expressed as A. Revenue us Variable Costs of Production. B. Profit plus Fixed Costs of Production. C. Both (A) and (B) are correct. D. Neither (A) nor (B) is correct.

2 8. Brooke produces shoes in a perfectly competitive market. During the month of May she: produced 8 shoes, sold each pair of shoes at a price of $3 per pair, had fixed costs of $5,6, and earned a total profit of $4,4 (i.e., negative $4,4 ). In the long run, we should expect that Brooke would A. exit this market. B. choose to produce more than 8 units per month, so that she could produce at a point with lower Average Total Costs of production. C. charge more than $3 per pair of shoes, so that she could increase her revenues by getting more money for each pair of shoes sold. D. charge less than $3 per pair of shoes, so that she could increase her revenues by increasing the quantity of output which he sells. For Questions 9 through 11, consider a monopolist facing demand and with marginal costs of production as illustrated below. Assume throughout that this monopolist is restricted to charging a common price for every unit of output sold (so that Marginal Revenue is given by the curve labeled MR(q) below) $ 6.8 a b MC(q) 4.7 c d e i f g h Demand quantity 2,975 4,41 MR(q) 5,45 9. Increasing quantity from 3,8 to 3,9 would Total Revenue, Total Cost, and Profit. A. increase; decrease; increase. B. increase; increase; decrease. C. increase; increase; increase. D. decrease; increase; decrease. 1. In order to maximize profit, this monopolist should charge a price of per unit. A. $3.1. B. $4.7. C. $6.8. D. $ When this monopolist sets the price and sells the quantity which maximizes profit A. Deadweight Loss is equal to areas e+h. B. the monopolist s Producer s Surplus is equal to areas a+b+c+d+f+g+i. C. Total Consumers Surplus is equal to areas a+b+c+d+e. D. More than one (perhaps all) of the above answers is correct.

3 12. A summarizes the relationship between quantities of inputs used to make a good and the quantity of output of the good produced. A. Profit Function B. Cost Function C. Production Function D. Marginal Revenue Function 13. The short run supply curve of a firm operating in a perfectly competitive market is A. the portion of the Average Total Cost Curve that lies below the Marginal Cost Curve. B. the portion of the Average Variable Cost Curve that lies below the Marginal Cost Curve. C. the portion of the Marginal Cost Curve which lies above the Average Total Cost Curve. D. the portion of the Marginal Cost Curve which lies above the Average Variable Cost Curve. For questions 14 through 16, consider a firm with costs of production as illustrated below: $ ATC(q) ATC =7.9 AVC(q) AVC =4.15 quantity 1,4 3,6 5, The Marginal Cost of producing the 1,4 th unit of output must be A. less than $5.2. B. exactly equal to $5.2. C. greater than $5.2, but less than $7.3. D. exactly equal to $7.3. 8, If this firm produced 3,6 units of output, Average Fixed Costs of Production would be. A. $4.32 B. $4.15 C. $3.75 D. $ The Efficient Scale of production is equal to units of output. A. 1,4 B. 3,6 C. 5,76 D. 8,215

4 17. Through their first 29 home games, the Atlanta Braves averaged attendance of 31,27 fans per game. If exactly 32,527 fans attend their 3 th home game, then average attendance after 3 games will A. be exactly equal to 31,777. B. be greater than 31,27 (but less than 31,777). C. still be exactly equal to 31,27. D. be less than 31, Consider a monopolist who is charging a price of $3 for each unit of output sold in order to sell 1,25 units of output. At this point along the demand curve, price elasticity of demand is equal to 1.5. This monopolist has constant Marginal Costs of Production of $1 for each unit (so that Variable Costs are simply VC( q) 1q ). Finally, Fixed Costs are equal to $15,. This monopolist A. is not maximizing profit. B. is maximizing profit, but is not able to earn a positive profit. C. is maximizing profit, and is able to earn a positive profit. D. is maximizing profit, but may or may not be earning a positive profit. For Questions 19 through 21, consider the following scenario. A firm operating in a perfectly competitive market, with all inputs other than labor fixed. Each unit of Labor costs $5,4. The table below provides a summary of the Short Run Production Function of this firm, as well as a partial summary of Short Run Costs. Number of Workers Quantity of Output Marginal Product of Labor Marginal Costs of Production Average Variable Costs of Production Average Fixed Costs of Production , , Over the first four workers hired, this firm s Marginal Product of Labor is A. diishing (but always positive). B. diishing (and eventually negative). C. increasing. D. constant. 2. If this firm were to hire 3 workers, then their Total Costs of Production would be equal to A. $15,12. B. $17,64. C. $28,56. D. $31, Suppose that each unit of output can be sold for $6.95. In order to maximize profit in the Short Run, this firm should A. shutdown and hire workers. B. hire 1 worker. C. hire 2 workers. D. hire 3 workers.

5 22. Counterintuitive Technologies is the sole producer of Good X. They were able to become the only producer of this good, primarily because total production costs of Good X are lowest when only one single firm produces all units of output. Thus, Counterintuitive Technologies can be described as a. A. Natural Monopoly B. Fixed Cost Monopoly C. Competitive Monopoly D. Discriating Monopoly 23. If a firm made an Economic Profit of $125, (i.e., negative $125, ) last year, then the Accounting Profit of the firm must have been A. less than (i.e., even more negative than) $125,. B. also exactly equal to $125,. C. greater than $125, (but must have also been negative). D. greater than $125, (and could have been either negative or positive). For Questions 24 and 25, consider a firm facing demand and with marginal costs as illustrated below. Marginal Costs of production are imized if the firm produces 1, units of output. Suppose throughout that this firm is able to engage in First Degree (i.e., Perfect) Price Discriation. $ MC(q) (i) 8.5 (ii) (v) 5.75 (iii) (vi) 3.25 Demand (vii) (iv) quantity 1, 24, This firm has Fixed Costs of production equal to $45,. Finally, the seven regions identified above have areas equal to: Area (i) Area (ii) Area (iii) Area (iv) Area (v) Area (vi) Area (vii) $3, $27,5 $35, $22,5 $31,5 $32, $48,5 24. When this firm maximizes profit (by way of engaging in Perfect Price Discriation), it will sell units of output. A. exactly 24, B. more than 1, but less than 24, C. exactly 1, D. more than but less than 1, 25. When this firm maximizes profit (by way of engaging in Perfect Price Discriation), it is able to earn a profit of. A. $17,5 B. $111, C. $156, D. $182,

6 26. Ryan sells wheat in a perfectly competitive market. If he increases his quantity sold by 2%, his total revenue will A. increase, but by less than 2%. B. increase by exactly 2%. C. increase by more than 2%. D. remain constant. 27. Consider a perfectly competitive market in the Short Run in which at the prevailing market price of $9.67 per unit of output we observe: 1 firms each producing 3, units of output; 6 firms each producing 5, units of output; and 4 firms each producing 1, units of output. It follows that the Short Run market quantity supplied at a price of $9.67 is A. 1,, units of output (the sum of the amount produced by each individual firm). B. 4, units of output (the combined output of the four firms producing the most output). C. 5, units of output (the average amount of output produced across all firms). D. 3, units of output (the amount produced by the firm producing the least output). 28. Bobby used to work as a bank teller, earning $35, per year. He gave up that job to pursue his passion of becog a full time puppeteer. In calculating his economic profit from being a puppeteer, the $35, income that he gave up is A. not included in the calculation of economic profit, since he voluntarily chose to give up the income. B. included as part of total revenue. C. included as an explicit cost. D. included as an implicit cost. For questions 29 and 3, consider the following scenario. Singular provides cell phone service to customers according to the following three pricing plans. Each consumer has the option of selfselecting the plan which they individually prefer. Plan Name Fixed Charge Per Minute (for utes Free Minutes Monthly Fee used beyond Free Minutes ) Plan A $5 Unlimited n.a. Plan B $2 3.5 Plan C $ Singular is engaging in A. 1 st Degree Price Discriation (or Perfect Price Discriation ). B. 2 nd Degree Price Discriation (or Menu Pricing ). C. 3 rd Degree Price Discriation (or Segmented Pricing ). D. 11 th Degree Price Discriation (or Tufnel Pricing ). 3. Suppose that Kyle wants to talk on his cellphone exactly 9 utes per month and Heather wants to talk on her cellphone exactly 75 utes per month. In order to consume these desired levels of service at lowest expenditure, Kyle should choose and Heather should choose. A. Plan B; Plan A. B. Plan B; Plan B. C. Plan C; Plan A. D. Plan C; Plan B.

7 For questions 31 through 33, consider a firm in a perfectly competitive market with Short Run costs of production as illustrated below: 3.6 $ MC(q) ATC(q) AVC(q) 3.1 ATC AVC 1.45 MC 1. 3,4 5,945 8,56 9, 9,45 quantity 11, If the per unit price of output in this market were $3.6, then this firm would want to produce units of output. A. 3,4 B. 5,945 C. 9,45 D. 11, If the per unit price of output in this market were $3.1, then the maximum profit of the firm would be equal to. A. $27,9. B. $8,55. C. $2,74. D. None of the above answers are correct. 33. For which of the following prices would this firm choose to shutdown and produce zero output in the Short Run? A. $1.25. B. $2.15. C. $3.1. D. More than one (perhaps all) of the above answers is correct.

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