Introduction to Agricultural Economics Agricultural Economics 105 Spring 2014 First Hour Exam Version 1

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1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2014 First Hour Exam Version 1 Name Section There is only ONE best, correct answer per question. Place your answer on the attached sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE TEST AND ANSWER SHEET. Each question is worth 2 1/2. 1. When we refer to indifference curves as, we mean that. a. downward sloping; we prefer more to less. b. non-intersecting; indifference curves only cross when their marginal rates of substitution are equal to the price ratio. c. everywhere dense; we can always compare two consumption bundles. d. convex to the origin; we prefer less to more. e. upward sloping; a person s utility is positive. 2. Kroger is having a sale on pork tenderloin. As a result, you decide to buy more potatoes to complement your consumption of pork. Assuming that pork and potatoes are normal goods, which of the following best describes the situation? a. For the consumption of pork, the substitution effect is positive and the income effect is negative. b. For the consumption of pork, the substitution effect is negative and the income effect is positive. c. For the consumption of potatoes, the substitution effect is positive and the income effect is negative. d. For the consumption of potatoes, the substitution effect is negative and the income effect is positive. e. The effects are indeterminate. 3. Which of the following gives the slope of the budget constraint? a. The negative of the price of one good divided by the price of the other good. b. The negative of the price of one good multiplied by the price of the other good. c. The consumer s income divided by the price of good one. d. The consumer s income divided by the price of good two. e. c and d.

2 4. The marginal rate of substitution describes a. the rate at which a consumer is willing to trade consumption of one good for another good while keeping utility constant. b. the rate at which the production function changes when the last unit of input is added to the production process. c. the slope of a consumer s indifference curves over a given region. d. a and b e. a and c 5. The profit-maximizing point for a firm occurs when a. total physical product (TPP) is maximized. b. marginal physical product (MPP) is equal to zero. c. marginal costs (MC) equal marginal revenue (MR). d. marginal value product (MVP) equals marginal input costs (MIC). e. c and d. 6. Assuming Aggie football tickets are a normal good, which of the following would result in an increase in the quantity demanded for Aggie football tickets? a. The completion of the Kyle Field redevelopment project. b. The win against Duke in the Chic-Fil-A Bowl. c. A decrease in the price of Aggie football tickets. d. Mandating Saturday classes for all undergraduate students. e. All of the above 7. Assuming Aggie football tickets are a normal good, which of the following would result in a decrease in the demand for Aggie football tickets? a. An increase in the starting salaries of recent Aggie graduates. b. The win against Duke in the Chic-Fil-A Bowl. c. An increase in the price of Aggie football tickets. d. Mandating Saturday classes for all undergraduate students. e. All of the above 8. Which of the following set of goods is least likely to have a negative cross-price elasticity? a. Nike shoes and Adidas shoes b. BMW cars and Ferrari cars c. iphone and Android phones d. Blu-ray players and Blu-ray movies e. Pepsi and Coca-Cola

3 9. Which of the following best describes opportunity costs? a. Monetary costs associated with production. b. Costs associated with the next best alternative a consumer faces. c. Total costs divided by total output. d. Fixed costs plus variable costs per unit of output. e. All of the above 10. Which law suggests that the first hour of TV viewing is worth more to you than the 100 th hour? a. Law of indifference curves b. Law of rational consumers more is preferred to less c. Law of diminishing marginal returns d. Law of demand e. Law of diminishing marginal utility 11. When the price of gold is expensive, Aggie rings cost $6 thousand and sadly only 4 thousand Aggies buy a ring. When the price of gold is relatively cheap, Aggie rings cost $2 thousand and 6 thousand Aggies buy a ring. Aggie rings display an own-price elasticity of. Hint: you can do the math in thousands and not worry about the zeros. a b. 0.6 c d e The long run is best characterized by a. having one input as illustrated in the class notes. b. having at least one input fixed. c. a time frame over a year. d. a time frame long enough to make all inputs variable. e. approximately 10 years. 13. Under Obama Health Care, businesses are required to provide healthcare to full-time employees, which will result in an increase the cost of inputs (employees). Assuming labor is a variable input, which of the following is true? a. The firm s average fixed costs increase. b. The firm s average total costs increase. c. The firm s average variable costs increase. d. a, b, and c. e. b and c.

14. Joe s budget constraint for food and non-food items (not including healthcare) is shown in the diagram. If congress implements an income tax, what will happen to Joe s budget constraint? a. The budget constraint will shift out.

4 14. Joe s budget constraint for food and non-food items (not including healthcare) is shown in the diagram. If congress implements an income tax, what will happen to Joe s budget constraint? a. The budget constraint will shift out. b. The budget constraint will shift in. c. The budget constraint will pivot on the vertical axis. d. The budget constraint will pivot on the horizontal axis. e. The budget constraint will not change. Consider the following information for questions 15, 16, and 17. Texas A&M University recently outsourced its maintenance and food services departments to reduce the fixed costs of operating the university. Assume fixed costs have decreased and the university s output is college degrees. 15. What happened to the university s average total cost curve? a. Average total cost did not change because only fixed costs decreased. b. Average total cost did not change because fixed costs do not vary with the quantity of degrees produced. c. Average total cost decreased because fixed cost decreased. d. Average total cost increased because while fixed cost decreased, students were forced to pay more in tuition. e. The relationship between the change in fixed costs and average total costs cannot be determined from the information given. 16. What happened to the university s shutdown price? a. The shutdown price decreased. b. The shutdown price increased. c. The shutdown price did not change. d. Shutdown price is not relevant. e. Shutdown and breakeven price are the same. 17. Assume that the university is producing 12,000 degrees each year and that the marginal cost function is increasing at this point. Based upon the information given, at what stage is the university operating in? Hint: think about what MPP is doing as MC is increasing. a. I b. II c. III d. I or II e. II or III f. I, II, or III

5 Use the table below to answer questions The Dixie Chicken produces hamburgers as given in the table. Each worker is paid $5 and a hamburger sells for $6. Labor Hamburgers (TPP) Fixed Cost (FC) Total Variable Cost (TVC) Total Cost (TC) Marginal Cost (MC) Marginal Physical Product (MPP) Marginal Value Product (MVP) 0 0 $10 0 $ $10 5 $15 $0.50 $10.00 $ $10 10 $20 $ $10 15 $25 $1.00 $5.00 $ $10 20 $30 $2.50 $2.00 $ $10 25 $35 $5.00 $1.00 $ What is the marginal cost associated with hiring the second unit of labor? a. $1.00 b. $0.75 c. $1.50 d. $0.40 e. $ What is the marginal value product associated with hiring the second unit of labor? a. $70 b. $90 c. $50 d. $40 e. $6 20. Assume there are currently four employees who work for the Chicken. Using the information in the table, is it a good idea to hire another worker? a. They do not need to hire or fire any employees; they are already maximizing profits. b. They can hire any number of employees because the price of each hamburger is greater than the cost of each laborer. c. They need to fire an employee to increase profits. d. They need to hire one more employee to maximize profits. e. They should fire two workers.

6 21. What are the Chicken s profits when three laborers are employed? a. There is insufficient information to determine the Chicken s profit. b. $180 c. $155 d. $170 e. $ Own price elasticity of supply is found to be elastic; this means that a. the percentage change is quantity is equal to the percentage change in price. b. the percentage change is quantity is less than the percentage change in price. c. the percentage change is quantity is more than the percentage change in price. d. we cannot tell because you need to know quantity and price changes. e. the supply curve is vertical. Use the following graph to answer questions For the AGEC 105 After Test Party, you can either buy either steaks at $10 / pound or liquid beverages at $5 / six pack. 23. Which point is the correct consumer equilibrium point if your budget is $100? a. A b. B c. C d. D e. E

24. What changed in going from budget constraint H to constraint G? a. Price of beverages increased. b. Your budget decreased. c. Price of steaks increased. d. Price of beverages decreased. e.

7 24. What changed in going from budget constraint H to constraint G? a. Price of beverages increased. b. Your budget decreased. c. Price of steaks increased. d. Price of beverages decreased. e. Price of steaks decreased. 25. Which point has the smallest utility? a. C b. D c. A d. E e. F For questions refer to the following figure. Let the market price be $5 / unit. 26. The profit maximizing level of output is? a. 25 b. 75 c. 200 d. 275 e. somewhere between 200 and 275 as that is stage II of production.

8 27. Total costs at the profit maximizing level of output are? a. area 6, H, 100, 0 b. area 6, F, 75, 0 c. area 4, A, 50, 0 d. area 5, B 75, 0 e. area 5, F, 100, Total revenues at the profit maximizing level of output are? a. area 6, H, 100, 0 b. area 6, C, 75, 0 c. area 4, A, 50, 0 d. area 5, B, 75, 0 e. area 5, F, 100, Profits at the profit maximizing level of output are? a. positive b. negative c. indeterminate cannot tell with information given. d. MR = MC e. area 0, 75, C, Jeff decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Jeff pay for his computer? a. $700. b. $2,300. c. $3,000 d. $3,700 e. somewhere in the area below the price line and above the MC curve 31. Generic brand products are examples of a(n) because as income increases consumers tend to purchase smaller amounts of generic brand products. a. normal good b. normal and inferior good c. necessity and normal goods d. necessity good e. inferior good

9 Coach Gary Blair wants to determine the optimal number of hours of practice to prepare for the next game. You have developed the following graph from previous practice times and points scored. Assume NCAA rules allow a maximum of eight hours of practice. 32. Given Coach Blair s goal is to maximize the number of points scored and the team is currently practicing seven hours for the game, what is the best suggestion to Coach Blair? a. increase the number of hours to eight because that is the maximum number of hours the team can practice, given NCAA rules. b. do not change the number of hours practiced as the team is currently in stage II. c. decrease the number of hours to around one hour as points scored are increasing at an increasing rate at this level of practice, as this would put the team in stage I. d. decrease the number of hours to approximately 5 as MPP is equal to zero here. e. decrease the number of hours to between 3 and 4 to be in stage II. 33. What is the total number of points scored if the teams practices for 3 hours? a. 60 b. 65 c. 70 d. 75 e The is the portion of the food expenditures associated with activities beyond the farm gate. a. Marketing Bill b. Food Bill c. Farm Program recently by Congress d. Value added component associated with processing only e. Farm Value

35. The following graph represents the demand curve for Microsoft stock. At which point labeled on the graph is the demand for Microsoft stock relatively the most own-price elastic? a. A b. B c. C d.

10 35. The following graph represents the demand curve for Microsoft stock. At which point labeled on the graph is the demand for Microsoft stock relatively the most own-price elastic? a. A b. B c. C d. There is insufficient information to determine where the demand is own-price elastic. 36. On February 4, 2014, Microsoft named Satya Nadella its new CEO. Assume that under his leadership, Microsoft is expected to increase its profits by 10 percent. What effect would this have on the above demand curve? a. Only the quantity demanded of Microsoft stock would change. b. Neither the quantity demanded of Microsoft stock nor the demand for Microsoft stock would change. c. Demand for Microsoft stock would decrease. d. Demand for Microsoft stock would increase. e. Stocks and demand are not related. Questions use the same graph. 37. A producer is forced to raise the price of a good from B to A. Which area represents the gain in revenue from the price increase? a. CDFG b. AEFB c. EFG d. AEBG e. AJE 38. Which area represents the loss in revenue from the change in price? a. CDFG b. AEFB c. EFG d. AEBG e. BFJ

11 39. Which area represents the loss in consumer surplus associated revenue from the change in price? a. CDFG b. AEFB c. EFG d. AEBG e. BFJ 40. The price of sardines is $0.50 / ounce and Russian Ostra Caviar is $200 / ounce. At your currently level of consumption your marginal utility is 10 for sardines and 200 for caviar. Which of the following best describes your situation? a. You are currently at the consumer equilibrium point since you are consuming both. b. You should consume more caviar as its marginal utility is higher. c. You should consume more sardines as fish is a healthy food that is much cheaper. d. You should consume more sardines as the marginal utility per dollar spent on sardines is larger than the marginal utility per dollar spent on caviar. e. You should consume more caviar as the marginal utility per dollar spent on caviar is larger than the marginal utility per dollar spent on sardines. 41. Aggregate demand is the summation of all relevant individual consumers demand. To be relevant a consumer must have both the (two general conditions discussed in class) and.

12 There are 41 questions, only 40 will be graded. Please pick the one question you do not want graded by placing XXX in the answer line. If you do not pick a question to not be graded, question 41 will not be graded. Test Version 1 Name Question Answer Question Answer Grade

Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1

1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet.