Professor: M.

Rush
ECO 2023
FALL 2012
MIDTERM 2
On Campus Exam
Read all instructions on this page
This test is governed by UFs academic honesty code. It is intended to have 33
multiple choice questions. Please check to be sure your copy has all 33. Chose the
best answer for each question.
The next is important: Unless you are specifically told otherwise, on this test do not
assume that demand or supply is either perfectly elastic or perfectly inelastic.
On the bubble sheet, please enter:
1. Your name and initials
2. Your UF ID number
3. Form code: A
4. Sign your name on the bubble sheet.
TURN OFF ALL CELL PHONES AND OTHER
COMMUNICATION DEVICES
Check that the form code and UF ID number you bubbled-in are correct now. Also check
to be sure your name is correctdo it now. As I said on the last exam, I heard rumors that
the ability to correctly record the form code has been mastered by a few students at FSU. I
am still checking this out. But in the meanwhile a friend told me that accounting majors
have been known to be able to record this letter, often correctly. Plus, I have heard of one
journalism major who could get the UF ID right at least 30% of the time! While I doubt this
last rumor, because the UF ID involves numbers which means it is close to being math,
nonetheless I think that the skill of correctly bubbling in the form code and the UF ID is
not too difficult to acquire.
CHECK YOUR FORM CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE
WRONG, YOUR TEST MIGHT NOT BE GRADED AND IF IT IS GRADED, YOU
MIGHT LOSE 6 POINTS (which equals 2 questions)!
I have become increasingly concerned that some students are at a real disadvantage
because they are unwilling to ask questions during the exam while others ask a lot of
questions. Hence, to level the playing field, I have decided to eliminate all questions
during the test. I dont like this policy, but it seems the fairest policy.
Do not ask questions of me or the TAs; in the interest of fairness I have
instructed them not to answer any questions during the exam.





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You will have one hour (60 minutes) to complete the exam and bubble in all your answers.
When the TAs say that time is up, you must hand in your exam. We will not give extra
time to finish bubbling in the answers, so be sure you are done when the 60 minutes are
up. Of course, you may hand in your test at any time before the 60 minutes are up.

An answer key will be posted on the main class web page later this
evening at about 10:00 PM.
The test scores will be on the class web page within a few days.

Once you see the answer key, you might have a question about why one answer is
right and another is wrong. For these questions, email me at
mark.rush@warrington.ufl.edu Do NOT email the grader about these questions!
After the scores are posted, if you think your posted score is incorrect, then email
the grader at eco2023.grader@warrington.ufl.edu If you email me about your test
score, I will not forward the email nor respond to youyou MUST email the
grader. You have one week after the curved score is posted to request a grade
check. After a week, the score will not be changed. If the web reports what you
bubbled in for each question and you ask the grader to check an answer because
you believe you bubbled in something other than what is reported and the
reported answer on the web is correct, you will lose 1 additional question.
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1) Gil can consume either pens or milkshakes. Both pens and milkshakes sell for $3. Gil
finds that when his income is spent, his marginal utility of pens will be 10 while his
marginal utility of milkshakes will be 8. Gil could increase his utility without
violating his budget by consuming
A) more pens and fewer milkshakes.
B) more pens and more milkshakes.
C) fewer pens and fewer milkshakes.
D) fewer pens and more milkshakes.
E) None of the above answers are correct because the price of the pen and
milkshakes is the same.
2) Which of the following is true for a single-price monopolist?
A) P > MR
B) P < MR
C) P = MR
D) P = elasticity of demand
E) None of the above answers are correct.
Output
(units per hour)
Total Cost
(dollars per hour)
0 $4.00
1 $12.00
2 $18.00
3 $22.00
4 $24.00
5 $30.00
6 $40.00
3) In the above table, the firms fixed cost when it produces 4 units of output is
A) $3.00.
B) $6.00.
C) $24.00.
D) $4.00
E) More information is needed to answer the question..
4) A perfectly competitive firm uses only capital and labor to produce its output.
Barriers to entry
A) apply to both capital and labor.
B) apply to labor but not to capital.
C) apply to capital but not to labor.
D) do not exist.
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5) The figure above shows Bobbys budget line. The price of a can of cat food is $2.
Bobbys income per week is
A) $10.
B) $40.
C) $56.
D) $160.
E) More information is needed to answer the question.
6) A firms average cost is $50, its fixed cost is $200, and its output is 10 units. Its variable
cost is
A) less than $20.
B) between $21 and $100.
C) between $101 and $200.
D) more than $201.
7) A perfectly competitive firm incurs an economic loss but continues to operate if
A) P > ATC.
B) P < ATC and P < AVC.
C) P < ATC and P > AVC.
D) None of the above because whenever a firm incurs an economic loss, it
closes.
8) Which of the following results in a parallel shift outward of your indifference
curves between gasoline and movie rentals?
A) Any decrease in the prices of gasoline and movie rentals.
B) An equal percentage decrease in the prices of gasoline and movie rentals.
C) An increase in your income.
D) None of the above.
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9) Bruce Copperwoods utility of wealth curve is illustrated in the above figure. Bruce, a
recent economics graduate, is presently employed at a salary of $100,000. There is a 20
percent probability that Bruce will be totally disabled, in which case he will have no
wealth. For a price of $20,000, Bruce can buy insurance that pays him $100,000 if he is
disabled and $0 if he is not. Will he buy this insurance?
A) Yes, Bruce will buy the insurance.
B) No, Bruce will not buy the insurance.
C) Bruce might or might not buy the insurance because his wealth is the same
with and without insurance.
D) None of the above answers is correct.
10) When regulated with a marginal cost pricing rule, a regulated natural monopoly
A) makes an economic profit and there is a deadweight loss.
B) makes zero economic profit and there is no deadweight loss.
C) incurs an economic loss and there is a deadweight loss.
D) incurs an economic loss and there is no deadweight loss.
E) makes zero economic profit and there is a deadweight loss.
11) If a perfectly competitive firms marginal cost curve shifts upward and the price does
not change, then the quantity of output the firm produces
A) increases.
B) stays the same.
C) decreases.
D) could increase, decrease, or stay the same but more information is needed.
12) The amount of a tax paid by the demanders will be larger
A) the more elastic the demand and the more inelastic the supply.
B) the more inelastic the demand and the more elastic the supply.
C) the more inelastic are both the supply and demand.
D) the more elastic are both the supply and demand.
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13) The figure above shows a nations demand and supply curves for shirts. If the world
price of shirts is $24 and the nation trades internationally, then compared to the
situation with no international trade, the nations total surplus
A) increases by $32 million.
B) increases by $64 million.
C) decreases by $32 million.
D) does not change.
E) None of the above answers is correct.
14) Janes Garage Cleaning is a perfectly competitive firm that currently cleans 40 garages
a week. Janes marginal cost is $30, her price is $40, and her average total cost is $40.
Jane ____ and is ____.
A) definitely is maximizing her profit; making a normal profit.
B) definitely is not maximizing her profit; making an economic profit.
C) might be maximizing her profit; making a normal profit.
D) might be maximizing her profit; incurring an economic loss.
E) None of the above answers are correct.
15) Which of the following forms of business organization have limited liability?
i. Proprietorship
ii. Partnership
iii. Corporation
A) i only.
B) ii only.
C) iii only.
D) i and ii
E) ii and iii.
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16) In the above figure, the firm produces ____ units and sets a price of ____.
A) 16; $24
B) 8; $12
C) 8; $36
D) 8; $24
E) None of the above are correct.
17) In the above figure, the firms economic profit is
A) $0.
B) $288.
C) $192.
D) $96.
E) None of the above answers are correct.
18) Firms that can price discriminate do so to ____.
A) increase consumer surplus
B) increase employment
C) increase their profit
D) decrease the quantity they produce
19) Yum raises its dividend and the price of a share of its stock rises. Its earnings do not
change. As a result, Intels PE ratio ____ and Intels dividend yield ____.
A) rises; might rise, fall, or not change
B) rises; rises
C) does not change; rises
D) might rise, fall, or not change; might rise, fall, or not change
E) falls; does not change
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20) The firms in a perfectly competitive market are incurring an economic loss. As some
firms exit the market, the market supply curve shifts ____, the price ____, and each
firms economic loss ____.
A) leftward; rises; increases
B) rightward; rises; increases
C) rightward; falls; shrinks
D) leftward; falls; shrinks
E) leftward; rises; shrinks
21) Which of the following is a fixed cost for ACME manufacturing?
A) the wages paid to its workers
B) the annual fire and theft insurance premiums
C) the electric utility bill
D) its raw material costs
22) The chicken market is perfectly competitive. Because of an increase in the number of
people who like chicken wings, the demand for chicken permanently increases.
Which of the following is correct:
i. The price of chicken rises more in the short run than in the long run
ii. Chicken farmers make a larger economic profit in the long run than in the short
run
iii. The quantity of chicken produced is larger in the long run than in the short run.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
23) The U.S. government currently imposes a tariff on imported sugar. If the government
increases the tariff, then U.S. sugar consumers ____ and U.S. sugar producers ____.
A) are unaffected; gain
B) gain; gain
C) lose; gain
D) lose; are unaffected
E) lose; lose.
24) When comparing a perfectly competitive market to a single-price monopoly with the
same costs, which of the following statements about the monopoly is correct?
i. create less consumer surplus.
ii. create less economic profit.
iii. create a deadweight loss.
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
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Quantity
of soda
Marginal utility
from soda
Quantity
of pizza
Marginal utility
from pizza
1 150 1 400
2 120 2 300
3 100 3 250
4 90 4 220
5 60 5 200
25) Lisa spends all her income on pizzas and soda. The above table shows Lisas marginal
utility for pizza and marginal utility for soda. If the price of a pizza is $10 and the
price of a soda is $5 and Lisa has $25 to spend on the two goods, what combination of
pizza and soda will maximize her utility?
A) 5 sodas and 0 pizzas
B) 4 sodas and 1 pizza
C) 3 sodas and 1 pizza
D) 1 soda and 2 pizzas
E) None of the above are correct.
26) Because of technological progress, all firms in a perfectly competitive market enjoy a
permanent decrease in their ATC, that is, their ATC curves shift downward. In the
long run the quantity produced by the market ____ and the price of the product ____.
A) increases; rises
B) increases; does not change
C) increases; falls
D) does not change; falls
E) decreases; falls
27) The fact that there are large barriers to entry in a monopoly industry is the reason
why a firm in this industry
A) is able to make an economic profit in the long run.
B) must produce at the minimum average total cost in the long run.
C) has no fixed costs in the long run.
D) must produce a level of output such that MR = MC in order to maximize its
profit.
28) Imposing a tax on a product ____ the amount of consumer surplus and ____ the
amount of producer surplus.
A) increases; does not change
B) does not change; decreases
C) increases; decreases
D) decreases; decreases
E) None of the above answers are correct.
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29) A monopoly firm
A) can sell as much as it wants at the chosen price because it is the only seller.
B) can increase the price it charges and the quantity it sells at the same time.
C) can increase the price it charges only if it is willing to decrease the quantity it
sells.
D) is not affected by the law of demand.
30) A perfectly competitive firm is producing at the point where its marginal cost equals
its marginal revenue. If the firm boosts its output, its total revenue ____, its fixed cost
____, its variable cost ____, and its total cost ____.
A) rises; rises; rises; rises
B) does not change; does not change; rises; rises
C) rises; does not change; rises; rises
D) rises; rises; does not change; rises; rises
E) does not change; rises; does not change; rises
31) As a consumer moves downward along one of his or her indifference curves, the
i. consumer remains indifferent among the different combinations of goods
ii. income required to buy the combinations of the goods does not change
A) only i is correct
B) only ii is correct
C) both i and ii are correct
D) neither i nor ii is correct
32) Suppose Pats Paints is a perfectly competitive firm. If Pats Paints marginal revenue
equals $10 per can, and Pat decides to sell 100 cans of paint, Pats total revenue equals
A) $10.
B) $100.
C) $1000.
D) Information on the price of a can of paint is needed to answer the question.
33) If you have a question about your test score you need to email the grader (whose
email address is ECO2023.Grader@warrington.ufl.edu) and an answer key will be
posted on the class web page at about 10. Now, keeping those two facts in mind, then
A) the director is the same height lying down as standing up.
B) when the director ran away, they had to use all 4 sides of the milk carton.
C) the elephants at the zoo through peanuts to him.