Professor: M.

Rush
ECO 2023
SPRING 2012
MIDTERM 2
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
WILL 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.





ECO 2023 MI DTERM 2 SPRI NG 2012
2
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.
ECO 2023 MI DTERM 2 SPRI NG 2012
3
1) A major disadvantage of the corporate form of business organization is its
A) limited liability for its owners.
B) unlimited liability for its owners.
C) ability to be run by professional managers.
D) tax liability (its profits are taxed twice).

2) In the figure above, an increase in income results in the budget line
A) rotating outward and becoming steeper.
B) making a parallel shift outward toward point c.
C) rotating inward and becoming flatter.
D) making a parallel shift inward toward point a.
E) rotating outward and becoming flatter.
3) In the figure above, an increase in the price of a bag of potato chips results in the
budget line
A) rotating outward around point d and becoming flatter.
B) rotating inward around point d and becoming flatter.
C) rotating inward around point d and becoming steeper.
D) making a parallel shift inward toward point a.
E) None of the above answers are correct.
4) A single-price monopolist can sell 10 units of its product at a price of $45 each but to
sell 11 units, the monopolist must cut the price to $44. What is the marginal revenue
of the extra unit sold?
A) $484
B) $450
C) $44
D) $34
E) $45.
ECO 2023 MI DTERM 2 SPRI NG 2012
4
5) If a perfectly competitive firm is producing where MR = MC, then if it increases its
production, its total revenue ____ and its total cost ____.
A) does not change; does not change
B) increases; increases by more than does its total revenue
C) increases; increases by less than does its total revenue
D) decreases; increases
E) increases; increases but more information is needed to determine if total cost
increases by more, by less, or by the same amount as does total revenue
6) A firms average total 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 shifts Leonardos ATC curve upward?
i. An increase in the hourly wage that Leonardos pays its workers.
ii. An increase in the fixed amount of liability insurance premiums that Leonardos
pays.
A) i only.
B) ii only.
C) i and ii.
D) neither i nor ii.
9) A perfectly competitive firms supply curve is the same as
A) its entire marginal cost curve.
B) the portion of its marginal cost curve that lies above average fixed cost curve.
C) the portion of its marginal cost curve that lies above average total cost curve.
D) the portion of its marginal cost curve that lies above its average variable cost
curve.
E) the portion of its marginal cost curve that lies below its average variable cost
curve.
ECO 2023 MI DTERM 2 SPRI NG 2012
5
10) You are at your consumer equilibrium. Hot dogs and hamburgers have the same
marginal utility. Thus
i. Your total utility from all the hot dogs you eat must be the same as your total
utility from all the hamburgers you eat.
ii The price of a hot dog and the price of a hamburger must be the same.
iii. You must be eating the same number of hot dogs and hamburgers.
A) i only.
B) ii only .
C) iii only.
D) i, ii, and iii.
E) ii and iii.

11) The above figure shows the costs at Barneys Bagel Bakery. At which of the following
levels of daily output will the AFC be the lowest?
A) At 2000 bagels.
B) At 3000 bagels.
C) At 3500 bagels.
D) None of the above because the AFC is constant regardless of how many
bagels are produced each day.
E) More information about the fixed cost is needed to answer the question.
12) (This is an out-of-the-book question from Chapter 10.) Giving top managers of a
company stock in the company is an attempt to overcome
A) the outsourcing problem.
B) transactions costs.
C) the Herfindahl-Hirschman problem.
D) the principal-agent problem.
E) None of the above answers is correct.
ECO 2023 MI DTERM 2 SPRI NG 2012
6
Jeffersons Cleaners
Labor
(workers)
Total product
(suits cleaned per day)
0 0
1 12
2 26
3 46
4 60
5 73
6 84
13) Based on the above table, what is the marginal product of the 4th worker hired at
Jeffersons Cleaners?
A) 11.5 suits per day.
B) 6 suits per day.
C) 15.3 suits per day.
D) 60 suits per day.
E) 14 suits per day.

14) 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 10
percent probability that Bruce will be totally disabled, in which case he will have no
wealth. Is Bruce willing to pay $25,000 for a disability insurance policy that would
pay him $100,000 in the case of total disability?
A) Yes, he is willing to pay $25,000.
B) No, he is not willing to pay $25,000.
C) He is indifferent between paying $25,000 and buying the policy versus not
paying $25,000 and hence not buying the policy.
D) More information is needed to answer the question.
ECO 2023 MI DTERM 2 SPRI NG 2012
7

15) The figure above shows the U.S. demand and the U.S. supply of shirts. If the world
price of shirts is $32 per shirt and the United States engages in international trade, the
United States ____ shirts per year.
A) imports 24 million
B) exports 40 million
C) exports 24 million
D) exports 16 million
E) None of the above.
16) The figure above shows the U.S. demand and the U.S. supply of shirts. If the world
price of shirts is $32 per shirt and the United States engages in international trade, the
U.S. consumer surplus from shirts is
A) $288 million
B) $400 million.
C) $144 million.
D) $256 million.
E) None of the above.
17) (This is an out-of-the-book question from Chapter 10.) If the four-firm concentration
number is a very small number, then
A) there is a high degree of competition in the market.
B) there is no competition in the market.
C) the market must be dominated by a few firms.
D) the market is close to being a monopoly.
ECO 2023 MI DTERM 2 SPRI NG 2012
8
18) Janes Garage Cleaning is a monopoly 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
definitely is ____.
A) definitely is maximizing her profit; earning an economic profit.
B) definitely is not maximizing her profit; earning an economic profit.
C) might be maximizing her profit; earning a normal profit.
D) might be maximizing her profit; incurring an economic loss.
E) definitely is not maximizing her profit; earning a normal profit.
19) In the short run, it ____ possible for a monopoly to incur an economic loss and in the
short run, it ____ possible for a firm in perfect competition to incur an economic loss.
A) is; is
B) is; is not
C) is not; is
D) is not; is not

20) Pizza Pie is the only pizza place on Pepper Island. The figure above shows Pizza Pies
demand curve, marginal revenue curve, and marginal cost curve. At Pizza Pies
profit-maximizing output, its annual total revenue is
A) $168,000.
B) $312,000.
C) $336,000.
D) $624,000.
E) $144,000.
21) If a health insurance company offers a policy that only sick people want to buy, the
company is suffering from a problem of
A) moral hazard.
B) yield risk.
C) adverse selection.
D) None of the above are correct.
ECO 2023 MI DTERM 2 SPRI NG 2012
9
22) A monopoly is definitely earning an economic profit when ____ and a perfectly
competitive firm is definitely earning an economic profit when ____.
A) MR = MC; MR = MC
B) MR = MC; P > ATC
C) P < ATC: MR = MC
D) P > ATC; P > ATC
23) (This is an out-of-the-book question from Chapter 8.) The consumer surplus from
water ____ the consumer surplus from diamonds and the marginal utility from water
____ the marginal utility from diamonds.
A) is greater than; equals
B) is less than; is less than
C) equals; is greater than
D) equals; equals
E) is greater than; is less than
24) Homers Holesome Donuts has determined that its profit-maximizing quantity is
10,000 donuts per year. Homers earns $12,000 in revenue from the sale of those
donuts. Homers has two costs. First he pays $5,000 in annual rental payments for its
five-year lease on its store. Second Homer incurs an additional cost of $14,000 for
ingredients. Should Homers close?
A) Yes, because he is incurring an economic loss and anytime a firm has an
economic loss it should close.
B) Yes, because he has some fixed costs in the short run.
C) Yes, because his total revenue is less than his variable costs.
D) No, because his lease is for 5 years.
E) No, because all costs are variable in the long run.
Quantity
of soda
Marginal utility
from soda
Quantity
of pizza
Marginal utility
from pizza
1 150 1 200
2 120 2 180
3 100 3 150
4 90 4 120
5 60 5 100
6 40 6 60
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 $40 to spend on the two goods, what combination of
pizza and soda will maximize her utility?
A) 6 sodas and 1 pizza
B) 4 sodas and 2 pizzas
C) 2 sodas and 3 pizzas
D) 5 sodas and 4 pizzas
E) None of the above are correct.
ECO 2023 MI DTERM 2 SPRI NG 2012
10
Labor
(workers)
Output
(units)
Total cost
(dollars)
0 0 1,000
5 1,000 3,000
10 3,000 5,000
15 4,000 7,000
20 4,500 9,000
26) The above table gives some production and cost information for a firm. What is the
average total cost of producing 4,500 units of output?
A) $2
B) $225
C) $9,000
D) $2,000
E) More information is needed to determine the answer.
27) The above table gives some production and cost information for a firm. What is the
average variable cost of producing 1,000 units of output?
A) $1
B) $2
C) $3
D) $4
E) More information is needed to determine the answer.

28) The figure above shows the situation facing Smart Digit, Inc., a monopoly firm
producing smart calculators. What quantity does the firm produce?
A) 200 calculators per day
B) 300 calculators per day
C) More than 300 calculators per day and less than 400 calculators per day
D) 400 calculators per day
E) 0 calculators per day.
ECO 2023 MI DTERM 2 SPRI NG 2012
11
29) In the figure above, Smart Digit is
A) making an economic profit
B) making zero economic profit, that is, its owners are earning a normal profit
C) incurring an economic loss
D) More information is needed to answer the question
30) A persons indifference curve will shift, so that each indifference curve moves and/or
rotates to a new location, when there is a change in
A) income but not prices.
B) prices but not income.
C) neither prices nor income.
D) both prices and income.
31) The price of a share of IBM stock is $40. IBM pays a dividend if $1 per share and has
earnings of $2 per share. IBMs PE ratio equals
A) 40
B) 20
C) 2.5
D) None of the above answers is correct.
32) A firms average variable cost is $60, its average fixed cost is $5, and its output is 10
units. Its total cost is
A) less than $580.
B) between $580 and $620.
C) between $620 and $640.
D) more than $640.
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
the director
A) has a face like a Saint - A Saint Bernard.
B) took a ruler to bed to see how long she slept.
C) is so stupid she yells into an envelope to send a voice mail