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Professor: M.

Rush
ECO 2023
SPRING 2014
MIDTERM 2
Read all instructions on this page
This test is governed by UFs academic honesty code. It is intended to have 30
multiple choice questions. Please check to be sure your copy has all 30. MAKE
CERTAIN THAT YOU LOOK AT BOTH SIDES OF THE LAST PAGE!! Choose
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.
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. I have heard a rumor that the ability to
correctly record these had been mastered by a few students at FSU as well as a couple of
accounting and journalism students. I will investigate these rumors but in the
meanwhile,
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 3 POINTS!

TURN OFF ALL CELL PHONES AND OTHER
COMMUNICATION DEVICES
You may not use a cell phone or any other sort of device that allows for communication
as your calculator.
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.
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.
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An answer key will be posted on the class web page tomorrow
afternoon.
The test scores will be on 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) In the short run, it ____ possible for a perfectly competitive firm to earn an
economic profit and in the long run, it ____ possible for a perfectly competitive firm
to earn an economic profit.
A) is; is
B) is; is not
C) is not; is
D) is not; is not
Output
(units per day)
Total cost
(dollars)
0 30
3 50
8 70
12 90
14 110
15 130
2) In the above table, the total fixed cost at 14 units of output is
A) $0.
B) $10.
C) $30.
D) $110.
E) unknown without more information.
3) In the above table, the marginal cost of a unit of output going from 12 to 14 units is
A) $0.
B) $10.
C) $90.
D) $110.
E) $7.50.
4) A firms average variable cost is $6, its total fixed cost is $300, and its output is 60
units. Its average total cost is
A) less than or equal to $5.00.
B) between $5.01 and $7.00.
C) between $7.01 and $34.00
D) between $34.01 and $75.00.
E) more than or equal to $75.01.
5) If a single-price monopoly is producing a level of output such that marginal cost
exceeds marginal revenue, to increase its profits the firm should _____ its price and
_____ its output.
A) raise; decrease
B) lower; increase
C) lower; decrease
D) raise; increase
E) raise; not change
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6) Compared to a similar perfectly competitive market, a single-price monopoly
A) creates a deadweight loss and decreases economic profit.
B) produces more output.
C) creates a deadweight loss and decreases consumer surplus.
D) is more efficient because there is no wasteful competition.
7) At the best affordable point, the budget line
A) is flatter than the highest attainable indifference curve.
B) is tangent to the highest attainable indifference curve.
C) is steeper than the highest attainable indifference curve.
D) does not touch the highest attainable indifference curve.

8) The figure represents a dairy farmer in a perfectly competitive market. If the price is
$2.50 per gallon, the farmer will produce
A) 0 gallons per day.
B) 25 gallons per day.
C) 40 gallons per day.
D) 45 gallons per day.
E) between 46 and 60 gallons per day.
9) A monopoly is making an economic profit when ____ and a perfectly competitive
firm is making an economic profit when ____.
A) MR = MC; MR = MC
B) MR = MC; P > ATC
C) P < ATC: MR = MC
D) P > ATC; P > ATC
E) None of the above answers are correct.
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10) Janes Garage Cleaning is a perfectly competitive firm that currently cleans 40
garages a week. Janes marginal cost is $40, her price is $50, and her average total
cost is $40. Jane is
A) maximizing her profit and is earning an economic profit.
B) not maximizing her profit but is earning an economic profit anyway.
C) maximizing her profit and is earning a normal profit.
D) not maximizing her profit and is incurring an economic loss.
E) None of the above answers are correct.
11) In a small town, a monopoly pizza producer maximizes its profit by producing
1,000 pizzas and setting a price of $15 for each pizza. The marginal revenue from the
1,000th pizza is
A) more than $15.
B) equal to $15.
C) less than $15.
D) More information is needed to determine whether the marginal revenue is more than,
less than, or equal to $15.
12) Sue consumes apples and bananas. Suppose Sues income doubles and the prices of
apples and bananas do not change. Sues budget line will
A) shift leftward and its slope will not change.
B) remain unchanged.
C) shift rightward and its slope will not change.
D) shift rightward and become steeper.
E) shift leftward and become flatter.
13) 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 will ____
and its total cost will ____.
A) rise; rise by more
B) rise; rise, but not by as much.
C) fall; will rise.
D) fall; fall by more
E) None of the above answers are correct.
14) All points above a given indifference curve are definitely
A) inferior to any point on the indifference curve.
B) preferred to any point on the indifference curve.
C) affordable.
D) not affordable.
E) Both answers B and D are correct.
15) If some firms in a perfectly competitive market exit, then the
A) market demand curve shifts leftward.
B) price of the product falls.
C) profits of the remaining firms decrease.
D) output of the industry increases.
E) market supply curve shifts leftward.
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16) Joe, a hair dresser, offers students a discount price on haircuts. This form of pricing
is an example of
A) a marginal cost pricing rule.
B) an average cost pricing rule.
C) price discrimination.
D) perfect price discrimination.
17) The limited liability enjoyed by McDonalds Corporation is a benefit that protects
A) its employees.
B) its Board of Directors.
C) its stockholders.
D) its customers.
E) All of the above.
18) Suppose the nation has two groups of people: young, healthy individuals who are
unlikely to use health care and older, sickly individuals who are more likely to use
health care. The average cost per person of providing healthcare insurance is
highest when
A) everyone buys health care insurance.
B) only young people buy health care insurance.
C) only older people buy health care insurance
D) None of the above are correct. because the average cost per person is the same no
matter who buys the insurance.

19) Bruce Copperwoods utility of wealth curve is illustrated in the above figure. Bruce,
owns a sea cottage worth $100,000. There is a 20 percent probability that a hurricane
will destroy the cottage, in which case he will have no wealth. Will Bruce be willing
to pay $20,000 for insurance that pays him $100,000 if the cottage is destroyed and
$0 if the cottage is not destroyed?
A) Yes, he definitely will buy the insurance
B) He might buy the insurance.
C) No, he definitely will not buy the insurance.
D) More information is needed to answer the question.
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20) Ryan and Olivier jointly own a company. Their profits are taxed once and they have
unlimited liability. Their business is organized as a
A) proprietorship.
B) partnership.
C) corporation.
D) multi-employee company.
21) As more of a good is consumed, total utility ____, marginal utility ____.
A) increases; does not change
B) increases; increases
C) decreases; decreases
D) increases; decreases
E) does not change; decreases
22) Most natural monopolies, such as regulated electric, gas, and water utilities, have
____ fixed cost and ____ marginal cost.
A) low; high
B) high; low
C) high; high
D) low; low
E) no; low

23) The above figure shows one of Sams indifference curves between gasoline and
coffee. Which of the following about a movement along Sams indifference curve is
correct?
A) As he moves leftward along the curve, he likes the combinations of gasoline and coffee
better and better.
B) As he moves rightward along the curve, he likes the combinations of gasoline and
coffee better and better.
C) He likes all combinations of gasoline and coffee along the curve equally well.
D) None of the above are true.
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24) If a perfectly competitive firm raised the price of its product,
A) its profits would increase.
B) the quantity of output it can sell would decrease to zero.
C) rival firms will follow suit and raise their prices also.
D) the firm will be forced to advertise more.
25) Carter spends his income on pizza and Mt. Dew. He maximizes his utility when he
allocates his entire budget and buys pizza and Mt. Dew so that the
A) marginal utility from pizza is equal to the marginal utility from Mt. Dew.
B) marginal utility from both pizza and Mt. Dew is maximized.
C) marginal utility per dollar spent on pizza is equal to the marginal utility per dollar spent
on Mt. Dew.
D) total utility per dollar for both pizza and Mt. Dew are equal.
E) marginal utility from pizza equals that from Mt. Dew.
26) If a monopoly price discriminates between two groups of consumer, the monopolist
charges lower prices to consumers with
A) lower supply elasticities.
B) higher supply elasticities.
C) lower willingness-to-pay.
D) higher willingness-to-pay.
27) The rutabaga market is perfectly competitive and the price of a rutabaga rises. As a
result, Rudy, a rutabaga farmer, will
A) decrease his production of rutabagas.
B) not change his production of rutabagas because Rudys firm is a price taker.
C) increase his production of rutabagas.
D) at first decrease and then increase his production of rutabagas.
Quantity of
Diet Pepsi
Total utility from
Diet Pepsi
0 0
1 14
2 26
3 36
4 44
5 50
6 54
7 56
28) The table above gives your total utility from consuming Diet Pepsi. What is the
marginal utility you get from the 4th Diet Pepsi?
A) 44.
B) 36.
C) 12.
D) 11.
E) 8
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29) (The is an out-of-the-stock market essays question.) In an efficient market,
A) big profits can be earned indefinitely.
B) there are no transaction costs.
C) price changes are easily predicted.
D) price changes are not easily predicted.
30) After the scores are posted, if you have a question about your test score, email the
grader at ECO2023.Grader@warrington.ufl.edu and the director is so fat that (HINT:
Be SURE to answer this question because youll get credit for any answer.)
A) a picture of him takes two frames.
B) when he works at the theater, he works as the screen.
C) when he goes to a restaurant, he looks at the menu and says okay!.
D) when he lies down on the beach, Greenpeace tries to haul him back into the water.
E) when he gets in an elevator, it HAS to go down