Download SampleMidterm2(1)

Midterm 2 Exam
Principles of Microeconomics
ECO 201
Date:
Semester:
Instructor:
Khusrav Gaibulloev
Instructions: This is a closed books and closed notes exam. You may use calculator that is nonprogrammable and without graphing function. For the problem solving questions, write answers legibly in
the spaces provided, and on the back of the page, if necessary. I encourage you to show all your work, so
that I can decide whether to give a partial credit or not. The total number of possible points on the exam is
60 points. Make sure you have all pages of the exam.
Statement of academic honesty: This exam is entirely my own work. I have not received assistance
from anyone in completing this exam. I have not given assistance to anyone in completing this exam.
Student:
___________________
Signature:
___________________
AUS ID:
___________________
ECO 201, Exam 2: Page 1 of 7
Part I – Multiple Choice/True False. Mark the correct answer on the scantron sheet – there is only one.
Each question worth 2 points, 40 points total.
1. Refer to the figure above. S and D are initial supply and demand curves and S' represents a new supply
curve after the tax. The amount of the tax revenue collected is equal to the area
A. EAHI.
B. AGJH.
C. EGJI.
D. IJC.
2. Refer to the figure above. S and D are initial supply and demand curves and S' represents a new supply
curve after the tax. The deadweight loss from the tax is equal to the area
A. IJC.
B. EGJI.
C. IHC.
D. HCJ.
3. Refer to the figure above. S and D are initial supply and demand curves and S' represents a new supply
curve after the tax. The share of the tax burden borne by producers is equal to the distance
A. AG.
B. EA.
C. EG.
D. HC.
4. Consider a per unit tax imposed on a good. The more elastic demand is, the
A. less likely that the deadweight loss will be affected.
B. larger the deadweight loss from the tax to producers.
C. smaller the deadweight loss from the tax.
D. larger the deadweight loss from the tax.
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ECO 201, Exam 2: Page 2 of 7
5. Refer to the figure above. The burden of the tax illustrated in the graph
A. is borne completely by the consumers.
B. is borne mostly by the consumers.
C. is borne mostly by the producers.
D. is shared about equally by consumers and producers.
6. According to the textbook and class discussions, a less costly alternative to the price control would be
A. price floor.
B. price subsidy.
C. income transfers.
D. taxing exported goods.
Sara, a peer-tutor, can help only three students at a time. Sara makes appointments with five students for
each tutoring slot, anticipating a high proportion of no-shows. On the night before the final exam all five
students show up for a 7:00 am appointment. Their respective arrival times and the maximum amounts
each would be willing to pay to avoid not being able to get help for homework are as given in the table.
Amr
Jawad
Ahmad
Lamya
Mohsen
Arrival time
6:30 am
6:35 am
6:40 am
6:50 am
6:55 am
Reservation prices($)
5
8
6
11
12
7. If Sara operates on a first come, first served basis, who will not be able to get any help with homework
that day?
A. Amr and Jawad.
B. Ahmad and Lamya.
C. Jawad and Ahmad.
D. Lamya and Mohsen.
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ECO 201, Exam 2: Page 3 of 7
50
45
price
S
40
35
30
25
20
15
10
5
D
100 200 300 400 500 600 700 800
quantity
8. Refer to the figure above. Suppose government decides to support poor people through price control. If
government imposes price ceiling of $15, the quantity supplied will be _______ and the value of producer
surplus will be _______.
A. 400; 4000
B. 200; 2000
C. 200; 1000
D. 600; 1000
9. Refer to the figure above. In the equilibrium shown, quantity is ________, consumer surplus is
___________ and __________.
A. 25; 8000; total economic surplus is minimized
B. 25; 4000; total economic surplus is maximized
C. 400; 4000; the difference between benefits and costs is minimized
D. 400; 4000; total economic surplus is maximized
10. Amir buys a new car for Dhs. 100,000. He receives consumer surplus of Dhs. 25,000 on his purchase.
His willingness to pay is
A. Dhs. 125,000.
B. Dhs. 100,000.
C. Dhs. 75,000.
D. Dhs. 25,000.
11. A market equilibrium is efficient only when
A. buyers and sellers each earn equal surplus from the transaction.
B. costs imposed on others are not accounted for.
C. total economic surplus is maximized.
D. income is distributed equitably.
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ECO 201, Exam 2: Page 4 of 7
Table 1
Number of
Workers
0
1
2
3
4
Output
0
90
170
230
240
Fixed
Cost
$50
$50
$50
$50
$50
Variable
Cost
$0
$20
$40
$60
$80
Total
Cost
$50
$70
$90
$110
$130
12. Refer to Table 1 above. The marginal product of the third worker is
A. 230 units.
B. 60 units.
C. 80 units.
D. 170 units.
13. Refer to Table 1 above. If the price of output is $0.30 per unit, the profit-maximizing output is
a. 240 units.
b. 90 units.
c. 170 units.
d. 230 units.
14. If a firm produces nothing, which of the following costs may not be zero in the short run?
a. fixed cost.
b. variable cost.
c. total cost.
d. opportunity cost.
15. The amount by which total cost changes when the firm produces one additional unit of output is
called
a. average total cost.
b. total variable cost.
c. change in total cost.
d. marginal cost.
16. Which of the following is true?
a. all inputs that were fixed in the short run remain fixed in the long run.
b. inputs that were variable in the short run become fixed in the long run.
c. inputs that were fixed in the short run become variable in the long run.
d. all inputs are fixed in the long run.
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ECO 201, Exam 2: Page 5 of 7
17. Refer to the figure above. When the demand is P2=15, what is the profit maximizing output for this
firm?
a. 45.
b. 100.
c. 60.
d. 80.
18. Refer to the figure above. When the demand is P2=15, what is the amount of profit or loss for this
firm?
a. loss of 60.
b. loss of 180.
c. profit of 60.
d. profit of 180.
19. Refer to the figure above. When the demand is P2=15, should the firm shut down in the short run?
a. Yes because P < ATC.
b. No because P > AVC.
c. Yes because P < AVC.
d. Uncertain.
Table 2
The Flying Elvis Copter Rides
Quantity Total
Fixed
Cost
Cost
Variable
Cost
Marginal
Cost
0
1
2
3
$0
B
I
O
-C
$120
P
$50
$150
G
M
$50
A
H
N
Average
Fixed
Cost
-D
J
Q
Average
Variable
Cost
-E
K
$120
Average
Total
Cost
-F
L
R
20. Refer to Table 2. What is the value of C?
a. $100
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ECO 201, Exam 2: Page 6 of 7
b. $150
c. $50
d. Uncertain.
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ECO 201, Exam 2: Page 7 of 7
Part II – Problem Solving Questions. There is one question worth a total of 20 points.
1. (20 points) Jawad owns and manages a café in Collegetown whose annual revenue is $5,000. Annual
expenses are as follows
Labor
Food and drink
Electricity
Vehicle lease
Rent
Interest on loan for equipment
$2,000
500
100
150
500
1,000
a) Calculate Jawad’s annual accounting profit
b) Jawad could earn $1,000 per year as a recycler of aluminum cans. However, he prefers to run the
café. In fact, he would be willing to pay up to $275 per year to run the café rather than to recycle.
Compute economic profit. Is the café making an economic profit? Should Jawad stay in the café
business? Explain.
c) Suppose the café’s revenues and expenses remain the same, but recyclers’ earnings rise to $1,100
per year. Is the café still making an economic profit? Explain.
See Practice Problems to Ch.6 (Chapter 6, problem 1) for solution.
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