Download First Practice Exam for Midterm #2

First Sample Midterm Exam #2; Page 1 of 11
Economics 101
First Sample Midterm #2, Part #1
Professor Scholz
October 22, 2009
DO NOT BEGIN WORKING UNTIL YOU ARE
TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST.
You have 75 minutes to complete the exam, which consists of 33 multiple-choice questions. The exam is
worth 100 points. Each question is worth 3 points: you get 1 point for filling in the requested information
correctly. Please answer the questions on your coding sheet with a #2 pencil. Be sure to fill in the coding
sheet carefully and accurately. Please also turn in your exam with name, ID, and student number.
Name____________________
ID _________________
Student number _____________
How to fill in the coding sheet:
1. Fill in the bubbles on your answer sheet with your last name, first name, and middle initial.
2. Fill in the bubbles so we know your student identification number.
3. Fill in the bubbles under "Special Codes" spaces ABC so we know the discussion section number for
which you are officially registered. Discussion sections are listed below:
4. Finally, after filling in your section code, please put the exam version in the “Special Codes” spaces.
You will end up with a 4-digit “Special Codes” number – a three digit section number followed by a one
digit exam number.
Georgy Loginov
William Nicholson
Jiao Shi
305
306
309
313
307
314
318
302
316
F 1:20
W 4:35
W 3:30
F 9:55
W 4:35
F 11:00
F 8:50
F 2:25
F 12:05
Fumihiko Suga
301
304
311
312
W 3:30
F 8:50
F 11:00
F 9:55
Carly Urban
Matthew Friedman
Irina Merkurieva
Michael Pistone
310
315
317
319
331
332
347
335
341
343
345
337
338
F 2:25
F 12:05
F 8:50
F 1:20
Evangelos Stravelas
330
333
334
342
W 3:30
W 4:35
F 1:20
F 2:25
W 3:30
W 4:35
F 8:50
F 1:20
F 9:55
F 11:00
F 2:25
F 2:25
F 12:05
Yuan Yuan
336
339
340
346
F 11:00
F 12:05
F 9:55
F 8:50
If you have a question during the exam, stay seated and please raise your hand. To show respect to your
fellow students, please stay seated in your exam seat for the full 75 minutes. All exams and answer sheets
must be turned in as you leave the exam.
The exam will be discussed in section next week.
Relax. Stop, take a deep breath, and think carefully before you answer any questions. Good luck!
First Sample Midterm Exam #2; Page 2 of 11
Answer these multiple choice questions on the scantron sheet, selecting the best answer.
1) Both Ike and Tina own furniture factories that produce rocking chairs. In her factory Tina uses a
production process that has low fixed costs and high variable costs. In his factory Ike uses a production
process with high fixed costs and low variable costs. Currently, each factory produces 100 rocking chairs
at the same total cost. Which of the following statements is correct (assuming typical cost curves)?
a)
b)
c)
d)
e)
If each produces 10 fewer chairs, their total costs will be equal.
If each produces 10 fewer chairs, Tina’s total costs will exceed Ike’s.
If each produces 10 more chairs, their total costs will be equal.
If each produces 10 more chairs, Tina’s total costs will exceed Ike’s.
Not enough information is given.
2) A jewelry manufacturer has the capacity to produce 15,000 gold-plated wedding bands per month. At
present it is selling 10,000 bands at $20 each. A national discount chain approaches the company and
offers to purchase 5000 bands at $9 each. The company’s average total cost at 10,000 bands is $12. At
15,000 bands it will be $10. Should they take the offer?
a)
b)
c)
d)
e)
No, $9 does not cover costs.
No, $9 does not earn a sufficient profit.
Yes, the deal causes profits to rise.
Cannot tell from the information given.
The firm should shut down.
TC
TC
1800
1000
0
100
3) In the figure above, average fixed cost (AFC) at the optimal quantity shown by the “splotch” equals
a)
10
b)
100
c)
1000
d)
180
e)
80
4) In the figure above, marginal cost (MC) equals
a)
b)
c)
d)
e)
8
80
800
1800
cannot tell from the information given
First Sample Midterm Exam #2; Page 3 of 11
5) In the figure above, at 100 units the average variable costs equals
a)
b)
c)
d)
e)
8
800
100
1000
10
6) Karl’s cookie company has a total revenue curve equal to TR=10Q. Marginal costs for Karl’s cookie
company are MC=2Q. The profit maximizing level of output is
a)
b)
c)
d)
e)
10
1
4
5
Cannot tell from the information given.
7) A firm hires two workers and rents 15 acres of land for a season. It produces 150,000 bushels of crop.
If it had doubled its land and labor, production would have been 280,000 bushels. The firm has
a)
b)
c)
d)
e)
economies of scale.
constant returns to scale.
diseconomies of scale.
fish scales.
none of the above.
8) Consider a perfectly competitive industry. The industry as a whole is producing 3,000 units and the
price of the good is $4 per unit. All of the firms have the following formula for marginal cost, MC = 2 +
q/2. How many firms are there in the market?
a)
b)
c)
d)
e)
750
600
1,000
500
It is impossible to tell from the information given
9) The substitution effect of a change in the price of good X is the portion of the __________ that can be
attributed exclusively to the resulting change in relative prices
a)
b)
c)
d)
e)
change in the quantity of substitute good Y demanded
change in the demand curve for good X
change in the quantity of good X demanded
change in the price of substitute good Y
income effect
10) At a firm’s profit-maximizing level of output, its price is $200 and its short-run average total cost is
$225. The firm
a)
has a profit of $25 per unit of output.
First Sample Midterm Exam #2; Page 4 of 11
b)
c)
d)
e)
should shut down if its short-run average fixed cost is less than $25.
has a loss of $100 per unit of output.
should shut down if its short-run average variable cost exceeds $25.
should increase production to maximize profit.
11) A bottle of wine costs $8 and a quiche $5. At Robert’s present levels of consumption, he spends all
of his income and receives a marginal utility of 10 from the last bottle of wine he buys and a marginal
utility of 4 from the last quiche he buys. To maximize his total utility, Robert should probably
a)
b)
c)
d)
e)
buy less wine and more quiche.
buy more wine and less quiche.
spend all of his money on wine.
change his spending patterns until he buys 8/5ths as much wine as quiche.
spend all of his money on quiche.
12) When a firm exits a perfectly competitive industry,
a)
b)
c)
d)
e)
the individual demand curve facing each remaining firm shifts up.
short-run industry equilibrium is re-established at a new point along the original short-run
industry supply curve
the short-run supply curve shifts to the right.
at the new long-run equilibrium, the remaining firms in the industry will each receive a
higher profit.
Answer a) and d)
13) The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its
production capacity from 1,000 bunnies per day to 2,000 per day. Supposing the price elasticity of
demand for Bunnies is 3.33, if you use the midpoint method of estimating the price elasticity of demand,
by how much will the company need to reduce its price to sell the additional 1,000 bunnies?
a)
2.5%
b)
25%
c)
125%
d)
20%
e)
None of the above
First Sample Midterm Exam #2; Page 5 of 11
14)
Consider a consumer choosing between two goods, X and Y. As depicted in the graph , the
price of X falls and the consumer decides to purchase less of the good. Which of the following
statements is necessarily correct?
a)
X is a normal good
b)
X is inferior
c)
It is not possible to tell whether X is normal or inferior
d)
The substitution effect of the price decrease means that less X will be consumed.
e)
Both b) and d)
15) When Comfy Cots produces 40 cots per day, its average variable cost is $600, its average total
cost is $800, and its marginal cost is $700. When Comfy Cots increased production from 39 to
40 cost per day, what happened to Comfy Cots average total costs?
a)
b)
c)
d)
e)
Average total costs rose
There is no way to tell
Average total costs remained constant
Average total costs fell
All of the above
16) The Apple triplets, Delicious, Fugi, and Crispy have identical individual demand curves for
chocolate chip cookies, P=40-5Q. Their market demand (where the market is just the triplet’s
demand) is
a)
b)
c)
d)
e)
17)
P = 40/3 – (5/3)Q
Q = 40 – 5P
P=120 – 15Q
P=120 – (5/3)Q
P = 40 – (5/3)Q
The highest loss a firm can earn in the short run (or the greatest negative profit) is equal to
a)
b)
Total fixed costs
Total variable costs
First Sample Midterm Exam #2; Page 6 of 11
c)
d)
e)
The interest rate times the value of capital invested
The present discounted value of future income streams
Zero
Good Y
A
B2
B1
Good X
18) Sarah chooses between two goods, X and Y. At first, the price of X is low and the price of Y is
high (budget line B1). Sarah tells you her best affordable combination of X and Y is at point A.
Then the price of X rises, while the price of Y falls (budget B2). Sarah tells you that at these new
prices, her optimal consumption bundle is still point A. What must be true of Sarah’s preferences?
a)
b)
c)
d)
e)
Sarah prefers X to Y.
Sarah prefers Y to X.
X and Y are perfect complements.
X and Y are perfect substitutes
Sarah’s preferences must violate one of our assumptions about consumer behavior.
19)
The output at which average total cost is a minimum is _________ the output at which
___________ is a minimum.
a)
b)
c)
d)
e)
the same as; marginal product
less than; average variable cost
the same as; average variable cost
greater than; average variable cost
the same as; average fixed costs
First Sample Midterm Exam #2; Page 7 of 11
20) Refer to the Table:
Jonathan’s Carpet Cleaning
TC
AVC
AFC
Carpets
TVC
TFC
0
1
2
9
3
80
4
44
5
10
If the price of carpet-cleaning is $13, how many should Jonathan clean?
a)
0
b)
1
c)
2
d)
3
e)
4
f)
5
ATC
MC
8
22
21) A UW Economics Professor consumes only Diet Dr. Pepper and stale candy. His income is a mere
$10 per month. Diet Dr. Pepper costs $0.50 and stale candy also costs $0.50. The price of Diet Dr. Pepper
doubles. Assuming that he maximizes his utility, which of the following bundles would he NOT choose?
a)
b)
c)
d)
e)
10 cans of Diet Doctor Pepper and 0 stale candy bars.
5 cans of Diet Doctor Pepper and 5 stale candy bars.
0 cans of Diet Doctor Pepper and 20 stale candy bars.
5 cans of Diet Doctor Pepper and 10 stale candy bars.
All of the above bundles are consistent with utility maximization.
22) Consider the usual U-shape ATC and U-shape AVC curves. Which of the following is NOT true?
a)
b)
c)
d)
e)
MC curve should go through the minimum point of ATC curve.
MC curve should go through the minimum point of AVC curve.
ATC curve may or may not intersect with AFC curve.
Diminishing return to scale always makes AVC upward sloping eventually.
One reason that MC curves slope upwards is because AFC is downward sloping.
23) Imagine that you are the owner of 3 tricycle-producing plants, and none of them are currently
producing tricycles. The marginal cost of an additional tricycle in Plant 1 is 2Q, in Plant 2 it is 6+Q, and
in Plant 3 it is 7.5. Find the cost-minimizing plan for producing 4 tricycles and the total cost associated
with that plan.
a) Produce 3 tricycles in Plant 1 and 1 tricycle in Plant 3 for a total cost of $13.50.
b) Produce all 4 tricycles in Plant 1 for a total cost of $8.
c) Produce 3 tricycles in Plant 1 and 1 tricycle in Plant 2 for a total cost of $22.
d) Produce 2 tricycles in Plant 1 and 2 tricycles in Plant 2 for a total cost of $21.
e) Produce 3 tricycles in Plant 1 and 1 tricycle in Plant 2 for a total cost of $19.
First Sample Midterm Exam #2; Page 8 of 11
24. The average total cost of producing cell phones in a factory is $20 at the current output level of
100 units per week. If fixed cost is $1,200 per week:
A) average fixed cost is $20.
B) total cost is $3,200.
C) variable cost is $2,000.
D) average variable cost is $8.
E) Not enough information is given
25) Olga consumes two normal goods, X and Y, and is currently at an optimum. If the price of good X
falls, we can predict with certainty that Olga’s real income will rise
a)
b)
c)
d)
e)
and she will therefore consume more of both goods.
but the substitution effect will insure that she consumes more X and less Y.
so she will consume more of good X, but she might consume more, less, or the same of good Y.
but the substitution effect will negate the positive effect of the rise.
None of the above.
26) The following graph shows Joe’s preferences for bread and butter. Given his income and the initial
prices he optimally chooses to consume at point A. Suppose the price of bread rises and the price of butter
decreases in such a way that Joe’s new budget constraint still passes through A. Then, the quantity
consumed of butter will
Bread
II
I
A
Butter
a)
b)
c)
d)
e)
increase.
decrease.
stay the same.
Anything may happen.
Consumption will go to zero
First Sample Midterm Exam #2; Page 9 of 11
The following table shows the price and yearly quantity of souvenir T-shirts in Stoughton, Wisconsin
according to the average income of the visiting tourists.
T-shirt price
$4.50
$5.50
$6.50
$7.50
Quantity of T-shirts demanded
when average tourist income is
$20,000
2,400
1,600
800
400
Quantity of T-shirts demanded
when average tourist income is
$30,000
3,600
2,800
2,400
1,800
27) Calculate the price elasticity of demand (using the midpoint method, in absolute value) when the price
of T-shirts rises from $4.50 to $5.50 when the tourist income is $20,000.
a)
1
b)
1.5
c)
2
d)
3
e)
None of the above
28) Calculate the income elasticity of demand (using the midpoint method) when the average tourist
income increases from $20,000 to $30,000 when the price of a T-shirt is $4.50.
a)
1
b)
-1
c)
2
d)
-2
e)
None of the above
Figure for problem 29: Prices, Cost Curves, and Profits
First Sample Midterm Exam #2; Page 10 of 11
29. (Figure: Prices, Cost Curves, and Profits) In the accompanying figure, if the price is P2, then the
maximum profit the firm can earn is:
A) (fg) x Q3.
B) (de) x Q2.
C) (fg) x Q2.
D) (de) x P2 .
E) Not enough information is given
Figure and Table: The Budget Line
Consumption
bundle
A
B
C
D
E
F
Quantity of clams
(pounds)
0
1
2
3
4
5
Quantity of potatoes
(pounds)
10
8
6
4
2
0
30. In the accompanying figure, a(n) _____ in the price of clams would pivot the budget line along
the _____ axis _____ the origin.
A) increase; horizontal; away from
B) decrease; horizontal; away from
C) increase; vertical; toward
D) decrease; vertical; away from
E) none of the above
First Sample Midterm Exam #2; Page 11 of 11
Figure: Good X and Good Y
31. (Figure: Good X and Good Y) Which chart in the accompanying figure shows the effects of a
decrease in income when good X is an inferior good and good Y is a normal good?
A) A
B) B
C) C
D) D
E) None of the above
32. Sid is thinking of mowing lawns over the summer. His friend Jason currently mows lawns, and
says the marginal cost of the 4th lawn mown in a day is $40. Sid then realizes that the total cost
of mowing 4 lawns is:
A) 160.
B) 40.
C) 80.
D) cannot be determined from the above information.
E) 40
3
1
33. Clarence has a utility function U = X 4 Y 4 . The corresponding MRS = (3Y)/X. The price of good X
is 9, the price of good Y is 3, and Clarence’s income is 60. What is his optimal consumption?
a)
b)
c)
d)
e)
X=3, Y=9
X=5, Y=5
X=9, Y=3
X=9, Y=5
None of the above.
First Sample Midterm Exam #2; Page 12 of 11
Answers
1 d, 2 c, 3 a, 4 a, 5 a, 6 d, 7 c, 8 a, 9 c, 10 b, 11 b, 12 e, 13 d, 14 b, 15 d, 16 e, 17 a, 18 c, 19 d, 20 d, 21 b,
22 e, 23 e, 24 d, 25 c, 26 c, 27 c, 28 a, 29 b, 30 b, 31 a, 32 d, 33 b