Download Practice exam 2

Practice midterm 2
Econ 2610: Principles of Microeconomics
Yogesh Uppal
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) An economically efficient output level is achieved when
A) the marginal benefit of the last unit produced equals the marginal cost of producing that unit.
B) the marginal benefit of the last unit produced is greater than the marginal cost of producing
that unit.
C) the marginal benefit of the last unit produced is less than the marginal cost of producing that
unit.
D) none of these.
Answer:
2) Assume extra benefits in a market are equal to $34 while extra costs are equal to $44. What
can be said about economic efficiency?
A) Economic efficiency has not been reached, more needs to be produced.
B) It has been reached.
C) Economic efficiency has not been reached, less needs to be produced.
D) Need more information to reach a conclusion.
Answer:
3) Why does the imposition of a specific sales tax on a good create a deadweight loss?
A) Because less of the good is sold because of the tax.
B) It doesn't because sellers transfer the tax revenue to the government.
C) It doesn't because there is no change in the quantity sold.
D) None of these.
Answer:
4) If 11 workers can produce a total of 54 units of a product and another worker has a marginal
product of six, then the average product of 12 workers is:
A) 56
B) 5
C) 10
D) None of the above
Answer:
Figure 1
5) Refer to figure 1. Which of the curves represents the average total cost curve?
A) A
B) B
C) C
D) D
Answer:
6) Refer to figure 1. Which of the curves represents the average fixed cost curve?
A) A
B) B
C) C
D) D
Answer:
7) Refer to figure 1. Which of the curves represents the average variable cost curve?
A) A
B) B
C) C
D) D
Answer:
8) Refer to figure 1. Which of the curves represents the marginal cost curve?
A) A
B) B
C) C
D) D
Answer:
The figure below shows the market for granola. The market is initially in equilibrium at a price of P1 and
a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2.
Figure 2
9)
Refer to Figure 2. What is the area that represents consumer surplus at the price P2?
A) A
B) A+B
C) A+B+C
D) A+B+C+D
Answer:
10) Refer to Figure 2. What is the area that represents producer surplus at the price P2?
A) A
B) D+B
C) A+B+C
D) A+B+C+D
Answer:
11) Refer to Figure 2. What is the area that represents the deadweight loss at the price P2?
A) A
B) D+B
C) C+E
D) A+B+C+D
Answer:
12) Refer to Figure 2. At the price P2 consumers are willing to buy the Q2 pounds of granola. Is
this an economically efficient quantity?
A) Yes, otherwise consumers would not buy Q2 units.
B) Yes, because the price P2 shows what consumers are willing to pay for the product.
C) No, the marginal cost of the last unit (the Qth unit) exceeds the marginal benefit of that last
unit
D) No, the marginal benefit of the last unit (the Qth unit) exceeds the marginal cost of that last
unit.
Answer:
13) If a typical firm in a perfectly competitive industry is earning profits, then
A) all firms will continue to earn profits.
B) new firms will enter in the long run causing market supply to increase and market price to fall
decreasing profits.
C) new firms will enter in the long run causing market supply to decrease and market price to rise
increasing profits.
D) the number of firms in the industry will remain constant in the long run.
Answer:
14) The higher the burden on consumers of a tax on a good,
A) the lower the elasticity of demand for that good
B) the higher the elasticity of demand for that good
C) if the demand is unit elastic.
D) need more information.
Answer:
15) The higher the dead weight loss of a tax,
A) the lower the elasticity of demand for that good
B) the higher the elasticity of demand for that good
C) if the demand is unit elastic.
D) need more information.
Answer:
SHORT ANSWER. Write your answers in the space given below each question.
Figure 3
16)
The figure above shows the cigarette market. Use the diagram to answer the following
questions.
a. How much is the government tax on each pack of cigarettes?
b. What is the quantity sold after the imposition of the tax?
c. What is the numerical value of the total tax revenue collected by the government?
d. What portion of the tax is paid by the producer?
e. What portion of the tax is paid by the consumer?
f. What is the numerical value of the dead weight loss (also known as the excess burden) of the tax?
17) Consider the following table showing the output, fixed cost and variable cost of a perfectly
competitive firm. Suppose the market price is $54 per unit.
a. Find the following on the table: Total cost, marginal cost, Total revenue, marginal revenue,
average total cost and average variable cost.
Q
0
1
2
3
4
5
6
Fixed Variable
Cost
Cost
$50
$0
50
22
50
58
50
74
50
88
50
106
50
128
7
8
b.
c.
d.
e.
50
50
152
206
What is profit maximizing level of output the firm should produce?
How much profit does the firm make at the profit maximizing level of output?
What happens if the price falls to $22.
What is the shutdown point for this firm?
18. Consider the following utility schedule for Ann from consumption of pizza and soda. Suppose
price of a pizza slice is $2 and that of a cup of soda is $1. She has $10 to spend.
a. Fill in the marginal utility and the marginal utility per dollar values.
b. What combination of pizza and soda maximizes Ann’s utility?
# of
Total
# of cups Total
Slices utility from
of soda
utility
pizza
from soda
0
0
0
0
1
20
1
20
2
36
2
35
3
46
3
45
4
52
4
50
5
54
5
53
6
51
6
52