Exam 2 - Fall 2016 Key - Exam 2 - Fall 2016 Key PDF

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Exam #2 Econ 2100 Fall 2016 Dr. Richard Fritz ANSWER KEY Page 1

Name: _Exam

#2 Econ 2100 __ANSWER KEY___

Date: _FALL 2016____

1. If a perfectly competitive firm increases production from 10 units to 11 units and the market price is $20 per unit, total revenue for 10 units is: A) $10. B) $20.

C) $200. D) $210.

2. The equilibrium price of a guidebook is $35 in the perfectly competitive guidebook industry. Our firm produces 10,000 guidebooks for an average total cost of $38, marginal cost of $30, and average variable cost of $30. Our firm should: A) raise the price of guidebooks, because the firm is losing money. B) keep output the same, because the firm is producing at minimum average variable cost.

C) produce more guidebooks, because the next guidebook produced increases profit by $5. D) shut down, because the firm is losing money.

3. Price in a perfectly competitive industry: A) is determined by each firm, depending on its costs of production.

B) is always equal to marginal revenue for the firm. C) must be greater than average total cost or the firm will shut down in the short run. D) is indeterminate in the short run.

4. Consider a perfectly competitive firm in the short run. Assume the firm produces the profit-maximizing output and earns economic profits. At the profit-maximizing output, all of the following are correct except that: A) price is equal to marginal cost.

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B) price is equal to marginal revenue.

C) price is equal to average total cost. D) marginal cost is greater than average total cost.

5. Zoe's Bakery operates in a perfectly competitive industry. When the market price of iced cupcakes is $5, the profit-maximizing output level is 150 cupcakes. Her average total cost is $4, and her average variable cost is $3. Zoe's marginal cost is ________, and her short-run profits are:

A) $5; $150 B) $5; $300 C) $1; $150 D) $1; $300

6. Wenqin is a farmer, and in the short run she produces 100 bushels of wheat. Her average total cost per bushel is $1.75, total revenue is $450, and total fixed costs are $100. Wenqin's: A) average fixed cost is $1.50.

B) profit per bushel is $2.75. C) average variable cost is $1.25. D) economic profit is $250.

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Use the following to answer question 7: Figure: Total Cost for Tomato Producers

7. (Figure: Total Cost for Tomato Producers) The market for tomatoes is perfectly competitive, and an individual tomato farmer faces the cost curves shown in the figure. The market price of a bushel of tomatoes is $14. The farmer's total cost at the profitmaximizing number of bushels is: A) $3.50. B) $14.

C) $56. D) $72.

8. Lilly is the price-taking owner of an apple orchard. The price of apples is high enough that Lilly is earning positive economic profits. In the long run, Lilly should expect _____ apple prices upon ________ of firms.

A) lower; entry. B) higher; exit C) lower; exit D) higher; entry

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9. Compared to a perfectly competitive market, a monopolist will produce ________ and charge a ________ price.

A) less; higher B) less; lower C) more; higher D) more; lower

10. Situations in which the more users of a product there are, the more useful the product becomes are:

A) network effects. B) monopolies. C) conglomerates. D) exclusive franchises.

11. Wendy has a monopoly in the retailing of motor homes. She can sell five per week at $21,000 each. If she wants to sell six, she can charge only $20,000 each. The quantity effect of selling the sixth motor home is:

A) $20,000. B) $10,000. C) $15,000. D) $21,000.

12. Mr. Porter sells 10 bottles of champagne per week at a price of $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity and the price effects on total revenue would be, respectively, an increase of ______ and a decrease of ______. A) $450; $500 B) $495; $550 C) $45; $5

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D) $45; $50

13. A monopoly is producing at the output level where average total cost equals $30, marginal revenue is $40, and the price is $50. If average total cost is at its minimum level and the average total cost curve is U-shaped, in order to maximize profits this firm should:

A) increase output. B) reduce output. C) do nothing; it is already maximizing profits. D) shut down.

14. Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by:

A) producing more output than the quantity that maximizes joint cartel profits. B) producing less output than the quantity that maximizes joint cartel profits. C) increasing the price above the price that maximizes joint cartel profits. D) engaging in less advertising than the level of advertising that maximizes joint cartel profits.

15. The first law designed to curb monopoly power in the United States was the ________ Act.

A) Sherman Antitrust B) Clayton C) Federal Trade Commission D) Robinson-Patman

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16. Many customers will walk right past a diner that serves coffee and go to Starbucks, where they pay more for a cup of coffee. For these customers, cups of coffee are differentiated by: A) style. B) location.

C) quality. D) type.

17. In contrast to the conclusions drawn from microeconomics, many economists would argue that in macroeconomics government: A) control of rent prices increases overall economic activity. B) intervention in markets usually leaves society as a whole worse off. C) taxation of goods and services does not create a deadweight loss of economic welfare.

D) intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy.

18. The modern tools of macroeconomic policy are: A) tax policy and antitrust policy.

B) fiscal policy and monetary policy. C) monetary policy and exchange rate policy. D) capital policy and labor policy.

19. John Maynard Keynes believed that the:

A) government should actively try to mitigate the effects of recessions by using fiscal policy. B) government should not interfere with the economy but should let the economy self-correct.

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C) government should intervene only when there is a boom but let the recession run its course. D) government should not use fiscal and monetary policies, as these policies have long-term adverse effects on the economy.

20. The sequence of business cycle phases is: A) peak, trough, expansion, recession. B) peak, expansion, trough, recession.

C) peak, recession, trough, expansion. D) peak, expansion, recession, trough.

21. The annual percentage change in the aggregate price level is negative when there is:

A) deflation. B) disinflation. C) inflation. D) spiraling inflation.

22. In an open economy: A) the exchange rate is determined by the government. B) specialization in activities with a comparative advantage is not possible. C) trade is beneficial only to the larger economy.

D) there is trade in goods, services, or assets with other countries.

23. The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by Boeing is equal to:

A) $3.5 million.

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B) $16.5 million. C) $13 million. D) $15.5 million.

24. If real GDP rises while nominal GDP falls, then prices on average have: A) risen.

B) fallen. C) stayed the same. D) Real GDP cannot rise when nominal GDP falls.

Use the following to answer question 25:

25. (Table: Peanut Butter and Jelly Economy) A simple economy produces only peanut butter and jelly. Using the data in the attached table, in 2011, nominal GDP was ____ and real GDP was _____, using 2010 as the base year. A) $450; $400

B) $525; $450 C) $525; $400 D) $450; $575

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Use the following to answer questions 26-27: Scenario: Real GDP Suppose that in year 1 an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each.

26. (Scenario: Real GDP) The value of nominal GDP in years 1 and 2 respectively is:

A) $900; $1,077.50. B) $900; $990. C) $180,000; $257,400. D) $1,000; $1,005.

27. (Scenario: Real GDP) Using year 1 as the base year, real GDP in year 2 is: A) $900.

B) $970. C) $1,000. D) $1,077.50.

28. Real GDP tends to understate our economic well-being because it: A) includes the value of services produced in the home.

B) excludes the value of leisure. C) includes expenditures on crime prevention equipment. D) includes health care costs related to the consumption of cigarettes.

29. In Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in 2011. Based on this information and considering 2009 to be the base year, the price index in 2011 was: A) 100.

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B) 107.69.

C) 123.07. D) 130.

30. The inflation or deflation rate is:

A) The annual percent change in the official price index. B) the change in a price index divided by the new index number. C) the difference between the initial price index number and the new price index number. D) computed by dividing the old price index number by the new price index number.

31. You read in the newspaper that the CPI in 2011 was 120. You conclude that a typical market basket in 2011 would have cost: A) 20% more than the same market basket purchased in 2010. B) 120% more than the same market basket purchased in 2010.

C) 20% more than the same market basket purchased in the base year. D) 120% more than the same market basket purchased in the base year.

32. The consumer price index reflects:

A) changes in the prices of goods and services typically purchased by consumers. B) the level of prices for intermediate goods and services purchased by business. C) the level of prices for raw materials. D) the prices of all goods and services computed from the ratio of nominal GDP to real GDP.

33. The GDP deflator is equal to:

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A) nominal GDP/real GDP × 100. B) real GDP/nominal GDP × 100. C) real GDP × nominal GDP × 100. D) [(real GDP × nominal GDP)/real GDP] × 100.

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Answer Key

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1. C 2. C 3. B 4. C 5. A 6. B 7. C 8. A 9. A 10. A 11. A 12. D 13. A 14. A 15. A 16. C 17. D 18. B 19. A 20. C 21. A 22. D 23. A 24. B 25. B 26. A 27. B

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28. B 29. C 30. A 31. C 32. A 33. A

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