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by: Miss Kristy Veum


Miss Kristy Veum
Texas A&M
GPA 3.8

S. Mostashari

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S. Mostashari
Class Notes
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This 10 page Class Notes was uploaded by Miss Kristy Veum on Wednesday October 21, 2015. The Class Notes belongs to ECON 202 at Texas A&M University taught by S. Mostashari in Fall. Since its upload, it has received 20 views. For similar materials see /class/225829/econ-202-texas-a-m-university in Economcs at Texas A&M University.




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Date Created: 10/21/15
1 ECON 202507 Introduction to Microeconomics Mostashari Fall 2007 Practice Final B Name Pledge Section 1 Multiple Choice 100 points or 5 points each Read allpossible answers and choose the best one 1 Which of the following is not true about perfect price discrimination a rms charge consumers their maximum willingness to pay b it is more ef cient than monopoly pricing without price discrimination c is better for both consumers and producers d maximizes total surplus e the price of the last unit sold is equal to the marginal cost of the last unit produced 2 The price of a breakfast taco is 200 and at the current quantity of tacos produced which is not known the marginal cost of a breakfast taco is 150 Is this the pro t maximizing number of breakfast tacos a Yes b No there is underproduction of breakfast tacos c No there is overproduction of breakfast tacos d If the price is above AVC there is overproduction e It is not possible to tell 3 The short run differs from the long run in that a in the short run rms always make positive economic pro ts whereas they make zero economic pro ts in the long run b in the short run rms may make zero economic pro ts but in the long run there is no entry or exit c in the short run at least one input is held xed but in the long run all inputs are held xed d in the short run there is no entry or exit and in the long run there is e none of the above are correct 4 Joe a taxi cab driver in New York City can earn revenues of 200000 per year and spends 60000 on maintenance and other costs including the rental of the taxi He pays 100000 for a taxi cab license per year If the next best alternative use of the cab driver s time is if he worked at his brother s grocery store he would choose to work there if his brother promised him a salary of at least 7 a 40000 b 100000 c 160000 d Nothing e He would work for his brother no matter what 2 5 Amy has the option of paying all of her tuition up front or nancing her tuition bill over 4 years If she decides to pay up front the total cost today would be 20000 If she decides to nance she must pay 1000 today as a nance charge and then 7000 at the end of her rst second and third year The interest rate is 10 Amy should a take the nance option b pay up front c drop out of school d become a lawyer e cannot be determined without more information 6 Jessie s widget factory uses a combination of labor and machinery to make widgets Suppose that the wage rate goes down Considering both output and substitution effects in the long run the amount of labor used will if and the amount of capital used will if a rise a b fall rise c fall it is not possible to say d it is not possible to say rise e rise it is not possible to say 7 Suppose that the price of a hotdog increases from 6 to 8 and as a result the quantity demanded falls from 10 to 2 According to the midpoint formula the price elasticity of demand equals a 08 b 111 c 70 d 20 e none of the above 8 The labor demand curve would be eXpected to shift up if a the productivity of labor increases b the price of output decreased c the equilibrium wage rate increased d the equilibrium wage rate decreased e both a and d 9 Lowskilled workers are an input in the production of canned vegetables they work in the canneries An increase in the price of these workers is likely to cause which of the following changes in the equilibrium price and quantity of canned vegetables a increase in price decrease in quantity b increase in price increase in quantity c decrease in price decrease in quantity d decrease in price increase in quantity e it is not possible to predict 3 Use the information below to answer questions 10 11 There is periodic talk of legally mandating a living wage in Bryan This is essentially a city wide minimum wage that would be higher than the federal minimum of 585 an hour and would apply to any businesses in Bryan Suppose that this proposed local minimum wage is 10hour and that the current market wage for unskilled labor in Bryan is 7hour 10 The living wage is an example of a a binding price ceiling b a nonbinding price ceiling c a binding price oor d a nonbinding price oor e a taX 11 Economic theory suggests that instituting this policy would cause a surplus of workers ie unemployment However those workers who have jobs after the policy would earn more than before the new living wage was instituted Suppose that the elasticity of demand for unskilled labor is 04 What do we eXpect the effect of the living wage on total wage income of workers be hint use the revenue maximization rule a total wage income will decrease b total wage income will stay the same c it is not possible to predict d total wage income will rise 12 If marginal cost is currently 12 and average variable cost is currently 14 then a average total cost must be rising b average total cost must be falling c average total cost may be rising or falling d marginal cost must be rising e only b and d are true 13 Due to a ood in Costa Rica vast amounts of the coffee crop was destroyed As a result the price of coffee increased from 10 to 12 a pound and the quantity decreased from 200 to 100 From this information we could calculate a the price elasticity of demand for beer b the price elasticity of supply for coffee c the price elasticity of demand for coffee d both b and c e the income elasticity of demand for coffee 14 In the long run rms in an industry characterized by Monopolistic Competition will have that a Price will equal average costs b Price will equal marginal costs c Marginal revenue will equal price d Marginal costs is tangent to the demand curve e rms can earn positive pro ts 4 15 In the short run a monopolistically competitive rm a earns 0 pro ts because of free entry and eXit b may earn positive pro ts c will always shut down if price is less than average total costs d will always produce a positive level of output e none of the above Use the graph to answer questions 16 20 The following graph depicts the market for candles Each square is a unit of 1 Note that the downwardsloping marginal revenue curve only applies to rms with market power 16 Suppose that are a quantity produced would be 7 and the price charged would be if a 4 8 b 4 12 c 8 0 d 8 8 e 10 8 17 Suppose that candles are produced by a monopolist The quantity produced would be if and the price charged would be if a 4 8 b 5 12 c 5 13 d 8 8 e 10 8 18 The perfectly competitive rm s pro ts would be if and the monopolist s pro ts would be a 55 0 b 0 48 c 0 16 d 0 25 e 48 64 5 19 Suppose instead that there were ve rms in the market The 5 oligopolists collude and agree to each produce one fth of the monopoly quantity Then the pro ts to m rm will be a 4 b 5 c 6 d 125 e 15 20 If one of the oligopolists deviates and produces one more candle than he had agreed to this oligopolist would eamii and the other oligopolists would earn if each a 00 b 54 c 84 d 104 e none of the above are correct Use the following information to answer questions 21 22 Betty and Fritz are two thieves caught for a suspected robbery These prisoners are separated and put in two sound proof rooms so that they can t communicate with each other Each are given two options confess or don t confess Their payoffs are given below where the rst number in parenthesis represents Betty s jail sentence and the second represents Fritz s under the four possible outcomes Remember a smaller jail sentence is better Fritz confess don39t confess confess 1010 020 Betty don39t confess 200 11 21 Betty s dominant strategy is a confess b don t confess c she doesn t have oneiher best strategy depends on what Fritz does d confess if Justin confesses e none of the above 22 The Nash Equilibrium outcome of this game is a don t confess confess b confess don t cofess c confess confess and don t confess don t confess d confess confess e there is no Nash Equilibrium 6 23 Tom s Donuts can invest in a new espresso machine that will yield expected pro ts of 700 exactly one year from now The machine costs 600 What must the interest rate be less than in order for Tom to be willing to buy this machine a Tom will always buy the machine b Tome will never buy the machine c 1667 d 599 e none of the above 24 Which of the following illustrates the concept of a negative eXtemality a a college student gets new glasses b a bee farmer s bees help to pollinate the trees in a nearby apple orchard c a college student plays his new stereo system at 2 am d a doctor eats a hamburger during his lunch break e a restaurant closes early because there are no customers 25 Which of the following might be considered a public good a nature preserves b fresh air c lighthouses d all of the above e none of the above Use the following graph ofa polluting fertilizer plant to answer question 26 P Social Marginal Cost Marginal Cost D 3 4 Bags of Fertilizer 26 In order to get the rm to produce the efficient quantity the government should a do nothing b institute a taX of 4 per bag of fertilizer c institute a taX of 1 per bag of fertilizer d institute a taX fo 2 per bag of fertilizer e none of the above 7 Use the following graph on the market for flu vaccinations to answer question 27 P Marginal Cost Social Marginal Benefit 3 5 Bags of Fertilizer 27 If there is no government action in the above market for u vaccinations then a there will be overproduction b there will be underproduction c the ef cient output will be produced d the rm overestimates the true cost e consumers overestimate the true bene t of the u vaccinations Use the following diagram to answer questions 28 3 1 28 Given the graph above a monopolist would produce a quantity of 777 and charge a price of i a 10 18 b 10 16 c 8 19 d 9 18 e none of the above 8 29 At the pro t maximizing price the rm would earn 7 in pro ts a 0 b 32 c 27 d negative xed costs because the rm would shut down e none of the above 30 In the long run the monopolist would exit when the pro t maximizing price falls below a 19 b 18 c 16 d average variable costs e average total costs 31 If the monopolist perfectly price discriminated then the price of the last unit sold would be and consumer surplus would be 7 then in the single price monopoly case a 19 lower b 18 higher c 18 lower d 16 lower e none of the above 32 Monopolistic competition is generally praised because 7 if and criticized because of a rms produce the ef cient quantity rms spend a lot of money on advertising to convince consumers of their superior product even when differences may be trivial b different varieties of goods are available rms spend a lot of money on advertising to convince consumers of their superior product even when differences may be trivial c more varieties of goods are available rms produce at minimum costs d both a and b e none of the above 33 The government wants to decrease consumption of cigarettes by 20 The price elasticity of cigarettes is 44 This reduction in consumption would occur if cigarette producers if a raised prices by 88 b raised price by 455 c lowered prices by 88 d lowered prices by 455 e none of the above 34 In the labor market if the government imposed a binding minimum wage and the labor demand was perfectly Inelastic aWorkers that found jobs would earn higher wages but fewer workers would nd jobs b Firms would hire fewer workers c There would be no unemployment d Producer surplus would increase e all of the above 35 The cross price elasticity between coffee and tea is probably a Negative b Positive c 0 d perfectly elastic e Cannot be determined 36 The statement If demand for labor is perfectly inelastic a binding minimum wage will result in a loss of consumer surplus is a a normative statement b a positive statement c always incorrect d only correct under certain conditions e both B and C 37 If a movie theater wanted to increase the number of tickets sold by decreasing price by 1 the price drop would be more successful at generating an increase in quantity demanded if a There were no other movie theaters around b There were many other movie theaters c Demand was relatively elastic d Both B and C are true e None of the above Fill in the blank spaces on this chart and use your responses to answer questions 38 42 Kathy Lee runs a clothing factory that produces skirts in a perfectly competitive industry The following chart reports Kathy Lee s total costs TC total xed costs TFC total variable costs TVC marginal cost MC average total cost ATC average variable cost AVC and average xed cost AFC 10 38 The rst quantity where we observe that diminishing returns have alreaaj set in is 7 a 2 b 3 c 4 d 5 e none of the above 39 Average Total Cost is minimized when Kathy Lee produces 77 skirts 99957 MJBWNH 40 If the current price of a skirt is 186 then if Kathy Lee wants to maXimize pro ts she should produce i sk11ts a l vung b c d e 41 If the current price of a skirt is 186 and KathyLee produces the pro t maximizing number of skirts then her pro ts will be about a 0 b 22 c 48 d 78 e none of the above 42 If Kathy Lee were to shut down her pro ts would be a 8 b 4 c l2 d 0 e cannot be determined


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