Exam Code: Dat - University of Alberta

The University of AlbertaDepartment of EconomicsEconomics 101 – A4Midterm #2Gordon Lee November, 2010You have 75 minutes to answer the following thirty multiple choice questions.Choose the best answer to the questions and put your answer on the scan sheet.The answers to the questions, as well as your grades, will be posted on the course’swebpage.Exam Code: Dat

1. Utility is determined by an individual’sa. income.b. price.c. relative price.d. profit.e. tastes and preferences.1Exhibit 6.3.Scones Total Utility Marginal Utility1 102 183 24 64 285 30 22. In exhibit 6.3, the marginal utility of consuming the second scone isa. 12.b. 9.c. 8.d. 19.e. 6.3. The fact that the fourth slice of pizza did not generate as much satisfaction as the third slice is anexample ofa. consumer surplus.b. diminishing total utility.c. the paradox of value.d. the law of demand.e. diminishing marginal utility.4. Consumers have to make tradeoffs in deciding what to consume becausea. not all goods give them the same amount of satisfaction.b. they are limited by a budget constraint.c. the prices of goods vary.d. there are not enough of all goods produced.5. Your marginal utility of a third waffle is 10 and the marginal utility of a second piece of ham is 30. Ifyou eat the third waffle, which of the following must be true?a. You are irrational.b. You prefer waffles.c. The price of a waffle is less than one third the price of a piece of ham.d. The price of a waffle is more than the price of a piece of ham.e. The price of a waffle is three times the price of a piece of ham.

Exhibit 6.7Total UtilityQuantity Games of Billiards Games of Bowling0 0 01 100 702 180 1303 240 1804 272 2105 288 2186 292 22226. Refer to Exhibit 6.7. Simon Zinc-Trumpet-Harris has $30 to spend on either bowling or billiards. Agame of billiards cost $4 and bowling cost $2. Determiner the utility maximizing combination ofbowling and billiards.a. four billiard games and four games of bowling.b. five billiard games and two games of bowling.c. three billiard games and eight games of bowling.d. five billiard games and five games of bowling.e. twelve games of bowling.7. A market demand is obtained bya. adding the price each individual will pay for a given quantity of the good.b. multiplying the price by the quantity demanded at each price.c. summing the quantities that each individual will purchase at each price.d. adding the total utility of all consumers for each quantity.e. summing the individual demand curves vertically.8. The demand curve for tickets to the Freedonian Wheat Kings is given as follows:Q = 200 – 0.1 PAt a price of $20, what is the consumer surplus from the tickets?a. $0.b. $20.c. $2,000.d. $1,980.e. $196,020.9. A conclusion of the work on the Disneyland Dilemma is thata. the consumers do best when the firm charges $0 per ride and eh associated consumer surplus isthe admittance fee.b. the firm does best when it charges only a per ride fee.c. the firm does best when it charges a positive per ride and the associated consumer surplus as anadmittance fee.d. the firm does best when it charges $0 per ride and the associated consumer surplus as anadmittance fee.e. a and b.

10. Because the company Lloyd’s of London was set up as a partnership, owners of the company facea. negative economic profits.b. stockholder remorse.c. double taxation.d. limited liability.e. unlimited liability.311. If I own a one share in IBM, I owna. only the right to vote in the elections of corporate directors.b. a claim to a share of IBM’s assets and earnings as well as the right to demand annual dividendpayments.c. the right to demand annual dividend payments as well as the right to vote in elections ofcorporate directors.d. only the right to demand annual dividend payments.e. a claim to a share of IBM’s assets and earnings as well as the right to vote in elections ofcorporate directors.12. An IOU reflecting the corporation’s promise to pay the holder a fixed sum of money at a designatedmaturity date plus an annual interest payment until maturity isa. a bond.b. a stock certificate.c. a prospectus.d. a golden parachute.e. an underwriting note.13. Suppose that you decide to buy 100 shares of the Melmac Corporation and you call your stockbroker and ask her to make the transaction for you. You will be purchasing the stock in the marketknown asa. the primary market.b. the insider market.c. the secondary market.d. the collateral market.e. the tertiary market.14. Suppose that in the November 4th issue of the Freedonian Free Press newspaper you read thefollowing results for the stock market for November 3;Jolty Cola 6789 23.15 22.90 23.10 +0.28Then, you would conclude that;a. the high price for Jolty Cola shares on November 3 was $22.82.b. Jolty Cola must have announced that it is expecting its first quarter profits to fall.c. the head of the Freedonian Central Bank must have announced that interest rates are rising.D there is a Bull market in Freedonia.e. None of the above.

15. The length of time that represents the long runa. is greater than one year.b. is greater than six months.c. is the same for all industries.d. is longer in service industries than in manufacturing industries.e. varies from industry to industry.4Exhibit 7.12LabourTotal Product (T- shirts)0 01 202 423 624 725 746 6816. Given the information in Exhibit 7.12, at what point do diminishing marginal returns set in?a. Between the first and the second worker.b. Between the second and the third worker.c. Between the third and the fourth worker.d. Between the fourth and the fifth worker.e. Between the fifth and the sixth worker.17. Academic book publishers hire editors, designers, and production and marketing managers whohelp prepare books for publication. Because these employees work on several bookssimultaneously, the number of people the company hires will not go up and down with the quantityof books the company publishes during any particular year. The salaries and benefits of people inthese job categories will be included ina. fixed and marginal cost but not variable cost.b. fixed cost but not variable cost and total cost.c. marginal cost and total cost but not fixed cost.d. fixed cost and total cost but not variable cost.Table 16.1QuantityTotal Costs0 801 972 1233 1634 2105 28818. Refer to Table 16.1. The average fixed costs of producing 4 units equala. 130.b. 80.c. 32.50.d. 20.e. 0.

519. For the Melmac firm, fixed costs are $100. Total cost is $180 at 10 units of output and 197 at 12units of output. Over the range of 10 to 12 units of output,a. MC is greater than ATC.b. MC is less than ATC.c. AVC is rising.d. ATC is at its minimum.e. both b and c.20. Assume a firm’s production process is subject to economies of scale over a range of output. Thenover this range of output, long run average total costs will tend to:a. increase.b. decrease.c. remain constant.d. fall to a minimum and then rise.e. returns to scale tell us nothing about long run average total costs.21. Danny Lust was a professor who earned $37,000 per year teaching but decided to leave and fulfill hisdream of opening a restaurant. During his year of operating the restaurant he earned revenue of$60,000. He spent $30,000 on food and supplies. He also paid his wife $10,000 to help serve food.Danny used some of his savings to purchase equipment needed. He gave up interest earnings of$3,000. Danny also rented an industrial grill/fry truck for $12,000. Danny hada. accounting profits of $8,000 and economic profits of -$32,000.b. accounting profits of -$2,000 and economic profits of -$32,000.c. accounting profits of $20,000 and economic profits of -$42,000.d. accounting profits of $30,000 and economic profits of $20,000.e. accounting profits of $30,000 and economic profits of -$30,000.22. A very large number of small sellers who sell identical products implya. the inability of one seller to influence price.b. a downward sloping demand for each seller’s product.c. a multitude of vastly different selling prices.d. chaos in the market.23. The demand curve of a perfectly competitive firm has all of the following characteristics except that ita. is horizontal.b. indicates that the firm can adjust output and have no effect on price.c. coincides with the firm’s marginal revenue curve.d. is perfectly elastic.e. coincides with the firm’s marginal cost curve.24. At an output of 100 units, a perfect competitor has marginal costs of $43, marginal revenue of $45,average variable costs of $45 and average total costs of $48. To maximize profits or minimize lossesin the short run, the firm should;a. produce more than 100 units.b. produce less than 100 units but not shut down.c. produce 100 units.d. shut down.e. There is not enough information given to attain an answer.

6QuantityTotal Cost0 $25.001 $26.002 $29.003 $33.004 $38.005 $44.006 $51.007 $62.0025. The firm represented by the table above faces a price of $7.00 per unit. The firm will havea profit level of _____ in the short runa. $14.00.b. $9.00.c. $ -9.00.d. $ -14.00.e. $-25.00.26. The firm represented by the table above faces a price of $6.00 per unit. The firm ________produce because _______________.a. shouldn’t ; price is less than average variable cost.b. shouldn’t; price is less than average total cost.c. shouldn’t; price is greater than average variable cost.d. should; price is greater than average variable cost.e. should; price is greater than average fixed cost.27. If losses are being made by firms in a competitive industry, firms will exit. This will shift theindustry’sa. demand curve leftward, causing the market price to fall.b. demand curve rightward, causing the market price to rise.c. supply curve leftward, causing the market price to rise.d. supply curve rightward, causing market price to falle. none of the above.28. Suppose that the bean sprouts is perfectly competitive and is in a long run equilibrium. Now,suppose that Health Canada releases a report indicating that consumption bean sprouts may preventcancer. As a result, in the long run, we should expecta. a higher price for bean sprouts.b. more firms in the bean sprout market.c. firms to make positive profits.d. price, market output and profits to be the same as before the report was released.e. None of the above.

Exhibit 5.17 Restaurant MealsQuantity Supplied Quantity Demanded Price100 200 $10150 150 $2029. In exhibit 5.17, the elasticity of supply equalsa. 7/1.b. 2.c. 1/2.d. 3/5.e. 5/3.730. If the demand for a good is perfectly inelastic, then a sales tax on the good will be paida. completely by the consumers.b. completely by the producers.c. equally by the consumers and the producers.d. mostly by the consumers.e. mostly by the producers.