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UMD ECON 200 - Final Examination

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1FINAL EXAMINATION ECON 200 Spring 2009 Version B STUDENT'S NAME:_________________________________________________ STUDENT'S IDENTIFICATION NUMBER:___________________________ DAY AND TIME YOUR SECTION MEETS:___________________________________ BEFORE YOU BEGIN PLEASE MAKE SURE THAT YOUR EXAMINATION HAS BEEN DUPLICATED AND COLLATED CORRECTLY. THERE SHOULD BE 60 MULTIPLE CHOICE QUESTIONS. THE EXAM HAS 16 PAGES INCLUDING THIS COVER SHEET. ANSWER ALL THE PROBLEMS ON THE SCANTRON SHEET. BE SURE TO FILL-IN AND BUBBLE YOUR NAME (LAST NAME [SPACE] FIRST NAME) AT THE TOP OF THE SCANTRON SHEET. FILL IN AND BUBBLE YOUR STUDENT IDENTIFICATION NUMBER UNDER “IDENTIFICATION NUMBER” ON THE SCANTRON SHEET. WRITE YOUR TA'S NAME IN THE UPPER-RIGHT HAND CORNER OF YOUR SCANTRON SHEET. ENTER THE NUMBER 177555 UNDER "SPECIAL CODES" ON THE SCANTRON SHEET University of Maryland Honor Pledge The University is committed to Academic Integrity, and has a nationally recognized Honor Code, administered by the Student Honor Council. In an effort to affirm a community of trust, the Student Honor Council proposed and the University Senate approved Honor Pledge. The University of Maryland Honor Pledge reads: "I pledge on my honor that I have not given or received any unauthorized assistance on this examination (or assignment)." Please rewrite the exact wording of the pledge, followed by your signature in the space below: Pledge: _________________________________________________________________________________ _________________________________________________________________________________ _________________________________________________________________________________ Your Signature:_________________________________________2Multiple Choice (Each question is worth 2.5 points. Please select THE BEST answer.) 1. When marginal cost is less than average total cost, a. marginal cost must be falling. b. average variable cost must be falling. c. average total cost must be falling. d. average total cost must be rising. Figure 1: Average Total Costs 2. Which of the following information about costs best coincides with Figure 1? a. positive fixed costs and zero or constant average variable costs. b. zero fixed costs and zero or constant average variable costs. c. zero fixed costs and increasing average variable costs. d. positive fixed costs and increasing average variable costs. 3. In a competitive market with identical firms, a. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run. b. firms cannot earn positive economic profit in either the short run or long run. c. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping. d. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run. 4. Which of the following not true? a. Even with market power, monopolists cannot achieve any level of profit they desire because they will sell lower quantities at higher prices. b. By comparing the marginal revenue and marginal cost from each unit produced, a firm in a competitive market can determine the profit-maximizing level of production. c. By comparing the marginal revenue and marginal cost from each unit produced, a firm with monopoly power can determine the profit-maximizing level of production. d. A monopolist maximizes profit by producing an output level where marginal cost equals price. ATCQuantity Costs3Figure 2: The company iWatch is an unregulated profit-maximizing monopolist in the residential cable television industry in a small town. The following curves show the marginal cost (MC), marginal revenue (MR), average total cost (ATC), and demand (D) in the market for cable television. iWatch cannot price discriminate. 5. Refer to Figure 2. iWatch will offer subscriptions to subscribers at a price of ___ per month. At this price, ___ households will subscribe to their cable television service. a. $40, 250 b. $60, 400 c. $100, 250 d. $120, 200 6. Refer to Figure 2. What is the maximum profit (per month) that iWatch can make? a. $15,000 (=60μ250) b. $16,250 (=65μ250) c. $17,400 (=87μ200) d. Other 7. Refer to Figure 2. Suppose you work as an administrator in the town’s government and are charged with monitoring this firm. What is the efficient quantity in this market? a. 200 subscribers b. 250 subscribers c. 280 subscribers d. 400 subscribers 8. If the price elasticity of demand for a good is 0.4, then a 10 percent increase in price results in a a. 0.4 percent decrease in the quantity demanded. b. 2.5 percent decrease in the quantity demanded. c. 4.0 percent decrease in the quantity demanded. d. 40 percent decrease in the quantity demanded. MCD MR ATC200 250 400 120 100 60 40 35 33 0160 Quantity (subscribers per month) Price ($ per month) 280 954Scenario 1: The following game represents a game played by John and Jane. The entries in the table below describe first Jane’s payoff and, second, John’s payoff. John Left Center Right Top (-50,-10) (80,30) (30,40) Middle (10,90) (0,10) (35,0) Jane Bottom (20,-30) (40,10) (40,15) 9. Refer to Scenario 1. What is an equilibrium outcome of this game? a. Jane plays Top; John plays Right b. Jane plays Bottom; John plays Right c. Jane plays Middle; John plays Left d. There is no equilibrium in this game. Scenario 2: A dentist shares an office building with a radio station. The electrical current from the dentist's drill causes static in the radio broadcast, causing the radio station to lose $40,000 in profits. The radio station could put up a shield at a cost of $30,000; the dentist could buy a new drill that causes less interference for $6,000. Either would restore the radio station's lost profits. 10. Refer to Scenario 2. What is the economically efficient outcome? a The radio station puts up a shield, which it pays for. b. The radio station puts up a shield, which the dentist pays for. c. Neither the radio station nor the dentist purchase additional equipment. d. The dentist gets a new drill; it does not matter who pays for it. 11. Refer to Scenario 2. Suppose the law indicates that the


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