Version #2 Economics 101 Spring 2008 Professor Wallace Economics 101 Midterm Exam #2 April 9, 2008 Instructions Do not open the exam until you are instructed to begin. You will need a #2 lead pencil. If you do not have one you will need to borrow one from Professor Wallace or one of the TAs. Before you may began the exam everyone must take the following steps. (1) Use the #2 lead pencil to fill in your name on the answer sheet. (2) Fill in your student number on the answer sheet. (3) Fill in your TA Code in column A of the space allotted for “Special Codes” on the answer sheet. a. If your TA is Megan Ritz your TA Code is 1 b. If your TA is Hugette Sun your TA Code is 2. c. If your TA is Hanquing Wang your TA Code is 3. d. If your TA is Rui Wang your TA code is 4. (4) Fill in your Exam Code in column B of the space allotted for “Special Codes” on the answer sheet a. If your exam is green then your Exam Code is 1. b. If your exam is white then your Exam Code is 2. The exam consists of 40 multiple-choice questions. All questions are equally weighted and there is a single best answer for each question. The exam is scheduled to end at 5:15 pm. You are encouraged to hold onto the hard copy of your exam so that you can check your answers. An answer key for this exam will be made available sometime later this evening, but the tests will not be handed back until next week. In keeping with the previously state policy, we will not except early email request for exam scores. 1Version #2 1. For a monopoly, marginal revenue is less than price because a. the firm is a price taker. b. the firm must lower price if it wishes to sell more output. c. the firm can sell all of its output at any price. d. the demand for the firm's output is perfectly elastic. 2. If the inverse demand function for a monopoly's product is p = 100 - 2Q, then the firm's marginal revenue function is a. -2. b. 100 - 4Q. c. 200 - 4Q. d. 200 - 2Q. 3. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, profits are maximized when profit maximization is achieved when a. 21 units are produced. b. the price is equal to 21. c. The firm shuts down. d. Cannot be determined on the basis of the information given 4. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then profit maximization is achieved when the monopoly sets price equal to a. 16. b. 21. c. 25. d. 58. 5. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then maximum profit a. equals $336. b. equals $882. c. equals $1,218. d. cannot be determined solely from the information provided. 2Version #2 6. The above figure shows the demand and marginal cost curves for a monopoly. The deadweight loss of this monopoly equals a. h. b. c. c. c + f. d. c + d + e + f. 7. The situation in which one firm can produce the total output of the market at lower cost than several firms is called. a. natural monopoly. b. pure monopoly. c. ruling monopoly. d. cost monopoly. 8. Perfect competition and monopolistic competition are similar in that both market structures include a. price-taking behavior by firms. b. a homogeneous product. c. no barriers to entry. d. very few firms. 9. Perfect competition and monopolistic competition are similar in that firms in both types of market structure will a. act as price takers. b. produce a level of output where price equals marginal cost. c. earn zero profit in the long run. d. act as price setters. 10. Oligopoly differs from monopolistic competition in that an oligopoly includes 3Version #2 a. product differentiation. b. barriers to entry. c. no barriers to entry. d. downward-sloping demand curves facing the firm. 11. Monopolistic competition and monopoly have all of the following in common EXCEPT a. P > MC. b. Firms are price setters. c. Barriers to entry. d. MR = MC. 12. Regardless of market structure, all firms a. consider the actions of rivals. b. maximize profit by setting marginal revenue equal to marginal cost. c. produce a differentiated product. d. have the ability to set price. 13. Collusion is more likely to occur when a. there is fear of punishment for not colluding. b. there is a known finite time horizon. c. there are large gains to be made by cheating on an agreement. d. the game lasts only one period. 14. If a cartel is unable to monitor its members and punish those firms that violate the agreement, then a. the member firms will each act as price setters. b. the cartel will prosper in the long run. c. the market will become a monopoly. d. the cartel will fail. 15. Mister Jones was selling his house. The asking price was $220,000, and Jones decided he would take no less than $200,000. After some negotiation, Mister Smith purchased the house for $205,000. Jones' producer surplus is a. $5,000. b. $15,000. c. $20,000. d. not able to be calculated from the information given. 16. Deadweight loss occurs when a. producer surplus is greater than consumer surplus. b. the maximum level of total welfare is not achieved. c. consumer surplus is reduced. d. an inferior good is consumed. e. 4Version #2 Player 2 L R U 20,30 100,20 Player 1 D 10,100 99,99 17. The equilibria of the game above are a. (U,L) and (D,R). b. (D,R) only. c. (U,L) only. d. (D,L) only. 18. In the same game matrix, which of the following are true? e. Player 1 has a dominant strategy. f. Player 2 has a dominant strategy. g. Player 1’s best response to L is U. h. All of the above. 19. Economists typically assume that the owners of firms wish to a. produce efficiently. b. maximize sales revenues. c. maximize profits. d. All of the above. 20. Efficient production occurs if a firm a. cannot produce its current level of output with fewer inputs. b. given the quantity of inputs, cannot produce more output. c. maximizes profit. d. All of the above. 21. Which of the following statements best describes a production function? a. the maximum profit generated from given levels of inputs b. the maximum level of output generated from given levels of inputs c. all levels of output that can be generated from given levels of inputs d. all levels of inputs that could produce a given level of output 22. With respect to production, the short
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