InstructionsFigure 1Figure 2Economics 101 Midterm Exam #2 November 15, 2001 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 you 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 John Gordanier then your TA Code is 1. b. If your TA is Hua Liu then your TA Code is 2. c. If your TA is Guoqing Ma then your TA Code is 3. (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 3:45 pm. Students handing their exams in more than 3 minutes past the end of the scheduled exam session will have 3 points deducted from there final score (on the 100 point scale). After the 3 minute mark the penalty will increase by 10-points for each additional minute the exam is late until the 8 minute mark when the exam grade will go to zero. 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 discussion sections meet again on November 29th and 30th. In keeping with the previously state policy, we will not except early email request for exam scores.1. A firm has achieved economic efficiency when a. It has fully depreciated all of its assets b. It has achieved nirvana c. It is producing a given level of output at the lowest cost. d. It has finally reached the long-run 2. The long-run defined as a. A period long enough so that at least one factor of production is variable. b. A period long enough so that al least one factor of productions is fixed. c. A period long enough for a firm to figure out how to maximize profits. d. A period long enough that all factors of production can be varied. 3. The production function describes a. the economically efficient way to produce b. the maximum level of output associated with a given level of inputs c. the level of output associated with cost the cost minimizing choices of inputs. d. the effects of duality 4. An institution that hires productive resources and organizes them to produce and sell goods is called a. a union b. a factory c. a firm d. an industry 5. Which situation is most likely to exhibit diminishing marginal returns to labor? a. A factory that obtains a new machine for every new worker hired. b. A factory that hires more workers and never increases the amount of machinery. c. A factory that increases the amount of machinery and hold the number of workers constant. d. None of these are likely to result in diminishing marginal returns to labor. 6. If the production function has the following technology, LKQ+=, what kind of returns of scale does the technology exhibit? a. increasing returns to scale b. decreasing returns to scale c. constant returns to scale d. economies of scope e. diseconomies of scale 7. Lisa consumes only pizzas and burritos. At her optimal consumption bundle, Lisa’s marginal utility of pizza is 20 and her marginal utility of a burrito is 10. The price of pizza is $4. What is the price of a burrito? a. $4 b. $2 c. $8 d. $1 e. The price cannot be determined with the information supplied.8. Suppose that Ingrid needs an equal number of right and left shoes to get any happiness. She has an income of $75 to spend only on shoes. The price of left shoes is $1, but the price of right shoes is $14. What is the optimal consumption choice? a. 63 left shoes, and 1 right shoes. b. 10 left shoes, and 10 right shoes c. 3 left shoes, and 3 right shoes d. 5 left shoes, and 5 right shoes e. not enough information to determine 9. Suppose that the interest rate paid to savers increases. As a result, Tom wishes to consume more today. This suggests that, for Tom, a. The substitution effect is greater than the income effect. b. Future consumption is a luxury c. The income effect is greater than the substitution effect. d. Consumption today is an inferior good. e. The income effect is equal to the substitution effect. 10. Assume that a firm’s production function is {}min ,QK= L. Given that r is the price of capital and is the price of labor, which of the following represents the firm’s long-run cost function? wa. QrwQC ⋅⎟⎠⎞⎜⎝⎛=)( b. QwrQC ⋅⎟⎠⎞⎜⎝⎛=)( c. QrwQC ⋅⋅=)(d. - D is correct ()QrwQC ⋅+=)( The following figure shows how output varies with the quantity of labor employed by a firm, holding the capital stock constant. Figure 1 Q •C • B • A Labor 11. Refer the Figure 1 above. Rank the labor output combinations in order of AVC (highest to lowest) assuming that capital and labor are the only factors of production. a. A>C>B b. B>C>A c. C>B>A d. A>B>C e. C>A>B12. Refer to Figure 1 above. At which point is MC the highest? a. A b. B c. C d. Impossible to tell 13. Suppose the total cost of producing T-shirts can be represented by TC = 30 + 4q. What is the average variable cost of producing 5 T-shirts. a. 4 b. 6 c. 10 d. 50 e. 2 14. Tim operates a Lemonade stand. The price of lemons is $1/pound and sugar is $2/pound. He can earn $30 working at the juice stand across the street if he wasn’t running his lemonade stand. To produce 10 gallons of lemonade, he needs 5 pounds of lemons and 5 pounds of sugar, but he already has 3 pounds of sugar. What are the total economic costs of selling 10 gallons of lemonade. a. $15 b. $9 c. $39 d. $45 e. $30 15. If the average cost of producing a good is increasing, which of the following must be true? a. AFC are rising b. AVC is falling c. AFC is constant d. MC>ATC e. MC is increasing 16. The cost of publishing books is cheaper for magazine publishers than for other firms, this suggests the presence of a. the law of
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