Midterm Exam #3; Page 1 of 12 Economics 101 Professor Scholz Midterm Exam #3, Version #1 December 3, 2009 DO NOT BEGIN WORKING UNTIL YOU ARE TOLD TO DO SO. READ THESE INSTRUCTIONS FIRST. You have 75 minutes to complete the exam, which consists of 33 multiple-choice questions. The exam is worth 100 points. Each question is worth 3 points: you get 1 point for filling in the requested information correctly. Please answer the questions on your coding sheet with a #2 pencil. Be sure to fill in the coding sheet carefully and accurately. Please also turn in your exam with name, ID, and student number. Name____________________ ID _________________ Section number _____________ How to fill in the coding sheet: 1. Fill in the bubbles on your answer sheet with your last name, first name, and middle initial. 2. Fill in the bubbles so we know your student identification number. 3. Fill in the bubbles under "Special Codes" spaces ABC so we know the discussion section number for which you are officially registered. Discussion sections are listed below: 4. Finally, after filling in your section code, please put the exam version in the “Special Codes” spaces. You will end up with a 4-digit “Special Codes” number – a three digit section number followed by a one digit exam number. Georgy Loginov William Nicholson Jiao Shi Fumihiko Suga 305 F 1:20 307 W 4:35 302 F 2:25 301 W 3:30 306 W 4:35 314 F 11:00 316 F 12:05 304 F 8:50 309 W 3:30 318 F 8:50 311 F 11:00 313 F 9:55 312 F 9:55 Carly Urban Matthew Friedman Irina Merkurieva Michael Pistone 310 F 2:25 331 W 3:30 335 F 1:20 337 F 2:25 315 F 12:05 332 W 4:35 341 F 9:55 338 F 12:05 317 F 8:50 347 F 8:50 343 F 11:00 319 F 1:20 345 F 2:25 Evangelos Stravelas Yuan Yuan 330 W 3:30 336 F 11:00 333 W 4:35 339 F 12:05 334 F 1:20 340 F 9:55 342 F 2:25 346 F 8:50 If you have a question during the exam, stay seated and please raise your hand. To show respect to your fellow students, please stay seated in your exam seat for the full 75 minutes. All exams and answer sheets must be turned in as you leave the exam. The exam will be discussed in section next week. Relax. Stop, take a deep breath, and think carefully before you answer any questions. Good luck!Midterm #3; Page 2 of 12 Answer these multiple choice questions on the scantron sheet, selecting the best answer. 1. Which of the following is never true when monopolistic competition arises in a specific market? a. each firm has a differentiated product. b. there are many producers. c. the product that the competing monopolies sell are close substitutes. d. the firms take prices as given. e. each firm chooses quantity by setting marginal revenue equal to marginal cost. 2. Assume that Verizon is a profit-maximizing monopolist. Its cost functions are as follows: MC=4q , ATC=2q+50/q. Market demand is given by: P=24-q. Find the price Verizon will charge. a. $20 b. $100 c. $1 d. $16 e. $5.80 3. The marginal product of labor in the flower industry is MPL = 100 – 4L, where L is the number of workers. Suppose that both the input and output markets are perfectly competitive. If the price of flowers is $5 and the wage is $20, what is the profit-maximizing number of workers a firm should hire? (Assume the firm can hire fractions of workers.) a) 20 b) 23.75 c) 24 d) 25 e) 27.25 4. Ken Livingstone, the former mayor of London (England) is concerned about traffic congestion in London. He a) Sharply increased spending on public transportation to reduce automobile traffic. b) Turned central streets of London into pedestrian malls, increasing the costs to drivers of reaching their desired destinations. c) Increased gasoline taxes sharply for fuel sold in London. d) Imposed a “congestion charge” (of roughly $8 per day) for drivers in London. e) Answers a), b), and d) are all true.Midterm Exam #3; Page 3 of 12 5. In the figure below, which of the following statements is false? a) The firm in graph (a) produces where price equals marginal cost, and thus it maximizes profit and breaks even. b) The firm in graph (b) produces where price equals marginal cost, and thus it maximizes profit and breaks even. c) The firm in graph (b) produces where price equals average total cost, and thus it maximizes profit and breaks even. d) The firm in graph (a) produces where price equals average total cost, and thus it maximizes profit and breaks even. e) Zero profit is made in long-run equilibrium for both the perfectly competitive and monopolistically competitive firms. 6. Suppose Big Brass and Music Mania are duopolists in the market for tubas. Demand for tubas is given by the equation Q = 500 – 0.5P and both tuba producers have no fixed costs and constant marginal costs of $200 per tuba. Big Brass and Music Mania are originally competing for sales (and hence make zero economic profit), but decide they should instead collude and split sales equally. If neither producer cheats on this agreement, what is the gain in profit to Music Mania? a) $20000 b) $40000 c) $60000 d) $80000 e) $120000 7. Martha’s farm is producing wheat. To produce Y units of wheat, L+L2 workers are needed. The marginal productivity of labor is given by MPL = 1+2L. Suppose that the market for wheat is competitive where the demand curve is P=100-2Q, and the supply curve is P=3Q. Labor market is also competitive and the wage rate is $900. Then, Martha should employ a) 3 workers b) 4 workers c) 5 workers d) 6 workers e) 7 workersMidterm #3; Page 4 of 12 8. Suppose the following payoff matrix shows the outcomes (measured by ratings points) that ABC and NBC get by showing public service programming and “reality TV.” What is the outcome of this game? NBC Reality TV Public Service Programming ABC Reality TV ABC gets 3 NBC gets 4 ABC gets 10 NBC gets 10 Public Service ABC gets 7 NBC gets 6 ABC gets 6 NBC gets 8 a) Both will provide reality TV, since that’s what the people want. b) One network will provide public service programming and the other will do reality TV, segmenting the two sides of the market. c) Both will provide reality TV, despite the fact that they’d be better off if neither did so. d) ABC does not have a dominant strategy, but the Nash equilibrium is for both to provide public service
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