1Midterm 2 60 minutes Econ 1101: Principles of Microeconomics November 14, 2011 Exam Form A Name ______________________________ Student ID number _________ Signature_______________________________ Teaching Assistant_______________________ Section ____________ The answer form (the bubble sheet) and this question form will both be collected at the end of the exam. Fill in the information above and then on the answer form, please write the following information - name, - student ID number, - recitation number - Form A (see the bottom part of the answer sheet for this bubble.) Fill in the corresponding bubbles. Sign your name on the answer form. You will be awarded 1.5 bonus points for filling the correct name and ID on the answer form. There are 35 questions. All questions are multiple choice. Each question has a single answer. Select the best answer for each question and fill in the corresponding bubble on the answer sheet. Use a Number 2 pencil to fill in your answer. You are not permitted to use calculators or to open books or notes.21. For question 1, please fill in (a) on your bubble sheet, as this is exam form A. (We are using this question to verify the exam form.) a) Form A The questions on this page and the next page refer to the graph below. Buckeye consumes pizza and soda and the graph illustrates his indifference curves. 2. From Buckeye’s indifference curves, we can determine that Buckeye is indifferent between having (8 pizzas, 16 sodas) and a) (8 pizzas, 6 sodas) b) (14 pizzas, 14 sodas) c) (16 pizzas, 10 sodas) d) (32 pizzas, 4 sodas) e) (8 pizzas, 8 sodas) 3. Suppose Buckeye has an income of $16, that PPizza=$2, and that PSoda=$0.50 (fifty cents). Draw Buckeye’s budget constraint in the above figure. From this we can see that the opportunity cost of one more slice of pizza equals a) ½ soda b) 1 soda c) 2 sodas d) 3 sodas e) 4 sodas 0246810121416182022242628303202468101214161820222426283032pizzasoda3 4. At this income and prices of soda and pizza, the optimal consumption bundle for Buckeye is a) (4 pizza, 8 sodas) b) (4 pizza, 16 sodas) c) (2 pizza, 24 sodas) d) (3 pizza, 10 sodas) e) (8 pizza, 8 sodas) 5. Suppose the price of pizza falls to PPizza=$1. Draw the new budget constraint. The fall in the price of pizza causes the quantity demanded of pizza to increase by how many units? a) 2 b) 4 c) 6 d) 8 e) 12 6. In this example, on account of the decrease in the price of pizza the income effect on the demand for pizza is: a) 0 pizzas b) 1 pizza c) 2 pizzas d) 4 pizzas e) 6 pizzas 7. Now start from the case where Buckeye has an income of $16, PPizza=$1, and PSoda=$0.50. Next suppose that income falls by half to $8. Draw the new budget constraint and determine the new optimal consumption bundle. From this we can see that a) For Buckeye, the share of income spent on pizza does not change when income changes. b) Soda and pizza are both inferior goods c) The income elastiticies for both soda and pizza are negative. d) (a), (b), and (c) are all true e) None of the above are true.4 Robinson works 10 hours a day. He can make 1 apple per hour or 4 oranges per hour. Friday works 5 hours a day. He can make 8 apples per hour or 2 oranges per hour. The figures below show the indifference curves for Robinson and Friday. Illustrate Robinson’s and Friday’s production possibility frontiers (ppf) in the graphs above and then answer the following questions. 8. ________ has an absolute advantage in making apples and _______ has a comparative advantage in making apples. (Fill in the blanks) a) Friday, Friday b) Robinson, Robinson c) Friday, Robinson d) Robinson, Friday 9. Suppose trade is impossible, so each is in autarky. For each, production equals consumption. At the utility maximizing choice, Robinson produces and consumes a) (10 apples, 0 oranges) b) (0 apples, 40 oranges) c) (40 apples, 0 oranges) d) (20 apples, 10 oranges) e) (5 apples, 20 oranges) 10. Suppose trade is possible and that the price of one apple in terms of oranges equals one orange. In this case, Robinson consumes _____ apples and _____ oranges. (Fill in the blanks.) a) 5, 20 b) 10, 20 c) 20, 20 d) 20, 10 0510152025303540450 5 10 15 20 25 30 35 40 45ApplesOrangesU1U2U30510152025303540450 5 10 15 20 25 30 35 40 45ApplesOrangesU1U2U3Robinson Friday511. Under what assumptions will the long-run supply curve for the widget industry be perfectly elastic (i.e. perfectly flat)? (i) Marginal Cost must always be less than Average Total Cost for all quantities. (ii) The long-run demand curve must be unit elastic. (iii) The same technology is available to all firms. (iv) There are no barriers to entry in the industry. (v) Input prices do not change as the industry expands a) (i), (ii) and (iii) b) (ii), (iii), and (iv) c) (iii), (iv), and (v) d) (i), (ii), and (v) e) (iii) and (iv) Suppose the required assumptions from above hold for the widget industry. Each widget firm has the cost structure illustrated in the left graph below. The right graph illustrates two different possible demand curves, D1 and D2. 12. Fixed cost equals a) Not enough information to tell. b) 12 c) 6 d) 48 e) 36 012345678910111213141516171819202122232425260123456789101112MCATCAVCq$012345678910111213141516171819202122232425260 300 600 900 1200 1500 1800 2100 2400Q$D1D26 13. If the price equals 4, in the short run the firm will produce. The resulting maximum profit equals a) Not enough information to tell. b) –10 c) –24 d) –18 e) –-32 For the next four questions, assume demand is D1 and the industry is in long-run equilibrium. 14. The price PLR is a) 20 b) 4 c) 6 d) 3 e) 12 15. Long-run output per firm qLR equals a) 3 b) 4 c) 6 d) 9 e) 12 16. Long-run industry quantity QLR equals a) 1500 b) 1200 c) 900 d) 600 e) 300 17. Long-run number of firms NLR equals a) 100 b) 150 c) 200 d) 250 e) 300 18. Suppose the industry is initially in long-run equilibrium at demand D1 and the number of firms equals the number in the previous question. Demand then shifts to D2. In the short-run, the equilibrium price will be a) 10 b) 24 c) 9 d) 4 e) 187 19. For this question, refer to the figure below. Suppose in the short run a competitive firm faces a price equal to $8. The firm’s profit in the short run equals the area a) ACHE b) BCF c) ABFE d) ACGD e) DGHE