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UW-Madison ECON 101 - Midterm Exam #2

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Version #1 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 #1 1. 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. 2. 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. 3. 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 4. With respect to production, the short run is best defined as a time period a. lasting about six months. b. lasting about two years. c. in which all inputs are fixed. d. in which at least one input is fixed. 5. In the long run, all factors of production are a. variable. b. fixed. c. materials. d. rented. 6. Total Physical Product is a. the change in total product resulting from an extra unit of labor, holding other factors constant. b. the ratio of output to the number of workers used to produce that output. c. the amount of output that can be produced by a given amount of labor. d. equal to the marginal product of labor when the average product is increasing. 7. The Marginal Physical Product of Labor is a. the change in total product resulting from an extra unit of labor, holding other factors constant. b. the ratio of output to the number of workers used to produce that output. c. the amount of output that can be produced by a given amount of labor. d. equal to the marginal product of labor when the average product is increasing. 2Version #1 8. Which of the following statements best summarizes the law of diminishing marginal returns? a. In the short run, as more labor is hired, output diminishes. b. In the short run, as more labor is hired, output increases at a diminishing rate. c. In the short run, the amount of labor a firm will hire diminishes as output increases. d. As more labor is hired, the length of time that defines the short run diminishes. 9. An isoquant represents levels of capital and labor that a. have constant marginal productivity. b. yield the same level of output. c. incur the same total cost. d. All of the above. 10. Say that when a firm doubles all of its inputs, it triples the amount of output it produces. Then this firm a. is experiencing increasing returns to scale. b. is experiencing diminishing returns to scale. c. is experiencing constant returns to scale. d. is experiencing diseconomies of scale. 11. Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is a. $0. b. $40,000. c. $45,000. d. $90,000. 12. A firm's marginal cost can always be thought of as the change in total cost if a. the firm produces one more unit of output. b. the firm buys one more unit of capital. c. the firm's average cost increases by $1. d. the firm moves to the next highest isoquant. 13. Fixed costs are a. a production expense that does not vary with output. b. a production expense that changes with the quantity of output produced. c. equal to total cost divided by the units of output produced. d. the amount by which a firm's cost changes if the firm produces one more unit of output. 3Version #1 14. Variable costs area production expense a. that does not vary with output. b. a production expense that changes with the quantity of output produced. c. equal to total cost divided by the units of output produced. d. the amount by which a firm's cost changes if the firm produces one more unit of output. 15. Which of the following statements best explains why long-run average cost is never greater than short-run average cost? a. In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true in the short run. b. In the long run, diseconomies of scale might not occur, but in the short run diminishing marginal returns do. c. In the long run, the cost of capital declines because the firm is able to pay down some of its debts. d. In the long run, the average cost curve need not be U-shaped, but in the short run it is. 16. A special license is required to operate a taxi in many cities. The number of licenses is restricted. More drivers want licenses than are issued. This describes a non-perfectly competitive market because a. taxi services are very different. b. firms cannot freely enter and exit the market. c. transaction costs are high. d. the


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UW-Madison ECON 101 - Midterm Exam #2

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