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Introduction to Agricultural Economics
Agricultural Economics 105
Fall 2009
Second Hour Exam – Version 3
Name____________________________
Section _____________ Note, -3 points for wrong section #
Fill in the blanks in the following statements using the following word list. Each word is
used only once, but not all words may be used.
Commodity surplus
Elasticity of supply
Lump-sum tax
Set-aside
Producer surplus
Monopsony
Oligopoly
Perfect competition
Marginal cost
Consumer surplus
Marginal rate of product transformation (MRPT)
Production possibilities curve (PPC)
Monopoly
Deficiency payment
Dead-weight loss
Iso-revenue line
Elasticity of demand
1. _______________________ A fixed tax (e.g., a license fee) irrespective of the level of output
used by regulatory agencies to eliminate or reduce profit of a monopoly.
2.
_______________________ The amount of land either left idle or planted to another crop.
3.
_______________________ A market structure that has only one firm buying from sellers.
4.
_______________________ Social costs of imperfect competition.
5.
_______________________ The amount by which the quantity supplied at a given price
exceeds the quantity demanded.
6.
_______________________ The technically efficient combination of two products a
business can produce in the current period given its existing resources and technology.
7.
_______________________ The change in total cost of production as the output or total
product of the business is expanded by one unit of output.
8.
_______________________ The rate at which the business is willing to substitute between
two products in the current period.
9.
_______________________ Market structure characterized by large number of producers
selling a homogeneous product, each with perfect information, and no barriers to entry or
exit
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10.
T
11.
The market demand curve for a public good is the vertical summation of individuals in the
market place. Circle the correct statement(s) for this situation?
a.
b.
c.
d.
e.
12.
Indivisibility which leads to the free rider problem is the reason for vertical
summation
All market demands (private and public goods) are summations (vertical or
horizontal) of individuals’ demand curves
Public goods are indivisible in consumption meaning they are non-rival and nonexcludable in consumption
The free market will undersupply public goods because of the free rider problem
All are correct
Monopoly
Oligopoly
Perfect competition
Monopolistic competition
Monopsony
Which of the following is the preferred strategy of the monopolistic competitor to achieve
market power?
a.
b.
c.
d.
e.
14.
Scenic vistas in national parks such as Big Bend National Parks are often used as
examples of publics goods in textbooks, because they are provided to the viewing
public by a the federal government at a small cost to visitors to the park.
Wildie coyote decides to set up a stand to pay for the acme rocket he needs for his next
assassination attempt on the roadrunner. He thinks that this is a smart idea because even
though there are a large number of sellers, he believes he can convince people to buy his
'dogs' with some fancy advertising. This hot-dog market is an example of:
a.
b.
c.
d.
e.
13.
F
Size. Expand plant size in order to achieve economies of scale
Price. Try to charge the lowest price possible
Entry. Try to establish barriers to entry such as patents or licenses
Product differentiation. Try to produce a unique product or establish a good
reputation
None of the above
Calculate deficiency payments for a producer producing 5000 bushels of corn for the
following prevailing prices and government program provisions: loan rate of $6 / bushel,
market price is $5 / bushel, and the target price is $8 per bushel. Show your work.
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15.
Which of the following industries comes closest to the oligopoly model?
a.
b.
c.
d.
16.
In response to the federal government passing a law in the 1970’s that all states must have
a 55 mph speed limit to be eligible for federal highway funds, Montana passed the 55 mph
speed limit but no fine was originally associated with the law. The Montana Highway
Patrol (MHP) had the rights to ticket speeders but drivers did not slow down. This is an
example of which characteristic of well defined property rights being violated.
a.
b.
c.
d.
e.
17.
Exclusivity
Enforceability
Specificity
Transferability
As the law was passed and the MHP could ticket drivers, all characteristics are well
defined.
On Wednesday October 21, 2009, the two largest supermarket chains in New Zealand
reached an agreement with the New Zealand government they would no longer prevent
smaller competitors from setting up in the same shopping center. Reducing the barriers to
entry for new and expanding players opens the possibility for
a.
b.
c.
d.
e.
18.
Food stores
Gas Stations
T-shirt shops
Tobacco companies
Increased competition and higher prices
A change in the market structure from a monopolist competitive structure to an
oligopoly
A change in the market structure from an oligopoly structure toward a monopolistic
competition structure
No change as these two companies control 80% (this percentage is correct) of the
New Zealand market
Change to a monopsony market structure
Exotic (nonnative) animals are considered private property. However, the selling of such
game animals is restricted by law to only a few select individuals. This is an example of
which characteristic of well defined property rights being violated.
a.
b.
c.
d.
e.
Exclusivity
Enforceability
Specificity
Transferability
All characteristics are well defined as exotic animals can be bought and sold with
restrictions
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19.
The prisoner’s dilemma and oligopoly are related in that in both cases the following hold
a.
b.
c.
d.
e.
20.
Which property right characteristic is violated when there is an externality associated with
production?
a.
b.
c.
d.
e.
21.
Both illustrate it is difficult to collaborate but can be rewarding if two parties collude
The best outcome for the prisoner dilemma and an oligopoly is to not cooperate
The reason two firms do not cooperate is because the firm that does not cooperate has
a competitive advantage over the other firm
Illustrates only one outcome is possible in an oligopoly
It is a stretch to compare prisoners and firms in a market place
Enforceability
Transferability
Specificity
Exclusivity
Property rights deal with the rights associated with owning and using land and not
with production
Assume a negative externality is associated with the production of the good. Clearly
identify how the presence of this externality will affect the supply and / or demand curve.
Mark society’s optimum points given the externality.
Price
S
Pm
D
Qm
22.
Quantity
Briefly explain the difference between Coase’s approach (Coase Theorem) to this problem
and Pigou’s approach (tax).
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23.
The Canadian wheat board was partially created to enhance wheat exports from Canada to
the rest of the world. Given the following graph, provide consumer and producer surplus
for the no demand enhancement and the demand enhancement scenarios.
Price
S
Enhanced
foreign demand
D
Wheat
24.
In the following graph, the arrow indicates the change that has occurred. As one moves
from P1Q1 to P*Q* what has occurred
Price
MC
P1
P*
D2
Q*
a.
b.
c.
d.
e.
Q1
D1
Quantity
Decrease in supply and a decrease in quantity demanded
Decrease in demand and a decrease in quantity supplied
Decrease in demand and a decrease in quantity supplied
Decrease both supply and demand
Decrease in quantity supplied and a decrease in quantity demanded
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Answer questions 25-26 based on the following figure. Isoquants represent output levels of 200,
160 and 75 bushels of corn per acre, whereas the iso-cost curves represent costs of $100 and
$150.
Capital
9
6
4
3
1
5
10
12
20 21
Units of Labor
25.
Clearly and correctly label the three isoquants and the two isocost curves in the figure.
26.
If the firm has $100 to spend
a.
What is the profit maximizing level of capital __________
b.
What is the profit maximizing level of labor ____________
c.
The profit maximizing level of output is ______________
MPPcapital
MPPlabor
ratio is larger than the
ratio, what would you suggest to the
rental rate
wage rate
producer to increase profits?
27.
28.
29.
If the
A firm's supply curve corresponds to:
a.
b.
c.
d.
e.
The marginal cost curve above the minimum average variable cost curve.
The average variable cost curve
The average total cost curve
The marginal cost curve below the average variable cost curve
The horizontal summation of relevant supply curves
T
F
The U.S. food and fiber system is one of the least regulated industries in the
economy.
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30.
T
F
Barriers to entry are more likely to be stronger under monopolistic competition
than under an oligopoly.
31.
(7 points). For the following monopoly, clearly and correctly label supply, demand,
marginal revenue, market equilibrium price and quantity (P*,Q*). Clearly and correctly
label total revenue, total costs, and profits.
Price
ATC
Quantity
32.
Forms of government intervention in market place take on many forms. One such form is
a price floor. Which of the following is true about price floors?
a.
b.
c.
d.
e.
To be binding a price floor must be above the market equilibrium
To be binding a price floor must be below the market equilibrium
Price floors have not been used in the U.S. market place because of their
unpopularity by consumers
Imposition of price floors leads to excess demand or a shortage in the market
Price floors are often used to correct market failures