PORTLAND STATE UNIVERSITY
EC 201 - PRINCIPLES OF MICROECONOMICS
EXAM TWO -- Fall 2003
Jack Richards, Instructor
Name: __________________
OPEN BOOKS AND OPEN NOTES
Turn-in both your test and scantron. Your test cannot be graded unless both are turned-in. Be certain that your name is
on both. Both will be returned to you. Do not staple them together. If you erase on the scantron, you must write the
answer you want to count to the RIGHT side of the scantron (the machine won't grade the scantron if anything is
written on the left side.)
1. A demand relationship in which a given percentage change in price will result in a less than
proportionate percentage change in quantity demanded is
A. Elastic.
B. Unit-elastic.
C. Inelastic.
D. Due to a small shift in demand.
E. Both C and E are correct.
2. When demand is elastic
A. A small change in price leads to a large shift in supply.
B. A small change in price leads to a small shift in supply.
C. A small change in price leads to a large shift in demand.
D. A small change in price leads to a small shift in demand.
E. None of the above are correct.
3. If demand is unit-elastic elastic then,
A. A ten percent increase in price leads to a one percent decrease in quantity demanded.
B. The change in quantity demanded equals the percentage change in price.
C. A two percent increase in price leads to a two percent decrease in quantity demanded.
D. An increase in price of any amount leads to quantity demanded falling to zero.
E. None of the above are correct.
4. Moving down a straight-line demand curve, price elasticity of demand
A. Increases.
B. is constant.
C. Decreases.
D. Varies in uncertain ways.
E. None of the above are correct.
Exam 2- Fall 2003
1
For Question 5, 6, 7:
Month
Jan
Feb
Mar
Apr
May
Px
$10
10
10
12
15
Qx
100
90
70
50
25
Py
$20
18
15
15
15
Qy
50
60
90
100
120
Pz
$25
25
25
25
25
Qz
200
225
275
290
320
5. Refer to the above table. Based on the information in the table, we can say that
A. All three goods are substitutes.
B. All three goods are complements.
C. X and Y are substitutes, Y and Z are complements, and X and Z are substitutes.
D. X and Y are complements, Y and Z are substitutes, and X and Z are complements
E. None of the above are correct.
6. Refer to the above table. Suppose the price of Y rises from $18 to $20. What is the cross elasticity of
demand between X and Y?
A. -2
B. -1
C. 0
D. +1
E. None of the above are correct.
7. Refer to the above table. Suppose the price of Y rise from $18 to $20. What is the cross elasticity of
demand between Y and Z?
A. –1.7273
B. –1.1176
C. –0.8947
D. +1.7273
E. None of the above are correct.
For Question 8:
Quantity of Labor
1
2
3
4
5
6
Total Product
22
52
81
100
115
126
Average Product
22
26
27
25
23
21
Marginal Product
22
30
29
19
15
11
8. Refer to the above table. At what quantity of labor does the law of diminishing returns set int?
A. After 1 units.
B. After 2 units.
C. After 3 units.
D. After 6 units.
E. None of the above are correct.
Exam 2- Fall 2003
2
For Question 9:
Quantity of Labor
1
2
3
4
Total Product
Average Product
320
335
Marginal Product
338
320
9. Refer to the above schedule. What does total product equal when 3 units of labor are used?
A. 336
B. 1008
C. 338
D. 3
E. None of the above are correct.
For Question 10, 11:
Q
FC
0
90
1
90
2
90
3
90
4
90
5
90
VC
0
25
32
42
64
95
TC
90
115
112
132
154
185
10. Refer to the table above. What does AVC equal at output level 2?
A. 7
B. 16
C. 45
D. 61
E. None of the above are correct.
11. Refer to the table above. What does MC equal when output goes from 0 to 1?
A. 0
B. 25
C. 90
D. 115
E. None of the above are correct.
Exam 2- Fall 2003
3
For Question 12, 13, 14:
Q
1
2
3
FC
VC
TC
AFC
75
AVC
ATC
25
40
12. Refer to the table above. What does the fixed cost equal at output level 2?
A. 50
B. 100
C. 150
D. 200
E. None of the above are correct.
13. Refer to the above table. What does variable cost equal at output level 2?
A. 50
B. 100
C. 150
D. 200
E. None of the above are correct.
14. Refer to the table above. What does fixed cost equal at output level 3?
A. 90
B. 120
C. 150
D. 270
E. None of the above are correct.
15. Short-run cost relationships for a firm are
A. Determined by the law of diminishing marginal returns
B. Determined by the specific long-run relationships that exist
C. Due to the level of wages relative to other output prices
D. Due to the normal contractual relations in a market.
E. None of the above are correct.
For Question 16, 17
Output
100
101
102
103
104
105
106
107
Total Costs
$400
402
405
409
414
420
427
435
Exam 2- Fall 2003
4
16. Refer to the above table. If the price is $5 the perfectly competitive firm should produce
A. 104 units
B. 105 units
C. 106 units
D. 107 units
E. None of the above are correct.
17. Refer to the above table. If the price is $5 the maximum profit this firm could earn is
A. $520
B. $420
C. $414
D. $106
E. None of the above are correct.
Use the following information to answer questions 18 to 26 for a firm that produces vacation trailers. The
firm sells its product in a competitive market for $16 (000) each. All cost and revenue information is in
thousands of dollars and are monthly data.
Monthly production of Trailers
Total Cost (000’s)
0 1 2 3 4 5 6 7 8
9
10
10 15 19 26 35 44 57 72 102 150 200
18. To maximize profit, this firm will produce and sell how many trailers each month?
A. Zero
B. Ten
C. Eight
D. Seven
E. None of the above are correct.
19. When this firm maximizes profit, it will earn a net profit of:
A. $40,000
B. Zero
C. $21,000
D. -$10,000
E. None of the above are correct.
20. The marginal revenue from producing the 10th trailer each month is?
A. $9,000
B. $10,000
C. $12,000
D. $16,000
E. None of the above are correct.
Exam 2- Fall 2003
5
21. The market price would have to increase to what level before this firm could profitably produce 10
vacation trailers each month?
A. $12,000
B. $50,000
C. $200,000
D. $16,000
E. None of the above are correct.
22. The average fixed cost when four trailers are built each month is:
A. $2,500
B. $6,125
C. -$6,125
D. Fixed costs cannot be determined with only this information.
E. None of the above are correct.
23. The average variable cost when four trailers are built each month is:
A. $2,500
B. $6,125
C. $6,250
D. Fixed costs cannot be determined with only this information.
E. None of the above are correct.
24. The market price falls to $12,000 for these trailers, to maximize profit, this firm will produce and
sell how many trailers each month?
A. Four
B. Five
C. Six
D. Seven
E. None of the above are correct.
25. If this firm maximizes profit when the price is $12,000, it will earn a net profit (or loss) of:
A. $40,000
B. $8,000
C. $16,000
D. -$4,000
E. None of the above are correct.
26. Assume that this firm borrowed $100,000 last year to pay for new equipment with a variable interest
rate of 8%. If, during the current month, the variable interest rate increases to 10%, and the firm
maximizes profit, this change in interest rates will:
A. Change variable costs only.
B. Change fixed costs only.
C. Change both fixed and variable costs.
D. Cause the firm to reduce its monthly output of vacation trailers.
E. None of the above are correct.
EXAM ONE – Fall 2003
For Question: 27-29: Use the following average daily cost and revenue information for a product imported
by the BBB import firm to answer.
Output
Average Fixed Costs
$50.00
25.00
16.67
12.50
10.00
8.37
7.14
6.25
1
2
3
4
5
6
7
8
Average Variable Costs
100.00
80.00
66.67
65.00
68.00
73.33
80.00
87.50
27. Total fixed cost is:
A. $6.25
B. $50
C. $100
D. Total fixed cost cannot be determined with only this information.
E. None of the above are correct.
28. The marginal cost of the fifth unit of output is:
A. $3
B. $80
C. $62
D. Cannot be determined from the information given.
E. None of the above are correct.3
29. If the market price is $85 and this firm operates at its maximum profit (minimum loss) level of
output, it will:
A. Produce 5 units, lose $50 fixed costs and $10 variable costs.
B. Produce 0 units, lose $50
C. Produce 5 units with profit of $35
D. Produce 5 units with profit of $10
E. None of the above are correct.
1. C
6. D
11. B
16. A
21. B
26. B
2. E
7. B
12. C
17. D
22. A
27. B
Answers
3. C
8. B
13. A
18. D
23. C
28. B
Exam 2- Fall 2003
7
4. C
9. B
14. C
19. A
24. B
29. C
5. C
10. B
15. A
20. D
25. C
EXAM ONE – Fall 2003