ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
Use the table below to answer the following TWO questions.
Units of
labor
1
2
3
4
Total
product
10
20
27
25
1.
According to the table above, the average product (AP) of 2 units of labor is
a) 7
b) 9
c) 10
d) 27
Answer : c
2.
According to the table above, the marginal product (MP) of 2rd unit of labor is
a) 7
b) 9
c) 10
d) 27
Answer: c
3.
Assume that the total utilities for the 7th and 8th units of a good consumed are 65 and 67,
respectively. The marginal utility (MU) for the 8 th unit is
a) 132
b) 65
c) 67
d) 2
Answer: d
4.
Suppose the first four units of an output produced have total costs of 50, 150, 300, 500,
respectively. The marginal cost (MC) of the 4th unit of output is
a) 200.
b) 150.
c) 100.
d) 75.
Answer a
price, cost
S = MC
$3
$2
D
$1
MR
20
5.
1
30
Q
Consider the graph above. The profit-maximizing price and output for a firm under monopolistic
competition is
a) a price of $2 and a quantity of 30.
b) a price of $1 and a quantity of 20.
c) a price of $3 and a quantity of 30.
d) a price of $3 and a quantity of 20.
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
Answer is d
6. I pay only $5 for a large cheese pizza at Little Caesar’s even though I am willing to pay $20. My
consumer surplus is
a) $50
b) $15
c) $7.50
d) $5
Answer b
Use the following to answer questions 7-8:
Answer the next question(s) on the basis of the following two schedules which show the amounts of
additional satisfaction (marginal utility) which a consumer would get from successive quantities of
products J and K.
7. Refer to the above data. If the consumer has a money income of $52 and the prices of J and K
are $8 and $4 respectively, the consumer will maximize her utility by purchasing:
A) 2 units of J and 7 units of K.
B) 5 units of J and 5 units of K.
C) 4 units of J and 5 units of K.
D) 6 units of J and 3 units of K.
Answer: C
8. Refer to the above data. What level of total utility is realized from the equilibrium
combination of J and K, if the consumer has a money income of $52 and the prices of J and K
are $8 and $4 respectively?
A) 156 utils
B) 124 utils
C) 276 utils
D) 36 utils
Answer: C
9.A consumer is maximizing her utility with a particular money income when:
A) the total utility derived from each product consumed is the same.
B) MUa/Pa = MUb/Pb = MUc/Pc = ... = MUn/Pn.
C) MUa = MUb = MUc = ... = MUn.
D) Pa = Pb = Pc = ... = Pn.
Answer: B
Use the following to answer questions 10-13:
2
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
10. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are
indifference curves. The equilibrium position for the consumer is at:
A) any point on xy. B) point M. C) point K. D) point J.
Answer: C
11. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are
indifference curves. If the consumer is initially at point L, he or she should:
A) strive for point N by obtaining a larger money income.
B) purchase more of X and less of Y .
C) remain at that point to maximize utility.
D) purchase more of Y and less of X .
Answer: D
12. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are
indifference curves. Point M :
A) is the consumer's equilibrium position.
B) is unobtainable.
C) is inferior to point N .
D) entails the highest attainable level of total utility.
Answer: B
13. Refer to the above diagram where xy is the relevant budget line and I1 , I2, and I3 are
indifference curves. At point K:
A) MUx = MUy. B) MRS = Px/Py. C) MRS = Py/Px. D) Px exceeds Py.
Answer: B
14.Complete the following short-run cost table using the information provided.
Q
0
1
2
3
4
5
6
7
3
TC
$ 4
7
9
10
11
13
17
22
TFC
$_____
_____
_____
_____
_____
_____
_____
_____
TVC
$_____
_____
_____
_____
_____
_____
_____
_____
AVC
$_____
_____
_____
_____
_____
_____
_____
_____
ATC
$_____
_____
_____
_____
_____
_____
_____
_____
MC
$_____
_____
_____
_____
_____
_____
_____
_____
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
15.Consider the two diagrams below. Diagram A represents a typical firm in a purely competitive
industry. Diagram B represents the supply and demand conditions in that industry.
(a) Describe the price, output, and profit situation for the individual firm in the short run.
(b) Describe what will happen to the individual firm and the industry in the long run. Show
the changes on diagrams A and B.
Use the following to answer questions 16-18:
Answer the next question(s) on the basis of the following demand and cost data for a pure monopolist:
16. Refer to the above data. The profit-maximizing price for the monopolist will be:
A) $5.00.
B) $2.90.
C) $3.35.
D) $4.50.
Answer: D
17. Refer to the above data. The profit-maximizing level of output will be:
A) 4 units.
B) 7 units.
C) 6 units.
D) 5 units.
Answer: D
4
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
18. Refer to the above data. The monopolist will realize a:
A) profit of $8.50.
B) profit of $7.50.
C) profit of $16.
D) loss of $14.
Answer: C
Use the following to answer questions 19-22:
19. Refer to the above diagram. To maximize profits or minimize losses this firm should produce:
A) E units and charge price C.
B) E units and charge price A.
C) M units and charge price N.
D) L units and charge price LK.
Answer: B
20. Refer to the above diagram. At the profit-maximizing level of output, total revenue will be:
A) NM times 0M.
B) 0AJE.
C) 0EGC.
D) 0EHB.
Answer: B
21. Refer to the above diagram. At the profit-maximizing level of output, total cost will be:
A) NM times 0M.
B) 0AJE.
C) 0CGC.
D) 0BHE.
Answer: D
22. Refer to the above diagram. At the profit-maximizing level of output, the firm will realize:
A) an economic profit of ABHJ.
B) an economic profit of ACGJ.
C) a loss of GH per unit.
5
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
D) a loss of JH per unit.
Answer: A
Use the following to answer questions 23-26:
23. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.
This firm's profit-maximizing price will be:
A) $10.
B) $13.
C) $16.
D) $19.
Answer: C
24. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.
The profit-maximizing output for this firm will be:
A) 210.
B) 180.
C) 160.
D) 100.
Answer: C
25. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.
This firm will realize an economic:
A) loss of $320.
B) loss of $480.
C) profit of $280.
D) profit of $600.
Answer: B
26. Refer to the above diagram for a monopolistically competitive firm in short-run equilibrium.
Assume the firm is part of an increasing-cost industry. In the long run firms will:
A) leave this industry, causing both demand and the ATC curve to shift upward.
B) enter this industry, causing demand to rise and the ATC curve to shift downward.
C) enter this industry, causing demand to fall and the ATC curve to shift upward.
D) enter this industry, causing both demand and the ATC curve to shift upward.
Answer: C
6
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
Use the following to answer questions 27-29:
27. In short-run equilibrium, the monopolistically competitive firm shown above will set its price:
A) below ATC.
B) above ATC.
C) below MC.
D) below MR.
Answer: A
28. The monopolistically competitive firm shown in the above figure:
A) is in long-run equilibrium.
B) might realize an economic profit or a loss, depending on its choice of output level.
C) cannot operate profitably, at least in the short run.
D) can realize an economic profit.
Answer: C
29. If all monopolistically competitive firms in the industry have profit circumstances similar to
the firm shown above:
A) new firms will enter the industry.
B) some firms will exit the industry.
C) all firms will exit the industry.
D) no firms will exit the industry.
Answer: B
Use the following to answer questions 30-34:
Firm
A
B
C
D
E
F
Market share (%)
20
20
20
20
10
10
30. Refer to the above data. The industry characterized by the above information is:
A) an oligopoly.
B) a monopolistically competitive industry.
C) a purely competitive industry.
D) a pure monopoly.
Answer: A
31. Refer to the above data. The four-firm concentration ratio for the above industry is:
A) 100 percent.
7
ECO 110 Principles of Microeconomics review Exam 2
Jan 7th , 2009
Dr. Anwar Alshriaan
B) indeterminate, since we don't know which four firms are included.
C) 80 percent.
D) 20 percent.
Answer: C
32. Refer to the above data. The Herfindahl Index for the above industry is:
A) 1,600.
B) 1,800.
C) 18,000.
D) 80.
Answer: B
33. Refer to the above data. If all the firms in the above industry merged into a single firm, the
Herfindahl Index would become:
A) 100.
B) 1,000.
C) 10,000.
D) 100,000.
Answer: C
34. Refer to the above data. Suppose that firms in this industry miraculously split up such that
there were 100 firms, each with a one percent market share. The four-firm concentration ratio
and the Herfindahl Index respectively would be:
A) 100 percent and 10,000.
B) 4 percent and 4.
C) 100 percent and 16.
D) 4 percent and 100.
Answer: D
35. The study of how people (or firms) behave in strategic situations is called:
A) cost-benefit analysis.
B) recursive analysis.
C) normative economics.
D) game theory.
Answer: D
36. The terms strategic behavior and payoff matrix both relate directly to:
A) the perfect competition model.
B) the monopolistic competition model.
C) game theory.
D) the price leadership model.
Answer: C
37. Game theory is best suited to analyze the pricing behavior of:
A) pure monopolists.
B) pure competitors.
C) monopolistic competitors.
D) oligopolists.
Answer: D
38. Game theory can be used to demonstrate that oligopolists:
A) rarely consider the potential reactions of rivals.
B) experience economies of scale.
C) can increase their profits through collusion.
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Jan 7th , 2009
ECO 110 Principles of Microeconomics review Exam 2
Dr. Anwar Alshriaan
D) may be either homogeneous or differentiated.
Answer: C
Answer each question in the space provided. Be sure to answer each question completely.
1.
Consider the graph below:
sweaters
5
3
IC3
IC2
IC1
40
100
cups
of coffee
Suppose the price of coffee is $1/cup and the price of sweaters is $20.
a. How much is the consumer’s budget? (show your work)
2.
9
Consider the graphs of a perfectly competitive market below:
Jan 7th , 2009
ECO 110 Principles of Microeconomics review Exam 2
P
MC
ATC
D = MR = P
$7
$5
$3
180
a.
10
200
Q
What is the profit maximizing price and quantity of the FIRM?
Dr. Anwar Alshriaan