Ag Econ 1041
Third Exam, 140 points
November 20, 2008
Name ________KEY________________
11 a.m. Section
True/False – one point each
F
1.
T
2.
F
T
T
F
F
T
3.
4.
5.
6.
7.
8.
F
9.
T
T
10.
11.
F
12.
T
13.
F
T
14.
15.
F
16.
F
17.
T
T
T
T
18.
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20.
21.
T
22.
F
T
F
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25.
The cost curves of a monopolistically competitive firm are based on governmental
rules.
General Motors wants wage and benefit concessions from workers as it strives to
lower costs.
Corporations issue stock just like sole proprietorships.
Opportunity cost is the net value of the next best alternative to the one you chose.
The quantity of apples people buy this month depends on the price of apples.
Since it has control over its price, a monopolist always earns an economic profit.
Local water supply would be an example of monopolistic competition.
A negative cross price elasticity implies complements, such as hamburgers and French
fries.
A firm will always maximize its short run profit by producing and selling the quantity
where marginal revenue equals fixed cost.
Economies of scale can be a barrier to entry into an oligopolistic industry.
Non-price competition is typical for restaurants, convenience stores and automobile
companies.
A firm always wants to produce and sell the output that earns it the highest possible
revenue.
Non-price competition is typical for restaurants, convenience stores and automobile
companies.
Demand is based on available supply.
Microsoft may raise prices at a slower rate because it worries about new competitors
entering markets where it sells goods.
Normal profit is a return above and beyond the minimum return necessary to keep an
entrepreneur’s investment in a business.
The market structure characteristic which is somewhat unique to monopolistic
competition is the mutual interdependence among firms.
The marginal benefit of consuming a good eventually declines, ceteris paribus.
A price ceiling will lead to a deadweight loss, a net loss of value.
Long run average costs (LRACs) reflect the size of a business enterprise.
If demand decreases for houses we expect consumer surplus to decline from home
purchases.
Decision analysis always revolves around comparing the benefits and costs of one
alternative to the benefits and costs of other alternatives.
A flood that removes land from production would shift the demand for grain to the left.
Income to one person or business is a cost or expense to another.
An inverse relationship exists between price and the quantity supplied.
1
Matching – one point each
X
B
Y
L
I
A
F
M
J
U
Q
V
C
D
R
W
E
S
K
H
O
G
P
T
N
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
Productivity
Profit maximization
Service & location
Price floor
Perfect competition
Marginal
Profit
Demand
Economies of scale
Quantity supplied
Price discrimination
Long run
Normal profit
Opportunity cost
Oligopoly
Utility
Monopoly
Diminishing returns
Marginal cost
Deadweight loss
Cartel
Equilibrium
Own price elasticity
Market
Game theory
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
R.
S.
T.
U.
V.
W.
X.
Y.
Additional
Output where MR = MC
Minimum return to maintain investment
What was given up
Unique product in market
Goal of business
Demand intersects supply
Loss in market value
Homogeneous or standardized market
Cost reduction from getting bigger
Cost of additional unit
Government set minimum price
A schedule of prices and quantities
Strategic behavior
Agreement among firms on P or Q
Responsiveness of Q to change in P of the good
Charging different prices
Firms are interdependent
Declining marginal product
Where goods are exchanged
Amount for sale at a particular price
Multiple production periods
Value or benefit
Output per input
Non price competition
Matching – one point each
__E___ 51. Oligopoly refers to the situation wherein a small number of firms are:
a) making strategic decisions relative to competitors
b) interdependent
c) facing downward sloping demand
d) producing goods which differ in terms of quality, design and so forth
e) all of the above
__A___ 52. If the marginal utility for pizza is decreasing but positive, then:
a) the total utility for pizza is increasing
b) the total utility for pizza is decreasing
c) the total utility for pizza is negative
d) additional pizza yields zero satisfaction
2
_ANY____ 53. If the U.S. is to become more energy independent
a) we all will be better off
b) it will need to reallocate resources
c) our resources will continue to be used as they are currently
d) we will move along the PPC
e) all of the above
_B____ 54. All of the following are factors that will shift the demand curve, except:
a) the price of related goods
b) the price of the good itself
c) preferences or utility
d) income
_ANY____ 55. Which of the following are true for a monopolist?
a) economic profit possible in the long run
b) marginal revenue is less than the price charged
c) profit maximizing is less than the price charged
d) loss minimizing occurs where MR = MC
e) all of the above
The following questions are valued at 10 points each
56. Finish the phrase or equation.
a) Sum of MC = ____VC_____________
b) Profit maximization occurs at the output where ____MR = MC________________
c) As output increases FC ___does not change_____________________
d) TR – TC = __profit__________
e) Revenue from this particular sale = ___MR_________________
f) AVC x Q = ___VC_______________
g) Area below demand and above price = ___consumer surplus__________________
h) VC + FC = __TC____________
i) TR ÷ Q = ___AR or D________________
j) AFC + AVC = __ATC____________________
3
57. Draw the demand curve below and show an increase in quantity demanded on it. What is
the total revenue when the price is $1? ________4_________________
What is the marginal revenue of the third unit? ______0______________
$/Q = P
Q
0
5
1
4
2
3
3
2
4
1
5
0
P
5
4
3
2
1
0
1
2
3
4
5
Q
4
58. Diagram the typical situation for an oligopoly. How does this differ from the typical
monopolistically competitive firm? Oligopoly makes economic profit
$/Q
MC
ATC
AVC
D
0
q
MR
5
59. Corn prices have increased substantially as ethanol production increases. a.) Show this on a
market diagram for corn. b.) Then show simply on a separate diagram the impact on a firm
producing corn-based ethanol.
Corn
P
S
P1
P0
D1
D
0
$/q
Q0
Q1
Q
Ethanol
ATC1
ATC0
D
q/t
6
Short answers – five points each
60. Diagram the situation where the excise tax is increased for every gallon of gasoline sold.
Do not show anything from the previous tax but show the additional government revenue
from this tax as well as the market outcomes.
P
St
S
Pt
P0
Gov’t
D
Qt
Q
61. At what level of output do firms maximize their profit?
MR = MC
62. Diagram an effective price floor showing the deadweight loss, quantity exchanged and
final consumer surplus.
P
S
Pf
CS
Pf
DWL
D
Qe
Q
7
63. Someone is thinking that if the were not taking this exam they would be at their parents’
home already. What is the term for where they would be if not at this exam?
Opportunity cost
64. At what level of output do firms maximize their profit?
MR = MC
65. Diagram a minimum wage set above the prevailing wage rate. Show the final consumer
and producer surplus if this minimum wage is imposed.
P
S
Mw
Pe
CS
Mw
PS
D
Qd
Qe
Qs
Q
8
66. Show with a diagram how prices would fall when the quantity exchanged remains the
same.
S
$/Q
S1
P0
P1
D
D1
0
Q
67. Draw the situation and show market results for backpacks when some people go to school,
the quality of backpacks improves, the price of other book bags increases and income rises.
At the same time include the result from the cost of material for producing backpacks
increasing.
P
S1
S0
P1
P0
D1
D0
Q0 Q1
Q
9