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Professor: M.

Rush
ECO 2023
FALL 2012
MAKE UP EXAM
This test is governed by UFs academic honesty code. It is intended to have 35
multiple choice questions. Please check to be sure your copy has all 35. Chose the
best answer for each question.
The next is important: Unless you are specifically told otherwise, on this test do
not assume that demand or supply is either perfectly elastic or perfectly inelastic.
On the bubble sheet, please enter:
1. Your name and initials
2. Your UF ID number
3. Form code: A
4. Sign your name on the bubble sheet.
TURN OFF ALL CELL PHONES AND OTHER
COMMUNICATION DEVICES
Check that the form code and UF ID number you bubbled-in are correct now. Also check
to be sure your name is correctdo it now. I investigated the rumor that the ability to
correctly record these had been mastered by a few students at FSU. This rumor turned
out to be false. But, the rumor that an accounting major and a journalism major did
successfully record these on a test is true. These students have since been bronzed and
are on display outside their respective colleges to serve as an inspiration for all other
accounting and journalism students.
CHECK YOUR FORM CODE AND UF ID NUMBER. IF YOU GET EITHER OF THESE
WRONG, YOUR TEST MIGHT NOT BE GRADED AND IF IT IS GRADED, YOU WILL
LOSE 6 POINTS (which equals 2 questions)!
I have become increasingly concerned that some students are at a real disadvantage
because they are unwilling to ask questions during the exam while others ask a lot of
questions. Hence, to level the playing field, I have decided to eliminate all questions
during the test. I dont like this policy, but it seems the fairest policy.
Do not ask questions of me or the TAs; in the interest of fairness I
have instructed them not to answer any questions during the exam.
You will have one hour (60 minutes) to complete the exam and bubble in all your
answers. When the TAs say that time is up, you must hand in your exam. We will not
give extra time to finish bubbling in the answers, so be sure you are done when the 60
minutes are up. Of course, you may hand in your test at any time before the 60 minutes
are up.

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An answer key will be posted on the class web page later this
evening at about 10:00.
The test scores will be on class web page probably by Monday or
Tuesday.
Once you see the answer key, you might have a question about why one answer
is right and another is wrong. For these questions, email me at
mark.rush@warrington.ufl.edu Do NOT email the grader about these questions!
After the scores are posted, if you think your posted score is incorrect, then email
the grader at eco2023.grader@warrington.ufl.edu If you email me about your test
score, I will not forward the email nor respond to youyou MUST email the
grader. You have one week after the curved score is posted to request a grade
check. After a week, the score will not be changed. If the web reports what you
bubbled in for each question and you ask the grader to check an answer because
you believe you bubbled in something other than what is reported and the
reported answer on the web is correct, you will lose 1 additional question.

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1) In the short run, a firm in perfect competition can ____ and in the long run, a firm in
perfect competition can ____.
A) make an economic profit; make an economic profit
B) make an economic profit; make a normal profit
C) incur an economic loss; incur an economic loss
D) incur an economic loss; make an economic profit
2) In the absence of government intervention, at the equilibrium for a common
resource
i. MSB > MB
ii. MSC > MC
iii. the equilibrium quantity > the efficient quantity
A) i only
B) iii only
C) i and iii
D) ii and iii
E) i, ii, and iii
3) If the government imposes a 4 cent a gallon tax on gasoline, the equilibrium price of
a gallon of gasoline
A) rises by more than 4 cents.
B) rises by 4 cents.
C) rises by less than 4 cents.
D) does not change.
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $3 million
W: $2 million
S: $6 million
W: $6 million
Walmart Dont
lower
prices
S: $1 million
W: $5 million
S: $8 million
W: $9 million
4) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. Who has a dominant strategy?
A) Walmart has a dominant strategy but Sears does not.
B) Sears has a dominant strategy but Walmart does not.
C) Both Walmart and Sears have dominant strategies.
D) Neither Walmart nor Sears has a dominant strategy
E) More information is needed to determine if either Sears or Walmart has a dominant
strategy.
5) If the demand for a good is elastic, that means that when price increases the
A) demand will decrease.
B) quantity demanded will increase.
C) quantity demanded will decrease by a smaller percentage than the price increased.
D) quantity demanded will decrease by a greater percentage than the price increased.
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6) In the above figure, a rent ceiling of $300 per month would
A) not affect the equilibrium quantity.
B) create a surplus of 7000 units.
C) create a shortage of 7000 units.
D) create a surplus of 3000 units
E) create a shortage of 3000 units.
7) Lisa opens an ice cream shop in Gainesville, but it turns out that the Director is her
only customer. Every week, her total revenue (all from the Director) is $300. Her
weekly fixed costs (the rent, machines, etc.) are $300. Her weekly variable costs (the
ice cream, napkins, etc.) are $400. Lisa ____.
A) incurs an economic loss by remaining open and should close in the short run.
B) incurs an economic loss by remaining open, but should remain open in the long run.
C) incurs an economic loss by remaining open, but should remain open in the short run.
D) makes a normal profit by remaining open, but should close in the long run.
E) makes a normal profit by remaining open and should remain open in the long run.
8) In a monopolistically competitive industry,
A) firms can make an economic profit in the long run because of barriers to entry.
B) economic profit always equal zero so that the firm always make only a normal profit.
C) if firms are making an economic profit, new firms enter the industry.
D) firms can make an economic profit in the long run because of product differentiation.
9) A decrease in a tariff ____ the quantity consumed domestically and ____ the
quantity produced domestically.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
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10) I read in the Wall Street Journal that new technology for producing orchids has been
developed. As a result, the equilibrium price of an orchid ____ and the equilibrium
quantity ____.
A) does not change; increases
B) rises; increases
C) falls; increases
D) falls; probably changes but whether it increases or decreases is ambiguous
E) None of the above answers are correct
11) All grapefruit juice producers have decided to blend tangerine juice with the
grapefruit juice. This blend results in a higher cost of production, but studies show
that consumers prefer the taste of the blend to straight grapefruit juice. What will
happen to the equilibrium price and quantity of the new blended grapefruit juice
now that it costs more to produce but consumers like it better? (Hint: Think of
supply and demand)
A) The price will rise and the quantity will increase.
B) The price will fall and the quantity will increase.
C) The effect on price is uncertain but the quantity will increase.
D) The effects on the price and the quantity are uncertain
E) The price will rise but the effect on the quantity is uncertain.
12) An unregulated competitive market produces more than the efficient quantity. This
outcome can occur if the good
I. has an external benefit
II. has an external cost
III. is a public good
A) I only.
B) II only.
C) III only.
D) II and III only.
E) I and III only.
13) If Pepsi purchased Coca Cola, this is called a _____ merger.
A) conglomerate
B) production-based
C) horizontal
D) tangential
E) vertical
14) If the marginal external cost of building a childrens playground equals zero, then
the
A) marginal private cost equals the marginal social cost.
B) marginal social cost equals zero.
C) marginal private cost equals zero.
D) marginal social benefit equals the marginal private cost.
E) None of the above answers are correct.
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15) Which of the following is a possible government solution to the problem posed by a
good with an external benefit?
A) Subsidize the production of the good.
B) Tax the production of the good.
C) Tax the consumption of the good.
D) All of the above are possible solutions.

16) The figure above provides information for a factory that produces chemicals that
pollute a waterway. The waterway is used by water skiers. If no property rights
exist on the waterway and if there is no regulation of pollution, then the factory
produces ____ tons of chemicals a week.
A) 0
B) 1
C) 3
D) 5
17) When new firms enter a monopolistically competitive industry, each existing firms
A) demand curve shifts rightward.
B) demand curve shifts leftward.
C) marginal cost curve shifts rightward.
D) marginal cost curve shifts leftward.
18) In the long-run, if firms in a perfectly competitive industry are incurring economic
losses, some firms will ____ and the price ____.
A) exit; will fall
B) exit; will rise
C) enter; might either rise or fall
D) exit; might either rise or fall
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19) Leonardos Pizza is a monopolistically competitive firm. Suppose its demand and
marginal revenue both increase. As a result, Leonardos ____ the price of its pizza,
____ the quantity it produces, and Leonardos demand for labor ____.
A) does not change; increases; does not change
B) raises; decreases; decreases
C) does not change; increases; increases
D) raises; does not change; increases
E) raises; increases; increases

20) The profit-maximizing monopolistically competitive firm shown in the figure above
has total revenue of
A) $240.
B) $80.
C) $40.
D) $120.
E) More information is needed to determine the firms total revenue.
21) Janes Garage Cleaning is a perfectly competitive firm that currently cleans 40
garages a week. Janes marginal cost is $35, her price is $40, and her average total
cost is $45. Jane is
A) maximizing her profit and is making an economic profit.
B) not maximizing her profit and is making an economic profit.
C) maximizing her profit and is making a normal profit.
D) not maximizing her profit and is incurring an economic loss.
E) maximizing her profit and is incurring an economic loss.
22) When a monopolist can price discriminate between two groups, it is profit
maximizing to charge the lower price in the market with
A) lower willingness to pay.
B) higher willingness to pay.
C) less perfect demand.
D) more customers.
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23) The production of lumber creates pollution. If the lumber market is unregulated,
there is
A) overproduction of lumber compared to the efficient amount.
B) underproduction of lumber compared to the efficient amount.
C) sometimes overproduction and sometimes underproduction of lumber compared to the
efficient amount.
D) an external benefit to producing lumber.
24) If wages and employment both increase, then it might be the case that
A) labor demand has increased more than labor supply increased.
B) labor supply has increased more than labor demand increased.
C) labor demand has decreased while labor supply increased.
D) labor demand did not change and labor supply increased.
E) None of the above are correct.
25) If production point is on the production possibilities frontier, then
A) it is not possible to produce more of any good.
B) production is inefficient.
C) in order to produce more of one good, less of the another must be produced.
D) production is in the unattainable region.
26) The cost of producing pizza rises. As a result, the equilibrium price of a pizza ____
and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
27) Only if the income effect is greater than the substitution effect, then an increase in
the wage rate
A) increases the quantity of labor supplied.
B) decreases the quantity of labor supplied.
C) increases the quantity of labor demanded.
D) increases the equilibrium quantity of labor.
28) A single-price monopolist will produce at the point where
A) MR =0.
B) MR =P.
C) MR =MC.
D) P =MC.
29) Hot dogs are an inferior good and peoples incomes decrease. As a result, the
equilibrium quantity of hot dogs ____ and the equilibrium price of a hot dog ____.
A) increases; falls
B) increases; rises
C) decreases; falls
D) decreases; rises
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30) The free-rider problem with a public good leads to
A) inefficiency if the good is provided by only private markets with no government action.
B) overproduction if the good is provided by private markets.
C) underproduction if the good is provided by the government.
D) None of the above answers is correct.
31) Marginal cost pricing of a natural monopoly will result in the firm ____ and ____ a
deadweight loss.
A) incurring an economic loss; does not create
B) incurring an economic loss; creates
C) making a normal profit; creates
D) making a normal profit; does not create
E) making an economic profit; creates
32) Suppose a monopoly is making an economic profit. As a result, as time passes
I. new firms produce a similar product.
II. the industry becomes monopolistically competitive.
III. the economic profit of the existing firm eventually decreases.
A) I, II and III.
B) I and II.
C) II and III.
D) I and III
E) None of the above answers are correct.
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $17 million
W: $5 million
S: $6 million
W: $10 million
Walmart Dont
lower
prices
S: $15 million
W: $14 million
S: $19 million
W: $9 million
33) Sears and Wal-Mart must decide whether to lower their prices, based on the
potential economic profits shown in the table above. Who has a dominant strategy?
A) Walmart has a dominant strategy but Sears does not.
B) Sears has a dominant strategy but Walmart does not.
C) Both Walmart and Sears have dominant strategies.
D) Neither Walmart nor Sears has a dominant strategy
E) More information is needed to determine if either Sears or Walmart has a dominant
strategy.
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34) The figure above shows the market for pizza. Which figure shows the effect of an
increase in the price of the dough used to make pizza crust?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
35) Keeping in mind that you are to email the grader (within 1 week after the test
scores are posted) at eco2023.grader@warrington.ufl.edu if you have a question
about your test score, then the director is so stupid that
A) he climbed a chain-link fence to see what was on the other side.
B) he heard that 90% of all crimes were around the home, so he moved.
C) he spent 25 minutes staring at the orange juice carton because it said concentrate.