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Professor: M.

Rush
ECO 2023
SPRING 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) The number of firms producing cement increases. As a result, the equilibrium price
of cement ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
E) does not change; increases
2) Suppose a monopoly firm is making an economic profit. As a result, as time passes
I. new firms enter the industry.
II. the market price falls.
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.
3) Taco Bell is a monopolistically competitive firm. If the demand and marginal
revenue for its food increases, then Taco Bell ____ the quantity of food it produces
and Taco Bells ____.
A) increases; supply of labor increases
B) decreases; demand for labor decreases
C) increases; demand for labor increases.
D) decreases; supply of labor decreases
E) None of the above answers are correct.
4) A country that must decrease production of one good in order to increase the
production of another
A) must be using resources inefficiently.
B) must be producing on its production possibilities frontier.
C) must be producing beyond its production possibilities frontier.
D) must not have private ownership of property.
5) A farmer discovers that the total cost of growing 50 acres of eggplant is $50,000 and
that the total cost of growing 51 acres of eggplant is $52,000. The marginal cost of
the 51st acre of eggplant is
A) $52,000.
B) $50,000.
C) $2,000.
D) $1,020.
E) $1,000.
6) Which of the following definitely decreases the equilibrium price?
A) An increase in both demand and supply.
B) A decrease in both demand and supply.
C) An increase in demand combined with a decrease in supply.
D) A decrease in demand combined with an increase in supply.
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7) Which of the following is the BEST example of a common resource?
A) a house.
B) the Internet.
C) air traffic control.
D) fish in the ocean.
E) a lighthouse
8) Suppose that the demand for pork is elastic and the demand for beef is inelastic and
that the supply curve of pork is identical to the supply curve of beef. If both
supplies decrease by the same percentage, the price of pork ____ than the price of
beef and the quantity of pork ____ than the quantity of beef.
A) rises by more, increases by more
B) rises by less, decreases by more
C) falls by less, increases by more
D) falls by more; decreases by more
E) rises by more; decreases by less
9) Public choice theory suggests that in the presence of rational ignorance, the size of
government is
A) larger than the efficient size.
B) the efficient size.
C) smaller than the efficient size.
D) unaffected by bureaucrats.
E) determined by the efficient quantity of public goods and the efficient use of common
resources.
10) The opportunity cost of leisure (time spent not working) is
A) called the substitution effect.
B) called the income effect.
C) the persons wealth.
D) the persons wage rate
E) None of the above answers are correct.
11) Tomatoes are discovered to help prevent heart disease. Simultaneously tomato
pickers negotiate a higher wage rate. As a result, the price of a pound of tomatoes
____ and the quantity ____.
A) rises; increases
B) rises; decreases
C) falls; probably changes but whether it increases or decreases is ambiguous
D) rises; probably changes but whether it increases or decreases is ambiguous
E) probably changes, but whether it rises or falls is ambiguous; decreases
12) Most natural monopolies, such as regulated electric, gas, and water utilities, have
____ fixed costs and ____ marginal costs.
A) low; high
B) high; low
C) high; high
D) low; low
E) no; high
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P = $20
P = $10
P = $20 P = $10
Firm Bs
strategies
Firm As strategies
$40
$40
$60
$55
$35
$60
$55 $35

13) The only two firms in a market are trying to decide what price to charge. The payoff
matrix for this duopoly game is shown above. Which firm(s) has a dominant
strategy?
A) Only firm A has a dominant strategy.
B) Only firm B has a dominant strategy.
C) Both firm A and firm B have a dominant strategy.
D) Neither firm A nor firm B has a dominant strategy.
E) More information is needed to answer the question.
14) In ____ market structure, a firms output depends ____.
A) an oligopoly; only on its own marginal revenue and marginal cost curves
B) a monopolistically competitive; in part on its competitors price and quantity decisions
C) an oligopoly; in part on its competitors price and quantity decisions.
D) a monopolistically competitive; only on its marginal revenue curve.
15) Which of the following does NOT shift the demand curve for broccoli?
A) An increase in the number of broccoli farmers.
B) An increase in income if broccoli is a normal good.
C) An increase in the price of spinach, a substitute for broccoli, because rodents gobbled up
much of this years spinach crop.
D) An increase in income if broccoli is an inferior good
E) An increase in the number of people who like broccoli.
16) A natural monopoly has a deadweight loss if
I. it is regulated according to an average cost pricing rule
II. it is regulated according to a marginal cost pricing rule
III. it is unregulated.
A) only I.
B) only II.
C) I and II.
D) I and III.
E) only III
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17) 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 $40. Jane is
A) maximizing her profit and is earning an economic profit.
B) not maximizing her profit but is earning an economic profit anyway.
C) maximizing her profit and is earning a normal profit.
D) not maximizing her profit but is earning a normal profit anyway.
E) maximizing her profit and is incurring an economic loss.
18) Which of the following is TRUE about a profit maximizing monopolistically
competitive firm in its long-run equilibrium?
A) P = MC.
B) P = MR.
C) ATC = MC.
D) P = ATC.
E) MR > MC
19) Salsa and chips are complements and salsa falls in price. As a result, the equilibrium
price of chips ____ and the quantity of chips ____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
E) does not change; increases
20) If both firms in a duopoly cheat on a collusive cartel agreement, the prices will ____,
both firms are ____ off, and society is ____ off.
A) fall; better; better
B) rise; worse; worse
C) fall; worse; better
D) fall; better; worse
E rise; better; better
21) In the long run, variable costs are
A) zero and fixed costs are zero.
B) zero and fixed costs are positive.
C) positive and fixed costs are zero.
D) positive and fixed costs are positive.
22) The price of new cars increases by 10 percent. If the price elasticity of demand for
new cars is 1.25, the quantity of new cars demanded will decrease by
A) 2.5 percent.
B) 8 percent.
C) 10 percent.
D) 12.5 percent.
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23) According to the Coase Theorem, if transactions costs are low then a private market
(that is, an unregulated market) is efficient
A) only if property rights are assigned to the person who is being harmed by the external
cost.
B) only if property rights are assigned to the person who is creating the external cost.
C) if property rights are assigned either to the person who is creating the external cost or to
the person who is being harmed by the external cost.
D) if property rights are eliminated wherever an external cost or benefit appears.
24) McDonalds, Wendys, and Burger King agree with each other not to sell
hamburgers for less than $3.95 apiece. In the United States, this agreement is
A) per se illegal.
B) illegal if it substantially lessens competition under the tying clause of the Clayton Act.
C) illegal if it substantially lessens competition under the exclusive deal clause of the
Clayton Act.
D) legal
E) None of the above answers is correct.
25) If the price of salt increases and the quantity demanded does not change, then the
A) price elasticity of demand is equal to zero.
B) demand for salt is perfectly inelastic.
C) demand curve for salt is perfectly horizontal.
D) demand for salt is perfectly elastic.
E) Both answers A and B are correct.
26) Last year I read a story in the Wall Street Journal about the firms that make the
wooden floors upon which basketball games are played. The story said that there
were many firms in the industry and that the firms were constantly innovating,
making floors that were a little different from those made by their competitors.
These firms are best described as being in
A) a perfectly competitive market.
B) a monopoly market.
C) a monopolistically competitive market.
D) an oligopoly market.
E) None of the above answers are correct.
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27) The above figure shows the marginal benefit, marginal private cost and marginal
social cost curves of producing steel. If the market is competitive and unregulated,
the equilibrium quantity of steel is ____ tons and the efficient quantity of steel is
____ tons.
A) 2; 2
B) 2; 4
C) 4; 2
D) 4; 8
E) None of the above answers is correct.
28) The above figure shows the marginal benefit, marginal private cost and marginal
social cost curves of producing steel. If the market is competitive, what government
policy might move the market closer to efficiency?
A) The government could subsidize the production of steel.
B) The government could tax the production of steel.
C) The government could issue vouchers to steel consumers.
D) The government could give steel producers individual transferable quotas.
E) None of the above answers is correct.
29) Compared to a perfectly competitive industry, a single-price monopoly
A) increases producer surplus by raising costs.
B) increases consumer surplus by lowering producer surplus.
C) increases both consumer and producer surplus.
D) creates a deadweight loss.
30) Compared to a single-price monopoly, if a monopoly price discriminates, it
produces ____ output, makes a ____ economic profit, and ____consumer surplus.
A) more; smaller, increases
B) less; larger, increases
C) more; smaller; decreases
D) more; larger, decreases
E) less; larger; decreases
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31) If a public good were left to be provided by the private sector, it would be
A) over-provided.
B) under-provided.
C) provided at the efficient level.
D) provided at very low prices.
32) Suppose that the price of flour used to produce bagels increases. Hence the
equilibrium price of a bagel ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $13 million
W: $5 million
S: $6 million
W: $30 million
Walmart Dont
lower
prices
S: $10 million
W: $11 million
S: $9 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. Suppose that scientists discover and
widely publicize the result that pizza helps prevent heart attacks. Which figure
shows the effect of this publicity in the market for pizza?
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) if you have a question about your test score and you are to email me if
you have a question about a question, then the director is so stupid that
A) if she spoke her mind, shed be speechless.
B) she said whats the letter after x and when I said Y, she said Cause I wanna know...
C) she thought hamburger helper came with another person.