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Professor: M.

Rush
ECO 2023
SPRING 2013
MAKE UP EXAM
This test is governed by UFs academic honesty code. It is intended to have 33
multiple choice questions. Please check to be sure your copy has all 33. Choose
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.

E CO 2023 MAKE UP T E S T S PRI NG 2 013
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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 Thursday or
Friday.
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) Some Mexican food restaurants close. As a result, the equilibrium price for
Mexican food ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) does not change; decreases
Output
(frijoles)
Total cost
(dollars)
0 1,000
1000 3,000
3000 5,000
4000 7,000
4500 9,000
2) The above table gives some production and cost information for Flaming
Fernandos, a restaurant that sells Fiery Frijoles. What is the average variable
cost of producing 4,000 frijoles?
A) $1.00
B) $1.50
C) $1.75
D) $2.00
E) More information is needed to determine the answer.
3) Automobiles are a normal good and peoples incomes rise. Simultaneously,
auto manufacturers must pay more for their workers health insurance. As a
result, the equilibrium price of an automobile ____ and the equilibrium
quantity ____.
A) rises; decreases
B) does not change; probably changes, but in an ambiguous direction
C) probably changes, but in an ambiguous direction; increases
D) probably changes, but in an ambiguous direction; decreases
E) None of the above are correct.
4) I read in the Wall Street Journal that in March in China fear of bird flu
affected Kentucky Fried Chicken. (KFC has, by far, the largest number of
outlets in China of any food chain.) To analyze what happened, suppose that
consumers become concerned that they can catch bird flu from fried chicken.
As a result, the equilibrium price of fried chicken _____ and the equilibrium
quantity _____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
E) does not change; decreases
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5) The market for pork is perfectly competitive. If the demand for pork
increases so that the market price of pork rises, then an individual hog
producer _____ its equilibrium quantity of hogs and _____.
A) increases; incurs an economic loss
B) increases; makes an economic profit
C) does not change; makes an economic profit
D) decreases; makes an economic profit
E) decreases; incurs an economic loss
6) Which of the following is true?
A) MSC = MC + Marginal external cost
B) MC = Marginal external cost MSC
C) MC = Marginal external benefit + MSC
D) MSC = Marginal external cost + marginal external benefit

7) The figure above shows the market for pizza. For consumers, tacos are a
substitute for pizza. Suppose that the price of tacos falls. Which figure shows
the effect of this change in the market for pizza?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
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8) The number of firms producing computer memory chips decreases. As a
result, the price of a memory chip ____ and the quantity of memory chips
____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
9) Suppose a monopolistically competitive firm is making an economic profit.
As a result, as time passes
I. new firms produce a similar product.
II. the industry becomes perfectly 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: $9 million
W: $5 million
S: $10 million
W: $30 million
Walmart Dont
lower
prices
S: $12 million
W: $11 million
S: $9 million
W: $13 million
10) 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.
11) Research is publishing which claims that eating one rutabaga (a potato-like
vegetable) a day helps prevent cancer. As a result, the equilibrium quantity
of rutabagas ____ and the efficient quantity ____.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
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12) If the marginal social benefit of a good exceeds its marginal social cost
A) we are producing the efficient quantity of the product.
B) we are producing less than the efficient quantity.
C) we are producing more than the efficient quantity.
D) we cannot tell if we are producing more or less than the efficient
quantity.

13) The figure above shows the market for pizza when the government imposes
a tax. The amount of the tax is ____ per pizza and once the tax is imposed
the deadweight loss equals ____.
A) $12; $480,000
B) $9; $225,000
C) $3; $30,000
D) $3; $15,000
E) None of the above are correct.
14) The price elasticity of demand is 5.0 if a 10 percent increase in the price
results in a ____ decrease in the quantity demanded.
A) 2 percent
B) 5 percent
C) 10 percent
D) 50 percent
15) A perfectly competitive firm shut downs in the short run when the price is
less than
A) marginal cost.
B) average total cost.
C) average fixed cost.
D) average variable cost.
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16) If a severe hurricane struck Tampa and destroyed many apartments and
houses, then the demand curve for housing ____ and the supply curve of
housing ____.
A) does not shift; does not shift
B) shifts rightward; shifts rightward
C) shifts rightward; does not shift
D) does not shift; shifts leftward
E) shifts rightward; shifts leftward
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $12 million
W: $9 million
S: $6 million
W: $8 million
Walmart Dont
lower
prices
S: $14 million
W: $1 million
S: $9 million
W: $3 million
17) 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.
18) Game theory is most useful for determining the outcome when ____.
A) the market structure is oligopoly
B) monopolistic competition exists
C) prison terms are involved
D) the market is dominated by a monopoly
19) (This is an out-of-the-book question.) Price discrimination
A) eliminates the producer surplus.
B) turns consumer surplus into economic profit.
C) decreases output below the profit-maximizing level.
D) lowers a monopolys economic profit.

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20) The above figure necessarily shows a
A) perfectly competitive firm in the long run.
B) monopoly in the short run.
C) monopolistically competitive firm in the short run.
D) monopolistically competitive firm in the long run.
E) None of the above are correct.
21) In the above figure, the firms economic profit is
A) $0.
B) $288.
C) $192.
D) $96.
E) More information is needed to answer the question.
22) Suppose that the University of Florida agrees that only Pizza Hut pizza can
be sold at UF athletic events. This agreement is an example of ____ and is
most likely ____.
A) a tying contract; illegal
B) product discrimination; legal
C) price fixing; illegal
D) an exclusive deal; legal
23) Suppose a monopoly can sell 10 units of output for $21. In order to sell 11
units of output, the monopoly must lower its price to $20. What is the
marginal revenue of the 11th unit?
A) $41
B) $20
C) $10
D) $1
E) None of the above are correct.
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24) Which of the following statements regarding the production possibilities
frontier is true?
A) Points outside the frontier are attainable.
B) Points inside the frontier are attainable.
C) Points on the frontier are less efficient than points inside the frontier.
D) None of the above because all of the above statements are false.
25) If a natural monopoly is broken up into many smaller firms then
A) the price will decrease.
B) the firms average costs of production will increase.
C) efficiency will increase.
D) None of the above because it is illegal to break up a natural monopoly
into smaller firms.
26) A monopoly creates a deadweight loss because the monopoly
A) sets a price that is too low.
B) makes a normal profit.
C) does not maximize profit.
D) produces less than the efficient quantity.
27) A difference between a perfectly competitive industry and a monopoly is
that
A) in the long run, firms in a perfectly competitive industry make a normal
profit and a monopoly can make an economic profit.
B) a firm in a perfectly competitive industry can perfectly price
discriminate but a monopoly cannot.
C) only monopolies have an incentive to maximize profit.
D) perfectly competitive firms can have a public franchise.
28) The ABC Nail Company has entered into a collusive agreement with the
other firm in the industry, the DC Nail Company. What occurs in the nail
industry if ABC decides to cheat on the agreement?
I. ABC lowers the price of its nails.
II. The total industry output increases.
III. The total profits in the nail industry will decrease.
A) Only III.
B) Only I.
C) I and III.
D) I, II, and III.
D) Only I and II.
29) A perfectly competitive firms marginal revenue
A) increases as the firm produces more output.
B) decreases as the firm produces more output.
C) is less than the market price of its product.
D) equals the market price of its product.
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30) Under a marginal cost pricing rule, a regulated natural monopoly
A) earns a positive economic profit, and there is a deadweight loss.
B) earns zero economic profit, and there is no deadweight loss.
C) incurs an economic loss, and there is a deadweight loss.
D) incurs an economic loss, and there is no deadweight loss.
31) A single-price monopoly finds that its marginal cost is less than its marginal
revenue. In order to increase its profit, the firm will
A) raise its price and decrease its output.
B) lower its price and increase its output.
C) raise its price and increase its output.
D) continue to produce this level of output because any change will lower
its profit.
32) Sarahs Garage Cleaning is a perfectly competitive firm that currently cleans
40 garages a week. Sarahs marginal cost is $35, her price is $40, and her
average total cost is $45. Sarah
A) is maximizing her profit and is incurring an economic loss.
B) might be maximizing her profit and is making an economic profit
anyway.
C) might be maximizing her profit and is making a normal profit.
D) is not maximizing her profit and is incurring an economic loss.
E) is not maximizing her profit and is making an economic profit.
33) 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, then the
director is so stupid that
A) if he spoke his mind, hed be speechless.
B) he said whats the letter after x and I said Y he said Cause I wanna
know...
C) he thought hamburger helper came with another person.