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Professor: M.

Rush
ECO 2023
SPRING 2013
MIDTERM 2
Read all instructions on this page
This test is governed by UFs academic honesty code. It is intended to have 30
multiple choice questions. Please check to be sure your copy has all 30. 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. As I said on the last exam, I heard rumors that
the ability to correctly record the form code has been mastered by a few students at FSU. I
am still checking this out. But in the meanwhile a friend told me that accounting majors
have been known to be able to record this letter, often correctly. Plus, I have heard of one
journalism major who could get the UF ID right at least 30% of the time! While I doubt this
last rumor, because the UF ID involves numbers which means it is close to being math,
nonetheless I think that the skill of correctly bubbling in the form code and the UF ID is
not too difficult to acquire.
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
MIGHT 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.





ECO 2023 MIDTERM 2 SP RI NG 201 3
2
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.

An answer key will be posted on the main class web page later this
evening at about 10:00 PM or so.
The test scores will be on the class web page within a few days.

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.

ECO 2023 MIDTERM 2 SP RI NG 201 3
3
1) You buy only magazine and CDs. Your income equals $60 per month. CDs are $12
each and magazines are $5 each. What is the equation for your budget line?
A) $60 = Q
m
+ Q
CD

B) $60 = $12 Q
m
+ $5 Q
CD

C) $60 = $5 Q
m
$12 Q
CD

D) $60 = $12 Q
CD
+ $5 Q
m

2) As the quantity of a good consumed increases, its marginal utility ____ and its total
utility ____.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Output
(units per hour)
Total Cost
(dollars per hour)
0 $4.00
1 $12.00
2 $18.00
3 $22.00
4 $24.00
5 $30.00
6 $40.00
3) In the above table, the firms variable cost when it produces 2 units of output is
A) $9.00.
B) $22.00.
C) $18.00.
D) $14.00
E) More information is needed to answer the question.
4) Intels profit increases. The price of a share of its stock does not change and the
dividend does not change. As a result, Intels PE ratio ____ and Intels dividend yield
____.
A) rises; might rise, fall, or not change
B) rises; rises
C) does not change; rises
D) might rise, fall, or not change; might rise, fall, or not change
E) falls; does not change
ECO 2023 MIDTERM 2 SP RI NG 201 3
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5) When Acme Inc. produces its output by using the least amount of inputs (that is,
Acme does not waste any inputs), Acme Inc. definitely
A) maximizes profits.
B) minimizes labor costs.
C) achieves technological efficiency.
D) achieves economic efficiency.
6) A firms average variable cost is $50, its fixed cost is $200, and its output is 10 units. Its
total cost is
A) less than $51.
B) between $52 and $198.
C) between $199 and $300.
D) more than $301.
7) The main disadvantage to organizing a business as a proprietorship is
A) its complex management structure.
B) limited liability.
C) unlimited liability.
D) that economic profit cannot be maximized.
8) Which of the following is a fixed cost for Taco Bell?
A) the wages paid to its workers
B) the annual fire and theft insurance premiums
C) the electric utility bill
D) the cost of the beans used to produce burritos
9) In part, the principal-agent problem is to
A) find ways for managers to get people to buy stock in their company.
B) devise compensation rules to induce principals to act in the best interest of
agents.
C) devise compensation rules to induce agents to act in the best interest of
principals.
D) find efficient agents who will negotiate fair compensation rules for a firm's
principal managers.
10) 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.
ECO 2023 MIDTERM 2 SP RI NG 201 3
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11) Any point above a given indifference curve is
i. definitely preferred to any point on the indifference curve.
ii. definitely unaffordable.
A) only i is correct
B) only ii is correct
C) both i and ii are correct
D) neither i nor ii is correct
12) The profit of which of the following forms of business organization is taxed twice?
i. Proprietorship
ii. Partnership
iii. Corporation
A) i only.
B) ii only.
C) iii only.
D) i and ii
E) ii and iii.
13) The short run is a period of time in which
A) the quantities of some inputs the firm uses are fixed.
B) the amount of output is fixed.
C) prices and wages are fixed.
D) nothing the firm does can be altered.
14) 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) $26,000
D) $2,000.
E) $1,000.
ECO 2023 MIDTERM 2 SP RI NG 201 3
6

15) Bruce Copperwoods utility of wealth curve is illustrated in the above figure. Bruce, a
recent economics graduate, is presently employed at a salary of $200,000. There is a 50
percent probability that Bruce will be disabled, in which case he will have wealth of
$40,000. Bruces expected wealth is ____ and his expected utility is ___ utils.
A) $120,000; 90
B) $120,000; 60
C) $100,000; 50
D) $120,000; 75
E) None of the above answers is correct.
16) Bruce Copperwoods utility of wealth curve is illustrated in the above figure. Bruce, a
recent economics graduate, is presently employed at a salary of $200,000. There is a 50
percent probability that Bruce will be disabled, in which case he will have wealth of
$40,000. Bruce can buy insurance that will pay him $160,000 if he is disabled. Will
Bruce pay $100,000 for this insurance?
A) Yes, Bruce definitely will buy the insurance.
B) No, Bruce will definitely not buy the insurance.
C) Bruce might or might not buy the insurance.
D) More information is necessary to answer the question.
ECO 2023 MIDTERM 2 SP RI NG 201 3
7

17) In the above figure, a rotation of the budget line in the direction indicated would
occur as a result of a
A) rise in the price of a book.
B) fall in the price of a book.
C) rise in the price of a movie.
D) decrease in income.
Methods for making
2,000 CDs per day

Method
Capital
(units)
Labor
(workers)
A 12 200
B 20 80
C 70 10
D 30 85
18) In the table above, which method is NOT technologically efficient?
A) A
B) B
C) C
D) D
19) In the table above, if the cost of capital is $20 per day and an hour of labor is $15 per
day, which method is economically efficient?
A) A
B) B
C) C
D) D
ECO 2023 MIDTERM 2 SP RI NG 201 3
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20) Which of the following shifts Leonardos ATC curve upward?
i. An increase in the hourly wage that Leonardos pays its workers.
ii. A decrease in the hourly wage that Leonardos pays its workers.
iii. An increase in the annual fixed amount of liability insurance premiums that
Leonardos pays for its business.
A) i only.
B) ii only.
C) iii only.
D) i and iii
E) i, ii, and iii.
21) Which of the following is a correct statement?
i. A firms short-run average total cost curve is derived from a series of long-run
average cost curves.
ii. A firms long-run average cost curve is derived from a series of short-run average
total cost curves.
iii. A firms long-run total cost is the difference between its long-run fixed cost and
long-run variable cost.
A) i only.
B) ii only.
C) iii only.
D) i and ii
E) i and iii.
22) Marginal cost
A) first increases and then decreases as the quantity produced increases.
B) first decreases and then increases as the quantity produced increases.
C) always increases as the quantity produced increases.
D) always decreases as the quantity produced increases.
23) If the four-firm concentration ratio is a very small number, then
A) there is a high degree of competition in the market.
B) there is no competition in the market.
C) the market must be dominated by a few firms.
D) the market is not perfectly competitive.
24) The water and diamonds paradox of value
A) is that water is essential for life and yet is cheap, whereas diamonds are
totally nonessential and yet are expensive.
B) points out that we generally have a low total utility of water and a high total
utility of diamonds.
C) is resolved by the principle that market price is determined by total utility,
not marginal utility.
D) None of the above.
ECO 2023 MIDTERM 2 SP RI NG 201 3
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25) The marginal cost (MC) curve intersects the
A) ATC, AVC, and AFC curves at their minimum points.
B) ATC and AFC curves at their minimum points.
C) AVC and AFC curves at their minimum points.
D) ATC and AVC curves at their minimum points.
26) Increasing marginal returns to labor (when the marginal product increases as labor
increases) might occur at low levels of employment because of
A) increasing average costs.
B) differing factor proportions.
C) increasing specialization of tasks.
D) decreasing use of machinery and increasing use of technology.
27) Sarah consumes pizzas and hamburgers. The price of a hamburger is $2 and the
marginal utility from her last hamburger is 10. Let P
p
be the price of a pizza and MU
p

be the marginal utility of pizzas. In consumer equilibrium, the ratio MU
p
/P
p
for
Sarahs last pizza must equal
A) 0.2.
B) 1.0.
C) 5.0.
D) None of the above are correct.
Quantity
of soda
Marginal utility
from soda
Quantity
of pizza
Marginal utility
from pizza
1 150 1 400
2 120 2 300
3 100 3 240
4 90 4 220
5 60 5 200
28) Lisa spends all her income on pizzas and soda. The above table shows Lisas marginal
utility for pizza and marginal utility for soda. If the price of a pizza is $10 and the
price of a soda is $5 and Lisa has $40 to spend on the two goods, what combination of
pizza and soda will maximize her utility?
A) 5 sodas and 2 pizzas
B) 4 sodas and 2 pizzas
C) 2 sodas and 3 pizzas
D) 1 soda and 1 pizza
E) None of the above are correct.
ECO 2023 MIDTERM 2 SP RI NG 201 3
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29) Brian consumes only pizza and soda. When the price of a soda is $2 and the price of a
slice of pizza is $4, Brian maximizes his utility by buying 5 sodas and 10 slices of
pizza. If the marginal utility of the 5th soda is 100 units of utility, then the marginal
utility of the 10th slice of pizza must be ____ units of utility.
A) 200
B) 100
C) 50
D) More information is needed to determine the marginal utility of the 10th slice
of pizza.
30) If you have a question about your test score you need to email the grader (whose
email address is ECO2023.Grader@warrington.ufl.edu) and an answer key will be
posted on the class web page at about 10. Now, keeping those two facts in mind, then
the director is so stupid that he
A) named his two dogs Rolex and Timex because they are watch dogs.
B) couldnt learn to water ski because he couldnt find a lake with a slope.
C) was trapped on an escalator for hours when the power went out.