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Professor: M.

Rush
ECO 2023
SUMMER B 2012
MIDTERM 2
Read all instructions on this page
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.
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 UF ID is not too difficult to acquire.
CHECK YOUR FORM CODE AND UF ID. 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 about 2 questions)!

TURN OFF ALL CELL PHONES AND OTHER
COMMUNICATION DEVICES

You may not use a cell phone, a Blackberry, or any other sort of device that allows for
communication as your calculator.
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.
ECO 2023 MIDTERM 2 SUMMER B 201 2

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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.
An answer key will be posted on the class web page later this
evening at around 9:30 PM.
The test scores will be on 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 SUMMER B 201 2

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1) For a perfectly competitive firm, MR always equals
A) ATC.
B) P.
C) AVC.
D) none of the above because MR is not always equal to the same thing for a
monopoly.
2) A perfectly competitive firm incurs an economic loss and remains open when ____
and ____.
A) P > ATC; P < AVC
B) P > ATC; P > AVC
C) P = ATC; P > AVC
D) P < ATC; P > AVC
E) P < ATC; P < AVC
3) A consumer buys only pizza and tacos. When the price of a taco rises, the
consumers budget line
A) rotates outward but more information is needed to determine whether it
becomes flatter or steeper.
B) shifts inward and its slope does not change.
C) rotates inward and becomes steeper.
D) rotates inward and becomes flatter.
E) rotates inward but more information is needed to determine whether it
becomes flatter or steeper.
4) If the marginal cost of sandwiches exceeds the marginal benefit of sandwiches, then
compared to the efficient quantity we are producing too ____ sandwiches and too
____ other goods.
A) many; few
B) many; many
C) few; few
D) few; many
E) None of the above answers are correct.
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5) (This is a semi-out of the book question from Chapter 6.) Suppose the government
imposes a $1 tax on a can of soup, and the price of a can of soup rises by $1.
A) This price rise will occur if the demand for soup is perfectly inelastic.
B) This price rise will occur if the demand for soup is perfectly elastic.
C) This price rise will occur only if the demand curve for soup is upward
sloping.
D) Any of the above might be correct because a $1 tax always raises the price
by $1.
E) None of the above answers are correct.
6) (Hint: Be careful!) All consumption points that lie beyond an individuals budget
line ____ unaffordable and ____ preferred to the individuals best affordable point.
A) are definitely; are definitely
B) are definitely; might or might not be
C) might or might not be; are definitely
D) might or might not be; might or might not be
E) None of the above answers are correct.

7) The profit maximizing level of output for the firm is equal to ____ and the profit-
maximizing price is ____.
A) 17 units; $23.00
B) 19 units; $22.50
C) 17 units; $16.00
D) 19 units; $16.00
E) 14 units; $11.00
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8) In the above figure, at the profit maximizing level of output, the firm is
A) incurring an economic loss of $119.00.
B) incurring an economic loss of $187.00.
C) incurring an economic loss of $123.50.
D) making an economic profit of $187.
E) None of the above are correct.
Labor
(workers)
Output
(units per day)
Total cost
(dollars)
0 0 30
1 3 50
2 8 70
3 12 90
4 14 110
5 15 130
9) In the above table, the total variable cost at 3 units of output is
A) $0.
B) $30.
C) $50.
D) More information is needed to determine the total variable cost.
E) None of the above answers is correct.
10) In the above table, when output increases from 12 to 14 units, the marginal cost of
one of those 2 units is
A) $7.50.
B) $7.86.
C) $5.00.
D) $10.00.
E) None of the above answers is correct.
11) If salt has a ____, then ____ pay most of any tax levied on salt.
A) high elasticity of supply; sellers
B) low elasticity of demand; buyers
C) high elasticity of demand; buyers
D) low elasticity of supply; buyers
E) None of the above answers are correct.
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12) Leonardos has signed a 4-year lease for its building. In the short run, Leonardos
rent is a ____ cost and its wages are a ___ cost and in the long run, Leonardos rent
is a ____ cost and its wages are a ____ cost.
A) fixed; variable; variable; variable
B) fixed; variable; fixed; variable
C) variable; fixed; fixed; variable
D) fixed; fixed; variable; variable
E) variable; variable; fixed; variable
13) A perfectly competitive firm is maximizing its profit. If it increases its production by
one unit, its total cost ____ by ____ its total revenue.
A) increases; more than
B) increases; the same amount as
C) increases; by less than
D) decreases; by the same amount as
E) More information is needed to answer the question.

14) In the above figure, compared to the equilibrium quantity a rent ceiling of $300 per
month ____ the quantity of apartments rented and leads to ____.
A) does not affect the; 10,000 units being rented
B) increases; surplus of 7,000 units
C) decreases; shortage of 7,000 units
D) decreases; shortage of 10,000 units
E) decreases; shortage of 3,000 units
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15) In the figure above, which of the three budget lines represents the highest price for a
compact disc?
A) Budget line AD.
B) Budget line BD.
C) Budget line CD.
D) More information is needed to answer the question.
16) A firms total cost is $600, its average fixed cost is $5, and its output is 100 units. Its
total variable cost is
A) less than $10.
B) between $11 and $101.
C) between $102 and $401.
D between $402 and $501.
E) more than $501.
17) Which of the following descriptions describes how the marginal product of labor
changes as more workers are employed?
A) The marginal product of labor starts out small and then constantly gets
larger as more workers are employed.
B) The marginal product of labor starts out large and then constantly gets
smaller as more workers are employed.
C) The marginal product of labor starts out small, gets larger, reaches a
maximum, and then gets smaller as more workers are employed.
D) The marginal product of labor starts out large, gets smaller, reaches a
minimum, and then gets larger as more workers are employed.
18) Because of a decrease in the wage rate it pays, a perfectly competitive firms
marginal costs decrease and its marginal cost curve shifts downward. Its demand
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curve stays the same. As a result, the firm ____ the amount of output it produces
and ____ its price.
A) decreases; raises
B) increases; lowers
C) increases; does not change
D) decreases; does not change
E) decreases; lowers
19) Homers Holesome Donuts has determined that its profit-maximizing quantity is
10,000 donuts per year. Homers earns $15,000 in revenue from the sale of those
donuts. Homers has two costs. First he pays $16,000 in annual rental payments for
its five-year lease on its store. Second Homer incurs an additional cost of $13,000 for
ingredients. In the short run, Homers closes down because
A) anytime a firm incurs an economic loss it should immediately close down.
B) all costs are variable costs in the long run.
C) all costs are fixed costs in the long run.
D) his total revenue is less than his total variable cost.
E) The premise of the question is wrong because Homers will not close since
his total revenue exceeds his total variable cost.
20) (This is an out-of-the book question.) If the government outlaws the purchase and
sale of egg rolls, then the equilibrium price of egg rolls will ____ and the
equilibrium quantity will ____.
A) rise; decrease
B) not change; decrease
C) fall; decrease
D) fall; not change
E) probably change but in an ambiguous direction; decrease
21) Janes Garage Cleaning is a perfectly competitive that currently cleans 40 garages a
week. Janes marginal cost is $40, her price is $40, and her average total cost is $45.
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 and is incurring an economic loss.
E) not maximizing her profit but is earning a normal profit anyway.
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22) The price of a share of IBM stock is $40. IBM pays a dividend if $1 per share and has
earnings of $2 per share. IBMs PE ratio equals
A) 40
B) 20
C) 2.5
D) None of the above answers is correct.
23) A firms total cost is $600, its average fixed cost is $5, and its output is 100 units. Its
total variable cost is
A) less than $10.
B) between $11 and $101.
C) between $102 and $401.
D between $402 and $501.
E) more than $501.
24) Imposing a tariff on a good will ____ the consumer surplus and ____ the producer
surplus.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) decrease; not change
25) You are at your consumer equilibrium. Hot dogs have greater marginal utility than
hamburgers. Thus
i. your total utility from all the hot dogs you have eaten must be greater
than the total utility from all the hamburgers you have eaten.
ii. the price of a hot dog must be greater than the price of a hamburger.
iii. you must be eating more hot dogs than hamburgers.
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
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26) The government is deciding whether to tax either Good A or Good B. The
equilibrium quantity of both is currently the same, but the elasticity of demand for
Good A is 0.8 while the elasticity of demand for Good B is 1.5. The elasticity of
supply for each good is identical. In order to generate the most tax revenues, the
government should impose the tax on ____ because its demand is ____.
A) Good A; less elastic
B) Good A; more elastic
C) Good B; less elastic
D) Good B; more elastic
27) All points on a production possibilities frontier (PPF) are
A) production efficient but not necessarily allocatively efficient.
B) unattainable.
C) inefficient.
D) allocatively efficient but not necessarily production efficient.
E) both allocatively and production efficient.
28) The owner of a proprietorship has ____ liability and ____ required to pay all of the
firms losses if the company goes bankrupt.
A) limited; is
B) limited; is not
C) unlimited; is
D) unlimited; is not
29) A perfectly competitive firms supply curve is its ____ at all points above the ____.
A) marginal cost curve; minimum of its average variable cost curve
B) marginal cost curve, minimum of its average fixed cost curve
C) marginal revenue curve; minimum of its average revenue curve
D) marginal revenue curve; minimum of its average total cost curve
E) None of the above answers is correct
30) As a consumer moves downward along his or her budget line, the
A) consumer remains indifferent among the different combinations of goods.
B) consumer generally prefers the combinations of goods farther down along
the budget line.
C) income required to buy the combinations of the goods increases.
D) income required to buy the combinations of the goods does not change.
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31) A persons indifference curves will shift, so that each indifference curve moves to a
new location, when there is a change in
A) income but not prices.
B) prices but not income.
C) neither prices nor income.
D) both prices and income.
32) When a market is in equilibrium,
A) consumer surplus necessarily is larger than producer surplus.
B) producer surplus necessarily is larger than consumer surplus.
C) consumer surplus necessarily is the same as producer surplus.
D) None of the above answers are correct.
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 and you are to email me if
you have a question about a question, then the director is so fat that
A) he influences the tides.
B) he eats Wheat Thicks.
C) when you walk around him, you can get lost.