Professor: M.

Rush
ECO 2023
SUMMER B 2013
FINAL EXAM
This test is governed by UFs academic honesty code. It is intended to have 34
multiple choice questions. Please check to be sure your copy has all 34. 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 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.

ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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An answer key will be posted on the class web page later this
evening at about 9:30.
The test scores AND GRADES will be on class web page probably by
Monday.
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 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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1) Suppose that Coke and Pepsi, two soft drink manufacturers, agree to charge the
same prices for their soft drinks. This practice would
A) always be legal under the antitrust laws.
B) be legal if the Herfindahl-Hirschman index for the soft drink market is less than 1,000.
C) be legal as long as the firms had a cost justification for setting prices.
D) be legal if otherwise Pepsi would go bankrupt.
E) always be illegal under the antitrust laws.
2) If a Lorenz curve for income moves leftward and becomes closer to the line of
equality, then
A) the population is growing.
B) income is growing.
C) income is being more equally distributed.
D) income is being more unequally distributed.
3) The price of memory chips used to produce computers falls. As a result, the
equilibrium price of a computer ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
4) A firm in which of the following market structures can make an economic profit in
the long run?
i. Perfect competition
ii. Monopolistic competition
iii. Monopoly
A) i only
B) ii only
C) iii only
D) i and ii
E) i, ii, and iii
5) The farther a Lorenz curve is from the 45 line of equality, the
A) larger is the nations income.
B) smaller is the nations income.
C) more equally distributed is the nations income.
D) less equally distributed is the nations income.
6) The tragedy of the commons is the absence of incentives to
A) use commonly owned resources.
B) prevent the overuse of commonly owned resources.
C) use privately owned resources.
D) have commonly owned resources.
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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7) The price of jet fuel rises. As a result the equilibrium price of airline travel ____ and
the equilibrium quantity ____.
A) rises, increases
B) rises, decreases
C) falls, increases
D) falls, decreases
8) There are no barriers to entry in ____ markets.
A) only perfectly competitive
B) only monopolistically competitive
C) only monopoly
D) perfectly competitive or monopolistically competitive
9) When 1,000 tacos are produced, the marginal social benefit is of the 1,000th taco is
$.50 and the marginal social cost of the 1,000th taco is $.60. To produce the efficient
quantity of tacos,
A) more tacos should be produced.
B) fewer tacos should be produced
C) there should be no change in the amount of tacos produced.
D) more information on production costs is needed to determine the efficient level of tacos.
10) A firms total cost is $250, its average variable cost is $10, and its output is 10 units.
Its average fixed cost is
A) less than or equal to $10.00.
B) between $10.01 and $20.00.
C) between $20.01 and $40.00.
D) more than $40.01.
11) Which of the following is true regarding the long run for a firm in monopolistic
competition?
A) The firms can make an economic profit because of product differentiation.
B) Marginal cost equals average total cost.
C) Output is produced at minimum average total cost.
D) Price equals average total cost.
E) None of the above answers are true.
12) More people are eating high protein diets. Eggs are high in protein. As a result, the
equilibrium price of an egg will ____ and the equilibrium quantity will ____.
A) rise; increase
B) rise; decrease
C) fall; increase
D) fall; decrease
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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13) At one point along a PPF, 10 pizzas and 8 sandwiches can be produced. At another
point along the same PPF, 9 pizzas and 10 sandwiches can be produced. The
opportunity cost of a pizza between these points is
A) 8/10 of a sandwich.
B) 2/10 of a sandwich.
C) 10 sandwiches.
D) 2 sandwiches.
E) 1 pizza.
14) The demand curve for high-skilled workers lies ____ the demand curve for low-
skilled workers because
A) above; there is a cost of acquiring skills
B) above; high-skilled workers must signal their skills
C) above; the marginal product of high-skilled labor exceeds that of low-skilled labor
D) below; low-skilled workers are less desirable to hire
E) on top of; the difference between the market for high-skilled labor and low-skilled labor
results from a difference in the supply curves only
15) When externalities are present
A) competitive markets without any government intervention are efficient.
B) competitive markets without any government intervention are inefficient.
C) a tax is required to eliminate the inefficiency.
D) property rights have already been established.
16) A single-price monopolist maximizes profits by producing the output at which
A) price equals marginal cost.
B) price equals marginal revenue.
C) marginal revenue equals marginal cost.
D) marginal cost equals average cost.
17) Janes Garage Cleaning is a monopolistically competitive firm that currently cleans
40 garages a week. Janes marginal cost is $35, her price is $30, and her average total
cost is $25. Jane is
A) maximizing her profit and is making an economic profit.
B) not maximizing her profit but is making an economic profit anyway.
C) maximizing her profit and is incurring an economic loss.
D) might be maximizing her profit and is making an economic profit.
E) might be maximizing her profit and is incurring an economic loss.
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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P
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a
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c
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(
d
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)
Quantity (per day)
0 30 10 40 20
10
20
30
40
50
ATC
MR
MC

18) The figure above shows a perfectly competitive firm. The price of the product is $20
per unit. In the short run, the firm definitely shuts down if the AVC of
A) producing 10 units is less than $20.
B) producing 10 units is more than $20.
C) producing 20 units is less than $20.
D) producing 20 units is more than $20.
19) The key feature of monopolistic competition that distinguishes it from perfect
competition is
A) many sellers.
B) barriers to entry.
C) interdependency.
D) product differentiation.
20) A free rider is best defined as someone who
A) creates an external benefit.
B) creates an external cost.
C) consumes only the goods he or she pays for.
D) consumes a good without paying for it.
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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P
r
i
c
e

a
n
d

c
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s
t
s

(
d
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l
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a
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p
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r

u
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t
)
Quantity (units per day)
0 12 4 16 20 8 10 24
12
24
36
48
60
D
MC ATC
MR

21) In the above figure, the firm will produce ____ and set a price of ____.
A) 8 units per day; $12
B) 8 units per day; $36
C) 16 units per day; $24
D) 8 units per day; $24
E) None of the above are correct
22) The Sherman Act makes it illegal to
A) increase market share.
B) merge firms in the same industry.
C) attempt to monopolize an industry.
D) price below competitors.
23) Since 1979, the share of income going to the top fifth of all households has ____ and
the share going to the bottom fifth of all households has ____.
A) risen; risen
B) risen; fallen
C) fallen; risen
D) fallen; fallen
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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Sears
Set a low price Set a high price

Walmart
Set a low
price
S: $16 million
W: $8 million
S: $2 million
W: $3 million
Set a high
price
S: $8 million
W: $1 million
S: $6 million
W: $8 million
24) Sears and Wal-Mart must decide whether to set a high price or a low price, 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) None of the above answers are correct.
P
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c
e

(
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p
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p
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P
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(
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p
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)
Quantity (pounds) Quantity (pounds)
Figure B Figure A
D
1
D
2
S
D
2
D
1
S
P
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e

(
d
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p
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)
P
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(
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Quantity (pounds) Quantity (pounds)
Figure D Figure C
D
S
2
D
S
1
S
1
S
2

25) The figures above show the market for hamburger meat. If pizzas are a substitute
for hamburgers for consumers and pizzas rise in price, which figure shows the
consequence?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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26) Joshs Limo Service has average variable cost of $30, fixed cost of $400, and average
fixed cost of $4. What is Joshs total cost?
A) $430
B) $1,630
C) $2,400
D) $3,400.
E) Not enough information is given to answer the question.
27) 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.
28) Yachts are a normal good and peoples incomes rise. As a result, the equilibrium
price of a yacht ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
29) Suppose the elasticity of demand for soda is 0.8. When the price of a soda increases
by 2 percent, the quantity of sodas demanded decreases by
A) 0.80.
B) 1.60.
C) 2.40.
D) 1.00.
E) None of the above are correct.
30) Every Easter the demand for eggs increases. Every Easter egg producers increase
their production of eggs. If the supply increases by the same amount as does the
demand, then the equilibrium price of a dozen eggs ____ and the equilibrium
quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) rises; does not change
E) does not change; increases
ECO 2 0 2 3 FI NAL EXAM SUMMER B 2 0 1 3

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Sears
Set a low price Set a high price

Walmart
Set a low
price
S: $15 million
W: $9 million
S: $1 million
W: $3 million
Set a high
price
S: $19 million
W: $1 million
S: $2 million
W: $10 million
31) Sears and Wal-Mart must decide whether to set a high price or a low price, 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) None of the above answers are correct.
32) A natural monopoly produces the efficient quantity 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, II, and III
E) None of the above because a monopoly never produces the efficient quantity.
33) Compared to a perfectly competitive industry with the same cost and demand, a
single-price monopolist produces
A) more output and has a higher price.
B) less output and has a lower price.
C) more output and has a lower price.
D) less output and has a higher price.
34) Keeping in mind that you are to email the grader at ECO2023.grader@cba.ufl.edu
(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) he asked me Whats the number for 911?
B) he was driving to the airport and when he saw a sign that said Airport Left, he turned
around and went home.
C) when he was hit by a cup, he told the police he was mugged.