Professor: M.

Rush
ECO 2023
SPRING 2012
FINAL 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 AND GRADES will be on class web page probably by
Wednesday or Thursday.
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 tomato sauce decreases. As a result, the equilibrium
price of tomato sauce ____ and the equilibrium quantity ____.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
2) Suppose firms in a monopolistically competitive industry are making an economic
profit. As a result, as time passes
I. new firms enter to produce a similar product.
II. the price charged by the existing firms falls
III. the economic profits of the existing firms decrease.
A) I, II and III.
B) I and II.
C) II and III.
D) I only
E) I and III.
3) If the demand for a firms output increases so that the price and marginal revenue
of its product rises, the firms
A) supply of labor increases.
B) supply of labor decreases.
C) demand for labor increases.
D) demand for labor decreases.
4) If the price of a movie ticket increases by 6 percent and the quantity of movies
demanded falls by 4 percent, other things equal, the price elasticity of demand is
A) 6.0.
B) 4.0.
C) 2.0.
D) 1.33.
E) 0.67.
5) Compared to a single-price monopoly, a perfectly competitive industry produces
A) less output and has a lower price.
B) less output and has a higher price.
C) more output and has a lower price.
D) more output and has a higher price.
6) Which of the following definitely decreases the equilibrium quantity?
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) If the consumption of a good decreases the amount available for consumption by
another person, the good is
A) rival.
B) excludable.
C) pure.
D) free.
8) The price of pig food rises. As a result the equilibrium price of pork ____ and the
equilibrium quantity ____.
A) rises, increases
B) rises, decreases
C) falls, increases
D) falls, decreases

9) The above figure shows the demand and cost curves for a firm in monopolistic
competition in the long run. The firm maximizes its profit by
A) producing 4 units and charging a price of $15.
B) producing 8 units and charging a price of $5.
C) producing 16 units and charging a price of $10.
D) producing 8 units and charging a price of $5
E) None of the above answers are correct.
10) Rational ignorance occurs because
A) politicians strive to maximize their budgets.
B) the cost of acquiring information exceeds the expected benefits of the information.
C) of irrational behavior.
D) of the principle of minimum differentiation.
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11) Tomatoes are discovered to help prevent heart disease. As a result, the price of a
pound of tomatoes ____ and the quantity ____.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
12) The distribution of income in the United States became more unequal in the 2000s.
One explanation for this trend is that advances in technologies have ____ low-
skilled labor and ____ high-skilled labor.
A) decreased the demand for; increased the demand for
B) increased the demand for; decreased the demand for
C) decreased the supply of; increased the supply of
D) increased the supply of; decreased the supply of
13) 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
14) A perfectly competitive firm, a monopoly firm, or monopolistically competitive
firm is producing the profit-maximizing amount of output when it is producing
where its ____ curve intersects its ____ curve.
A) MC; MR
B) MC; ATC
C) MC; P
D) None of the above answers is correct because there is no general rule that applies to all
the three types of firms.
15) The government imposes a sales tax on purses. The amount of the tax paid by the
sellers increases when
A) purses are a normal good.
B) purses are an inferior good.
C) the demand for purses is inelastic.
D) purses are a complement to shoes.
E) the supply of purses is inelastic.
16) The concept of externalities means that subsidizing education can be justified on the
grounds that as a student becomes better educated, the student will
A) earn a higher income.
B) enhance the lives of people around the student.
C) make contributions to the students alma mater.
D) None of the above answers is correct.
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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 $35, and her average total
cost is $40. Jane
A) is maximizing her profit and is making an economic profit.
B) is not maximizing her profit but is making an economic profit anyway.
C) is maximizing her profit and is making a normal profit.
D) might be maximizing her profit and is incurring an economic loss.
E) maximizing her profit and is incurring an economic loss.
18) In perfect competition, barriers to entry
A) apply to both capital and labor.
B) apply to labor but not to capital.
C) apply to capital but not to labor.
D) do not exist.
19) Hauling merchandise from factories to warehouses is done by truck. This industry
is perfectly competitive and the trucks run on diesel fuel. In the short run, an
increase in the price of diesel fuel ____ the profit of a typical hauler and ____ the
market price of hauling the merchandise.
A) raises; raises
B) lowers; raises
C) lowers; does not change
D) lowers; lowers
E) does not change; does not change
20) If both firms in a duopoly cheat on a collusive agreement, the prices will ____ and
both firms are ____ off.
A) fall; better
B) rise; worse
C) fall; worse
D) rise; better
21) In monopolistic competition, the presence of a large number of firms making a
differentiated product means that
A) each firm can set the price of its particular product.
B) each firm must charge the same price.
C) the price is established by collusive behavior.
D) each firm must produce the same quantity.
22) The fact that firms in oligopoly are interdependent means that
A) there are barriers to entry.
B) one firms profits are affected by other firms actions.
C) they can produce either identical or differentiated goods.
D) there are too many of them for any one firm to influence price.
E) they definitely compete with each other so that the price is driven down to the monopoly
level.
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23) The number of coffee producers increases. At the same time, income increases and
coffee is a normal good. The equilibrium price of coffee will
A) rise.
B) fall.
C) remain the same.
D) rise, fall, or stay the same, depending on the relative size of the shifts in the demand and
supply curves.
Sears

Lower prices
Dont lower
prices


Lower
prices
S: $12 million
W: $18 million
S: $9 million
W: $6 million
Walmart Dont
lower
prices
S: $3 million
W: $0 million
S: $2 million
W: $19 million
24) 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 answer the question.
25) For a natural monopoly, until the average total cost curve crosses the demand
curve, as the quantity increases the average total cost
A) increases.
B) decreases.
C) decreases and then increases.
D) increases and then decreases.
26) Last October, due to an early frost, the average price for a pumpkin increased by
10 percent compared to the average pumpkin price in previous Halloween seasons.
As a result, the quantity demanded decreased from 2 million to 1.5 million. Based
on this statement, the
A) demand for pumpkins is elastic.
B) demand for pumpkins is inelastic.
C) demand for pumpkins is unit elastic.
D) demand curve for pumpkins shifted rightward.
27) Suppose that the equilibrium wage in the low-skilled labor market is $7.75. Further,
suppose the federal government raises the minimum wage to $8.00 an hour from its
present level of $7.50. The governments action of increasing the minimum wage
results in
A) a decrease in unemployment.
B) an increase in unemployment.
C) a shortage of low-skilled labor.
D) neither a shortage nor a surplus of labor in the low-skilled labor market.
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28) When a company produces 4 units, its total cost is $200 and when it produces 5
units its total cost is $220. The companys fixed cost when it produces 4 units is $50.
The marginal cost of the 5th unit is ____ and the total variable cost when 5 units are
produced is ____.
A) $220; $44
B) $50; $44
C) $20; $170
D) $20; unknown without more information
29) The Sherman Act
A) prohibits a firm with a large market share from lowering its price when its competitors
lower their prices.
B) prohibits a firm with a large market share from raising its higher price when its
competitors raise their prices.
C) makes price fixing by competitors per se illegal.
D) outlawed all types of resale price maintenance
E) prohibits all mergers between competing firms.

Sears

Lower prices
Dont lower
prices


Lower
prices
S: $5 million
W: $9 million
S: $6 million
W: $3 million
Walmart Dont
lower
prices
S: $10 million
W: $11 million
S: $20 million
W: $9 million
30) 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 answer the question.
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) If Polka Cola agrees to sell its cola to a retailer only if the retailer also buys Polka
Colas lemon-lime drink, Polka Up, then Polka Cola is engaged in
A) a tying arrangement.
B) a requirement contract.
C) an exclusive deal.
D) territorial confinement.
E) price discrimination.
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33) Why does the production possibilities frontier bow outward?
A) Unemployment is inevitable.
B) Resources are not equally productive in all activities.
C) Technology is slow to change.
D) Labor is scarcer than capital.

34) The figure above shows the market for pizza. Suppose the tomato sauce used to
produce pizza rises in price. Which figure shows the effect of this price hike in the
market for pizza?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
35) Remember that if you have a question about your test score, email the grader but if
you have a question about a question, email me. In the meanwhile,
A) The director is so fat that when he works at the theater, he works as the screen.
B) The director is so fat, he jumped up in the air and got stuck.
C) The director is so fat that when he gets in an elevator, it HAS to go down.