Professor: M.

Rush
ECO 2023
SUMMER A 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 A 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 A 201 2
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1) There currently are proposals for the U.S. government to impose large tariffs on
tires imported from China. If the government imposes these tariffs, the price of a
tire in the United States will ____, the consumer surplus from tires in the United
States will ____, and the quantity of tires produced in the United States will ____.
A) rise; increase; increase
B) rise; decrease; increase
C) not change; not change; increase
D) not change; decrease; increase
E) rise; decrease; decrease
2) (This is an out-of-the-book question.) Economies of scale are cost reductions
achieved by
A) the production of multiple, related products.
B) the production of large amounts of a single product.
C) minimizing employment.
D) maximizing employment.
3) The market demand for wheat is ____ and the demand for wheat produced by an
individual farm is ____.
A) perfectly elastic; perfectly inelastic
B) not perfectly elastic; perfectly elastic
C) not perfectly inelastic; inelastic
D) elastic; unit elastic
E) None of the above answers is correct
4) In a budget line/indifference curve diagram, a fall in the price of the good
measured on the vertical axis causes the budget line to
A) rotate outward and become flatter.
B) rotate outward and become steeper.
C) rotate inward and become flatter.
D) make a parallel outward shift.
E) None of the above answers are correct because the change in the price creates a
movement along the budget line but does not shift or rotate it.
5) Suppose the price of coffee is $3, the price of a bagel is $2 and a persons budget is
$40. The budget lines equation is
A) $2/Q
bagel
+ $3/Q
coffee
= $40.
B) $2(Q
bagel
) + $3(Q
coffee
) = $40.
C) Q
bagel
/$2 + Q
coffee
/$3 = $40.
D) Q
bagel
+ Q
coffee
= $40/($3 + $2).
ECO 2023 MIDTERM 2 SUMMER A 201 2
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Quantity of
soda
Marginal
utility from
soda
Quantity of
pizza
Marginal
utility from
pizza
1 150 1 200
2 120 2 180
3 100 3 150
4 90 4 120
5 60 5 100
6 40 6 60
6) 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) 6 sodas and 1 pizza
B) 4 sodas and 2 pizzas
C) 2 sodas and 3 pizzas
D) 5 sodas and 4 pizzas
7) Denise owns a plant that produces watch parts in Ohio. Denise noticed that when
she hired the last worker, that workers marginal product exceeded the marginal
product of the previous worker. As a result, when the last worker was hired,
Denises average product of labor
A) decreased.
B) increased.
C) did not change.
D) perhaps changed, but there is not enough information to determine whether or
not it did change.
8) For a perfectly competitive firm, no matter how much the firm produces, price
ALWAYS equals
A) marginal product.
B) average total cost.
C) minimum average total cost.
D) marginal revenue.
E) None of the above answers is correct because there is nothing that price ALWAYS
equals
9) If the government increases the tax on rutabagas, then the price consumers pay ____
and the deadweight loss ____.
A) rises; decreases
B) does not change; increases
C) rises; does not change
D) rises; increases
E) None of the above are correct.
ECO 2023 MIDTERM 2 SUMMER A 201 2
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10) In the above figure, the firm will produce
A) 0 units.
B) 5 units.
C) 15 units
D) 20 units.
11) The marginal utility from the consumption of a good is equal to the
A) total utility divided by the quantity consumed.
B) total utility divided by the price.
C) change in total utility divided by the change in the quantity consumed.
D) change in total utility divided by the change in price.
12) A perfectly competitive firm is producing 50 units of output and selling at the
market price of $23. The firms average total cost is $20. What is the firms economic
profit?
A) $23
B) $150
C) $1,000
D) $1,150
E) None of the above answers are correct.
13) (This is an out-of-the-book question from Chapter 10.) In the principal-agent
relationship between a college football coach and the players, the coach is
A) an agent, as are the players.
B) an agent and the players are principals.
C) a principal and the players are agents.
D) a principal, as are the players.
ECO 2023 MIDTERM 2 SUMMER A 201 2
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14) A firms average total cost is $80, its average variable cost is $50, and its marginal
cost is $60. If the firm increases its output, then its average variable cost
A) increases.
B) does not change.
C) decreases.
D) might increase, decrease or not change but what it does cannot be determined
without more information.

Technique
Capital
(units)
Labor
(units)
W 5 6
X 7 2
Y 5 5
Z 9 1
15) (This is an out-of-the-book question from Chapter 10.) The table above shows
techniques that can be used to produce 100 shirts. If the price of an hour of labor is
$6 and the price of a unit of capital is $10, then the economically efficient technique
is
A) W
B) X
C) Y
D) Z
E) Both W and Y
16) Imported goods ____ the nations total surplus and exported goods ____ the
nations total surplus.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) decrease; do not change
17) In an indifference curve/budget line diagram, when the price of a good increases,
the
A) consumer purchases less of the good and moves to a lower indifference curve.
B) consumer purchases less of the good and moves to a higher indifference curve.
C) consumer purchases more of the good and moves to a higher indifference curve.
D) consumer purchases more of the good and moves to a lower indifference curve.
ECO 2023 MIDTERM 2 SUMMER A 201 2
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18) You are at your consumer equilibrium. The marginal utility from hot dogs exceeds
the marginal utility from hamburgers. Thus
A) 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.
B) the price of a hot dog must be greater than the price of a hamburger.
C) the number of hot dogs you are eating must be less than the number of
hamburgers you are eating.
D) Answer A is incorrect but answers B and C are both correct.
E) Answers A, B, and C are all correct.
19) In the short run, a perfectly competitive firm
A) cannot shut down.
B) must earn a normal profit.
C) can earn an economic profit, incur an economic loss, or earn a normal profit.
D) will not incur an economic loss if it shuts down.
E Both answers C and D are correct.
20) Because of an increase in the wage rate it must pay, a perfectly competitive firms
marginal costs increase but its demand 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
21) Changes in prices and/or income shift or rotate ____ and changes in preferences
shift or rotate ____.
A) only the budget line; the budget line and the indifference curves
B) the budget line and the indifference curves; only the budget line
C) the budget line and the indifference curves; the budget line and the indifference
curves
D) the budget line and the indifference curves; only the indifference curves
E) only the budget line; only the indifference curves
22) Erikas utility with $2,000 of wealth is 5,000 and her utility with $2,001 of wealth is
5,005. Her marginal utility from gaining the additional $1 of wealth is ____.
A) 5,005
B) 5,000$2,000
C) 5,000
D) 5
E) 5,005$2,001
ECO 2023 MIDTERM 2 SUMMER A 201 2
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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) JCPenney guarantees to refund a customers money if the customer returns poorly
made clothing. This guarantee on clothing is an example of
A) the adverse selection problem.
B) the moral hazard problem.
C) the cost of risk.
D) the principal/agent problem.
E) a signal.
Output
(frijoles)
Total cost (dollars)
0 1,000
1,000 3,000
3,000 5,000
4,000 7,000
25) The above table gives some cost information for Flaming Fernandos, a restaurant
that sells Fiery Frijoles. What is the average total cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) More information is needed to determine the answer.
26) The above table gives some cost information for Flaming Fernandos, a restaurant
that sells Fiery Frijoles. What is the average fixed cost of producing 1,000 frijoles?
A) $1
B) $2
C) $3
D) More information is needed to determine the answer.
27) (This is an out-of-the-book question from Chapter 20.) Private information
A) creates moral hazard but eliminates adverse selection.
B) creates adverse selection but eliminates moral hazard.
C) creates both moral hazard and adverse selection.
D) eliminates both moral hazard and adverse selection.
ECO 2023 MIDTERM 2 SUMMER A 201 2
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28) Which of the following would cause Leonardos ATC curve to shift upward?
A) An increase in the hourly wage that Leonardos pays its workers.
B) A decrease in the hourly wage that Leonardos pays its workers.
C) An increase in the fixed amount of liability insurance premiums that Leonardos
pays.
D) Both answers A and C are correct.
E) None of the above answers are correct.
Jeffersons Cleaners
Labor (workers) Total product
(suits cleaned per day)
0 0
1 12
2 26
3 46
4 60
5 73
6 84
7 94
29) Based on the above table, what is the marginal product of the 5th worker hired at
Jeffersons Cleaners?
A) 15 suits per day.
B) 14.6 suits per day.
C) 13 suits per day.
D) 73 suits per day.
30) The major disadvantage of the corporate form of business organization is its
A) limited liability for its owners.
B) unlimited liability for its owners.
C) ability to be run by professional managers.
D) tax liability (its profits are taxed twice).
ECO 2023 MIDTERM 2 SUMMER A 201 2
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31) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copys
average total cost and marginal cost curves. If the price is 4 per page, then to
maximize its profit Fast Copy will sell ____ pages per hour.
A) 0
B) 32
C) 48
D) 64
E) More information is needed to determine how many pages Fast Copy will sell.
32) Fast Copy is a perfectly competitive firm. The figure above shows Fast Copys
average total cost and marginal cost curves. If the price is 4 per page, then Fast
Copy is
A) incurring an economic loss.
B) making a zero economic profit, that is, its owners are making a normal profit.
C) making an economic profit.
D) More information is needed to determine how the profit or loss Fast Copy is
making.
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 when he steps
on the scales it says
A) one at a time, please.
B) to be continued.
C) we dont do livestock.