Boyd Second Midterm Exam
Below are 25 questions. Please answer each question by filling in the appropriate space on your scantron sheet. 1. Price elasticity of demand is defined as a. the percentage change in price divided by the percentage change in quantity demanded b. the percentage change in quantity demanded divided by the percentage change in price c. the change in quantity demanded divided by the change in price d. the change in price divided by the change in quantity demanded e. the quantity demanded divided by the price 2. If the price of Pepsi-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then, according to the midpoint formula, the value of price elasticity of demand for Pepsi-Cola is a. -0.5 b. -0.25 c. -1 d. -3 e. -2
3. Use the information in Exhibit 0060 and the midpoint formula to calculate the value of price elasticity of demand for the good in question. a. -2/3 b. -1/3 c. -3/5 d. -5/3 e. 0 4. Demand is said to be inelastic only if a. price elasticity has an absolute value of 1 b. price elasticity has an absolute value greater than 1 c. price elasticity has an absolute value less than 1 d. price elasticity is negative e. consumers do not respond to a change in price 5. A perfectly elastic demand curve is a. a vertical straight line b. a horizontal straight line c. a downward-sloping straight line d. an upward-sloping straight line e. not a straight line
6. Demand in Exhibit 5-1 is a. unit elastic b. somewhat elastic c. perfectly elastic d. somewhat inelastic e. perfectly inelastic 7. Along a linear demand curve, as the price rises, demand becomes more a. steep b. elastic c. inelastic d. unit elastic e. variable 8. Suppose James is a heroin addict. His demand curve for heroin is likely to be a. nearly vertical b. horizontal c. elastic d. unit elastic e. upward sloping 9. If the income elasticity of demand for a service is 0.6, then a 5 percent increase in income will generate a __________ in quantity demanded a. 3 percent decrease b. 3 percent increase c. 8.33 percent decrease d. 8.33 percent increase e. 0.12 percent decrease 10. Inputs that can be increased or decreased in the short run are called a. fixed inputs b. variable inputs c. economic inputs d. accounting inputs e. normal inputs 11. The additional output obtained by adding another unit of labor to the production process is called a. the marginal cost of labor b. the average output of labor c. a variable cost
d. the marginal product of labor e. the marginal utility of labor
12. Given the information in Exhibit 0102, what is the marginal product of the third unit of labor? a. 45 pairs of shoes b. 25 pairs of shoes c. 15 pairs of shoes d. $45 e. $25 13. Given the information in Exhibit 0102, at what point do diminishing marginal returns set in? a. before the first unit of labor b. between the first and second units of labor c. between the second and third units of labor d. between the third and fourth units of labor e. between the fourth and fifth units of labor 14. What is true of marginal cost when marginal returns are decreasing? a. It is negative and increasing. b. It is negative and decreasing. c. It is positive and increasing. d. It is positive and decreasing. e. It is positive and has a constant slope. 15. Which of the following is true of the MC curve? a. It intersects the ATC curve at its minimum, but it does not intersect the AVC curve at its minimum. b. It intersects the AVC curve at its minimum, but it does not intersect the ATC curve at its minimum. c. It intersects both the ATC and the AVC curves at their minimums. d. It intersects both the ATC and the AFC curves at their minimums. e. It intersects both the AVC and the AFC curves at their minimums. 16. Doubling the circumference of an oil pipeline more than doubles the volume of oil that can be pumped through. This is an example of a. production inefficiency b. diminishing marginal returns c. diseconomies of scale d. constant returns to scale e. economies of scale 17. Which of the following is not necessarily a characteristic of perfect competition? a. low prices
b. a large number of buyers and sellers c. a homogeneous product d. perfect information e. easy entry and exit in the long run 18. Firms in perfect competition are price takers because a. all small firms must take the price set by the largest firm in the market b. firms take the price that government determines is a "fair" price c. each firm is small and goods are perfect substitutes for one another d. free entry and exit in the short run creates a constant market price in the long run e. high barriers to entry force firms to compete by charging lower prices than other firms in the industry
19. Which point in Exhibit 0121 indicates the quantity at which this firm will maximize profits? a. point a b. point b c. point c d. point d e. either point b or point d
20. Consider Exhibit 0135. If the market price is $21, this perfectly competitive firm will a. earn profits of $3 b. earn profits of $2
c. earn profits of $1 d. incur a loss of $10 e. break even 21. Consider Exhibit 0135. If the market price is $15, the minimum loss this perfectly competitive firm can earn is a. $10 b. $15 c. $18 d. $19 e. $22
22. In Exhibit 0129, the profit-maximizing output is a. $0 b. $w c. $x d. $y e. $z 23. In Exhibit 0129, total revenue at the profit-maximizing output level equals a. c x b. a z c. e z d. c y e. g w 24. In Exhibit 0129, total cost at the profit-maximizing output level is shown by area a. ejx0 b. giw0 c. mfz0 d. abz0 e. cdy0 25. Claude's Copper Clappers sells clappers for $40 each in a perfectly competitive market. At its present rate of output, Claude's marginal cost is $39, average variable cost is $45, and average total cost is $60. To improve his profit/loss situation, Claude should a. increase output
b. c. d. e.
reduce output but not to zero maintain the present rate of output shut down raise the price
Boyd Second Midterm Exam Answer Section
MULTIPLE CHOICE 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: ANS: B D D C B E B A B B D B C C C E A C C A A A B C D