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ECO 101 830 Principles of Microeconomics Exam 2 March 31, 2006 Form A

Part I: Multiple Choice (60 points)
Read each question carefully and select the best response. Circle the appropriate letter of the response and fill in the corresponding circle on your answer sheet.

1. Which of the following is an explicit cost?
a) The wages a firm pays to itsworkers.
b) The opportunity cost of an owner/entrepreneur's time invested in the firm.
c) The opportunity cost of the money the business owner/entrepreneur has invested in the firm.
d) None of the above.

2. When parents’ own objectives include the best interests of their children, this is an example of
a) full rationality.
b) bounded rationality.
c) self-regardingpreferences.
d) other-regarding preferences.

3. When the consumption of a good has external benefits (positive externalities), then
a) its provision requires a natural monopoly.
b) the market will not provide enough of the good (relative to the optimal quantity).
c) it is a public good and should be provided by the government.
d) the market will provide too much of thegood (relative to the optimal quantity).

4. I pay only $5 for a large cheese pizza at Little Caesar’s even though I am willing to pay $10. My consumer surplus is
a) $50
b) $15
c) $7.50
d) $5

5. For a perfectly competitive firm, marginal revenue (MR)
a) is constant, given that the firm is a price taker.
b) is less than price, given that selling additional unitspulls down the price of all units.
c) is greater than price since the firms demand is perfectly elastic.
d) is u-shaped due to the law of diminishing marginal returns.

Use the table below to answer the following TWO questions.

|Units of labor |Total product |
|1 |10 |
|2 |20 |
|3 |27 |
|4|25 |

6. According to the table above, the average product (AP) of 3 units of labor is
a) 7
b) 9
c) 10
d) 27

7. According to the table above, the marginal product (MP) of 3rd unit of labor is
a) 7
b) 9
c) 10
d) 27

8. Assume that the total utilities for the 7th and 8th units of a good consumed are 55 and 67, respectively. Themarginal utility (MU) for the 8th unit is
a) 122
b) 67
c) 61
d) 12

9. Suppose the first four units of an output produced have total costs of 50, 150, 300, 500, respectively. The marginal cost (MC) of the SECOND unit of output is
a) 200.
b) 150.
c) 100.
d) 75.

10. In the short run, a perfectly competitive firm will produce even with an economic loss, aslong as
a) marginal revenue equals marginal cost. (MR=MC)
b) price is less than average total cost. (P < ATC)
c) price is greater than average variable cost. (P > AVC)
d) price is greater than marginal revenue. (P > MR)

11. With diminishing marginal utility,
a) as more and more units of a good or service are consumed, total utility becomes smaller and smaller.
b)as more and more units of a good or service are consumed, marginal utility becomes smaller and smaller.
c) the marginal utility curve is always upward sloping.
d) marginal utility is constant.

12. Which of the following correctly explains why sellers in a perfectly competitive market are price-takers?
a) There are few sellers, and so they have the power to take whatever price theywant.
b) Sellers in a competitive market have the power to influence price by colluding with one another and using quotas to limit overall market output and thus raise price.
c) Individual buyers in a competitive market have the power to influence price, and thus can impose prices and other conditions on powerless sellers.
d) There are many small sellers, and so the market...