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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 its workers. 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-regarding preferences. 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 the good (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 units pulls 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