Temple University
Department of Economics
Economics 52
Principles of Microeconomics
Fall 2005

Name _________________________________________

Directions: You have 50 minutes to complete this exam.  You must do all questions.  You may NOT use your cell phone as a calculator.  This is a closed book exam.  Your answers must be your own work; you may neither give nor receive help.

	1.	Suppose the firm knows that it is not going to shutdown but it is going to earn a loss.  It should pick the output level where 
	A)	price is greater than marginal costs. 
	B)	the costs of the variable factors of production are minimized. 
	C)	price equals marginal costs. 
	D)	total revenues are maximized. 
	E)	total costs are minimized. 

	2.	The primary objective of all private firms is to 
	A)	input minimize. 
	B)	revenue maximize. 
	C)	cost minimize. 
	D)	output maximize. 
	E)	profit maximize. 

Use the following to answer question 3:

	3.	If rent increases from $75 to $100, the marginal cost of increasing output from 135 units to 180 units 
	A)	rises to 94 cents. 
	B)	remains constant at 62 cents. 
	C)	rises to $1.03. 
	D)	remains constant at 67 cents. 
	E)	rises to 81 cents. 
Use the following to answer question 4:

	4.	The firm earns a ___________ of __________ when it produces 120 units of output. 
	A)	profit; $54 
	B)	loss; -$64 
	C)	profit; $64 
	D)	profit; $114 
	E)	loss; -$114 

	5.	The more inelastic demand is, the ______ the burden of the tax borne by ______. 
	A)	larger; consumers 
	B)	larger; consumers and producers 
	C)	larger; producers 
	D)	smaller; consumers and producers 
	E)	smaller; consumers 

Use the following to answer questions 6-7:

	6.	The total dollar value of the burden of the tax on consumers is equal to 
	A)	½*(IH)*HC). 
	B)	(EA)*(AH). 
	C)	½*(ME)*(EI). 
	D)	(EA)*(AH)+ ½ *(ME)*(EI). 
	E)	½*(EA)*(AH). 
	7.	The burden of the tax to consumers is measured by the distance 
	A)	0E. 
	B)	0A. 
	C)	EA. 
	D)	AG. 
	E)	HJ. 

Use the following to answer question 8:

	8.	Under the What'sAMatterU administration's first come, first served policy, instead of price determining who gets a parking space, ______ determines who gets a space. 
	A)	income 
	B)	car size 
	C)	subject matter 
	D)	SAT score 
	E)	willingness to get to campus early. 

	9.	Publicly held corporations commonly 
	A)	are worth less than privately held corporations. 
	B)	ignore the interests of stockholders. 
	C)	distribute all their accounting profits to stockholders. 
	D)	try to buy up all outstanding shares of stock. 
	E)	reinvest current accounting profits to enlarge future accounting profits. 

	10.	Economic rent is 
	A)	the amount you pay for an apartment in a free market. 
	B)	what a landlord receives from his tenants. 
	C)	the difference between the payment made to the supplier of an input and the supplier's reservation price. 
	D)	the same as the input supplier's reservation price. 
	E)	the payment made to suppliers of an input. 

Use the following to answer question 11:

Suppose the city of Austin, TX chooses to regulate the number of street vendors operating on "the Drag," near the University of Texas.  Prior to regulation, the costs (including implicit costs) of operating was $85,000 and revenues were $150,000.  The city ordinance allows the permits to be bought and sold without restriction and permits were issued to all current vendors.  The interest rate is 10 percent. 

	11.	Suppose the interest rate rises from 10% to 12%.  The price of a permit is now 
	A)	$65,000. 
	B)	$78,000. 
	C)	$650,000. 
	D)	$541,666. 
	E)	$722,222. 

	12.	When total revenues are less than the sum of explicit and implicit costs, 
	A)	normal profits are zero. 
	B)	accounting profits are positive. 
	C)	accounting profits are negative. 
	D)	economic profits are negative but normal profits are positive. 
	E)	the firm is experiencing an economic loss. 

	13.	Given the total cost function, TC=120+12*Q, the average cost function is 
	A)	120*Q +12*Q2. 
	B)	132. 
	C)	120*Q +12. 
	D)	120/Q +12. 
	E)	12*Q +12/Q. 

	14.	An industry that features a few firms which produce close substitutes is termed 
	A)	oligopoly. 
	B)	pure monopoly. 
	C)	competitive monopoly. 
	D)	imperfect monopoly. 
	E)	monopolistic competition. 

	15.	If a firm collects $100 in revenues when it sells 5 units and $120 when it sells 6 units, one can infer the firm is 
	A)	a perfect competitor. 
	B)	probably a monopolist. 
	C)	either a perfect competitor or a monopolist. 
	D)	a monopolist. 
	E)	a oligopolist. 

	16.	If the monopolist's demand curve is P=90-3*Q, then the price at which marginal revenues are zero is 
	A)	$30. 
	B)	$3. 
	C)	$45. 
	D)	$15. 
	E)	$90. 

Essay  (18 points)  In your answer to this question you will be graded not only on content, but also spelling, grammar, syntax and style.  A price floor is imposed on the market for gopher wood in Ararat.  Evaluate this policy.  In your answer consider the following questions:  What will happen to consumer surplus as a result of the price floor?  Are all of the same consumers still consuming gopher wood after the imposition of the price floor?  Do consumers feel universally better off? Do any consumers feel better off? After the imposition of the price floor are there any consumers for whom their marginal utility of gopher wood has increased?  Do any producers feel better off as a result of the imposition of the price floor?  Be brief!

Problem (50 points)

The market for runcible spoons is characterized by the following equations:

Q = -100 + 10P    __________________

Q = 200 – 5P    _________________

a.  On the lines to the right of the two equations indicate which is the demand curve and which is the supply curve.

b. What are the equilibrium price and quantity in the market for runcible spoons?  Show your work, but put your answers on the appropriate lines.

P (price) =  __________________________  Q (quantity) = _________________________

c.  In the space below draw a graph showing the supply curve and the demand curve for runcible spoons.  Be sure to label the axes, show the numerical values of the intercepts, and the equilibrium price and quantity.

d. What is the definition of consumer surplus?

e. What is the amount of consumer surplus in the market for runcible spoons?  Put your answer on the indicated line, but also show your work.    

Consumer Surplus = ____________________________

f. What is the definition of producer surplus?

g.  What is the amount of producer surplus in the market for runcible spoons? Show your work, but also put your answer on the indicated line.

Producer Surplus = ____________________________

h. What is the total value of economic surplus? (Your book characterized this as the size of the pie.) Put your answer on the line.

Economic Surplus = ___________________________

It is highly recommended that you draw another picture to aid in answering the following questions. You will find it to add new information to the picture as you proceed through the questions.

i.  A price ceiling of P = 15 is imposed on the market for runcible spoons.  What will be the quantity demanded under the price ceiling?

Quantity demanded = ____________________

j. With a price ceiling of P = 15 what will be the quantity supplied?

Quantity supplied = ____________________

k. At the quantity supplied with the price ceiling of P = 15, what is the price that the marginal customer would pay for a runcible spoon?  Put another way, what is the reservation price for the ‘last’ customer purchasing a runcible spoon? 

Reservation price = _____________________
l. What is the amount of producer surplus when there is a price ceiling of P = 15?

Producer Surplus = _____________________

m. Has producer surplus increased or decreased?  By how much?

Circle one:  increased     decreased

Amount of change = _______________________

n. What is the amount of consumer surplus when there is a price ceiling of P = 15?

Consumer Surplus = ____________________

o. Has consumer surplus increased or decreased? By how much?

Circle one:   increased       decreased 

Amount of change = ____________________

p.  What is the amount of total economic surplus when there is a price ceiling of P = 15?

Economic Surplus = ____________________

q. Has total economic surplus increased or decreased? By how much?

Circle one:   increased      decreased

Amount of change = ___________________

r.  What is the amount of deadweight loss, if any?

Deadweight loss = _____________________

s.  For any consumer has the size of their ‘slice of the pie’ increased as a result of the imposition of the price ceiling? Explain.  (You may draw a picture to aid in your explanation.)

t. For any producer has the size of their ‘slice of the pie’ increased as a result of the imposition of the price ceiling? Explain. (You may draw a picture to aid in your explanation.)

Answer Key

	1.	C	
	2.	E	
	3.	B	
	4.	C	
	5.	A	
	6.	B	
	7.	C	
	8.	E	
	9.	E	
	10.	C	
	11.	D	
	12.	E	
	13.	D	
	14.	A	
	15.	A	
	16.	C