Use the following to answer questions 1-4:

	1.	Which of the output levels in the table allow the firm to earn the largest profit? 
	A)	200 units. 
	B)	80 units. 
	C)	40 units. 
	D)	160 units. 
	E)	120 units. 

	2.	Assume that the output price rises from $2 to $2.50. The profit maximizing level of output is _______ and the firm will earn a _________. 
	A)	200; profit of $128 
	B)	160; profit of $190 
	C)	160; profit of $140 
	D)	120; profits of $124 
	E)	200; profit of  $178 

	3.	Assume that the wage rate increases from $14 to $17.  The profit maximizing level of output is _______ and the firm will earn a _________. 
	A)	160; profit of $15 
	B)	120; profit of $39 
	C)	80; profit of $42 
	D)	80; loss of $36 
	E)	40; profit of $13 

	4.	Assume that the amount the firm pays for rent increases from $50 to $60. The profit maximizing level of output is _______ and the firm will earn a _________. 
	A)	120; profit of $44 
	B)	120; profit of $54 
	C)	80; profit of $10 
	D)	40; profit of $15 
	E)	80; loss of -$30 

	5.	Given the following demand curve, P = 62.5 -.167*Q, when P = $38 demand is classified as 
	A)	elastic. 
	B)	perfectly elastic. 
	C)	perfectly inelastic. 
	D)	unit elastic. 
	E)	inelastic. 

	6.	The income elasticity of demand for chicken noodle soup is found to be -0.7.  This means chicken noodle soup 
	A)	is a superior good. 
	B)	is an inferior good. 
	C)	has elastic demand. 
	D)	is a normal good. 
	E)	has inelastic demand. 

	7.	As discussed in the textbook, the chronic shortage of water in southern California is due to the 
	A)	lack of prohibition of lawn watering. 
	B)	extensive agricultural production. 
	C)	a greater than average taste for bathing. 
	D)	artificially low price of water. 
	E)	necessity of water. 

	8.	An imperfectly competitive firm is one that 
	A)	has some degree of influence over the price it charges for its output. 
	B)	finds it difficult to compete. 
	C)	charges any price it wishes. 
	D)	revenue maximizes. 
	E)	confronts a perfectly inelastic demand curve. 

	9.	The location of a firm will be a _________ factor of production in  ________ run. 
	A)	fixed; the long 
	B)	variable; the long 
	C)	fixed; both the short and long 
	D)	variable; the short 
	E)	variable; both the short and long 

	10.	The law of diminishing marginal returns 
	A)	is a short and long run concept. 
	B)	applies only to large firms. 
	C)	is a long run concept. 
	D)	is a short run concept. 
	E)	applies only to small and medium sized firms. 

	11.	For which of the demand elasticities is the sign (positive or negative) important in interpreting the meaning? 
	A)	Only the price elasticity of demand. 
	B)	Both the income elasticity of demand and the cross price elasticity of demand. 
	C)	All three elasticities  (price, income, and cross price). 
	D)	Both the price elasticity of demand and the income elasticity of demand. 
	E)	Only the cross price elasticity of demand. 

	12.	Which of the following policies maintains efficiency in the housing market while assisting the poor with their housing needs? 
	A)	A free market with subsidies to the poor. 
	B)	Subsidized moving expenses for the poor. 
	C)	A price floor. 
	D)	A price ceiling. 
	E)	A free market with subsidies to landlords. 

	13.	If a market is in equilibrium then 
	A)	the price is "too low." 
	B)	some mutually beneficial transactions between consumers and producers have not taken place. 
	C)	supply equals demand. 
	D)	all mutually beneficial transactions between consumers and producers have taken place. 
	E)	the price is "too high." 

	14.	During recessions, when workers lose their jobs and experience reduced incomes, sales of durable goods (goods with a life expectancy of 3 years or more) decline.  Apparently, durables are 
	A)	normal goods. 
	B)	complements. 
	C)	elastic. 
	D)	inferior goods. 
	E)	substitutes. 

	15.	The sum of the economic surpluses accruing to buyers and sellers is 
	A)	producer surplus. 
	B)	consumer surplus. 
	C)	conspicuous consumption. 
	D)	total economics surplus. 
	E)	deadweight loss. 

	16.	Which of the following is not guaranteed by the efficiency of the market equilibrium? 
	A)	Price represents the value of an extra unit of consumption. 
	B)	All mutually beneficial trades will have been made. 
	C)	Neither shortage nor surplus will exist. 
	D)	Price represents the cost of an extra unit of production. 
	E)	Rich and poor will have adequate access to the good. 

	17.	Compared to the first come, first served allocation scheme airlines used in the past, the voluntary comparison scheme now in place 
	A)	improves efficiency for all travelers. 
	B)	encourages passengers to show up early. 
	C)	tricks the poor into unnecessarily delaying their travel. 
	D)	discriminates against the poor. 
	E)	improves efficiency for only the wealth. 

	18.	Profit is the 
	A)	difference between total costs and total revenues. 
	B)	difference between total revenues and total explicit costs. 
	C)	difference between total revenues and total explicit and implicit costs. 
	D)	ratio of total revenues to total costs. 
	E)	goal of only large firms. 

	19.	As one moves down along a linear demand curve (i.e., from high price, low quantity pairs to low price, high quantity pairs), the price elasticity of demand becomes 
	A)	remains constant. 
	B)	more elastic. 
	C)	larger. 
	D)	more inelastic. 
	E)	negative. 

	20.	For most goods, as the number of units consumed increases, total utility ______, while marginal utility ______. 
	A)	decreases; decreases 
	B)	decreases; increases 
	C)	increases; decreases 
	D)	peaks; bottoms out 
	E)	increases; increases 

Answer Key -- 2nd Exam

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