Temple University
Department of Economics

Economics 52
Principles of Microeconomics

2nd Exam

Name_______________________________

Directions: You have 1 hour and 20 minutes to complete this exam. This is a closed book exam. You must complete all of the questions.  The work must be your own: You may neither give nor receive help.  

Problem (15 points)

Jim and Celia have decided to go to the movies, dutch treat.  They purchase their tickets simultaneously at separate ticket windows.  Their ‘payoffs’ from the trip to the movies are known to both of them.  The payoffs are shown in the following table:

	Jim	
	Das Auto	Rambo X	
Celia	Das Auto	20 (C), 20 (J)	70 (C), 5 (J)	
	Rambo X	5 (C), 70 (J)	50(C), 50 (J)	

a. Would Jim prefer to see a movie with Celia or by himself?

b. Does Celia have a dominant strategy?  If so, what is it?

c. What ticket will Jim purchase?

d. What movie will Jim and Celia watch?

e. Do you feel that there is something wrong with the solution to this game?  If so, what is it?

Essay (10 Points)

What is it about monopolies that we do not like?

	1.	If the elasticity of demand for the latest Korn CD is -1.4, this means 
	A)	a 10% decrease in the price leads to a 140% increase in quantity demanded. 
	B)	a 1% increase in the price leads to a 14% reduction in quantity demanded. 
	C)	a 5% increase in the price leads to a 7% increase in quantity demanded. 
	D)	a 5% increase in the price leads to a 7% decrease in quantity demanded. 
	E)	few substitutes exist. 

Use the following to answer questions 2-5:
Figure 9.2

	2.	The deadweight loss resulting from monopoly is represented by the area 
	A)	GCEL. 
	B)	KEI. 
	C)	KLI. 
	D)	BGLK. 
	E)	LEI. 

	3.	The distance representing the profit maximizing level of output to the monopolist is 
	A)	0B. 
	B)	0C. 
	C)	GI. 
	D)	0A. 
	E)	0H. 

	4.	At the point of monopoly profit maximization, consumer surplus is represented by the area 
	A)	BCEK. 
	B)	CJE. 
	C)	BJEK. 
	D)	GCEI. 
	E)	GJI. 

	5.	At the profit maximizing level of output, the monopolist collects total revenues equal to the area 
	A)	0A. 
	B)	0BKA. 
	C)	0CEA. 
	D)	0C. 
	E)	0GIH. 

Use the following to answer question 6:

Figure 7.2

	6.	Based on demand curve D and supply curve S, the dollar value of the consumer surplus is 
	A)	$120. 
	B)	$180. 
	C)	$240. 
	D)	$160. 
	E)	$200. 

	7.	If an individual consumer is willing to pay $11 for one unit of a good but finds he can purchase it for $7, he has a consumer surplus of 
	A)	$4. 
	B)	$18. 
	C)	$11. 
	D)	$2. 
	E)	$7. 

	8.	The concept of efficiency is illustrated by which of the following statements? 
	A)	The production of the good generates very few by products. 
	B)	At equilibrium, no mutually beneficial transactions remain. 
	C)	The production of the good generates very little pollution. 
	D)	At disequilibrium, no mutually beneficial transactions have occurred. 
	E)	The consumption of the good produces very little waste. 

	9.	The price elasticity of demand is a numerical measure of 
	A)	the importance of a good to consumers. 
	B)	consumer sensitivity to income changes. 
	C)	the brand loyalty of consumers. 
	D)	consumer sensitivity to price changes. 
	E)	the necessity of a good to consumers. 

	10.	The nature of the social loss from monopoly is that 
	A)	the marginal benefit of the last unit the monopolist produces is greater than the marginal cost. 
	B)	the marginal costs of the last unit the monopolist produces is greater than the marginal benefit. 
	C)	the monopolist earns huge profits at the expense of the consumer, who has few alternatives. 
	D)	the monopolist produces too much output. 
	E)	through the use of his market power, the monopolist can force consumers to pay higher prices. 

	11.	The fewer the number of alternative factors of production that can be used to produce a good, the ________  will be. 
	A)	less inelastic supply 
	B)	less elastic supply 
	C)	more elastic demand 
	D)	more elastic supply 
	E)	less elastic demand 

	12.	A game consists of 
	A)	the players and the payoffs to each strategy. 
	B)	the payoffs to each strategy. 
	C)	the players and the possible strategies. 
	D)	the possible strategies and the payoffs to each strategy. 
	E)	the players, the possible strategies, and the payoffs to each strategy. 

Use the following to answer question 13:

	13.	If the output price for this good is 25 cents, the firm should produce 
	A)	less than 135 units. 
	B)	more than 225 units. 
	C)	more than 90 units but less than 135 units. 
	D)	less than 45 units. 
	E)	more than 45 units but less than 90 units. 

	14.	Cheating by firms that belong to a cartel is an example of 
	A)	need for stronger antitrust legislation. 
	B)	perfect competition. 
	C)	profit maximization. 
	D)	the smart for all, dumb for one principle. 
	E)	the prisoner's dilemma. 

	15.	If the firm experiences an increase in the cost of a fixed factor of production it will 
	A)	raise its price 
	B)	leave its output decision unchanged. 
	C)	increase output. 
	D)	decrease output. 
	E)	lower its price. 

	16.	In regulated markets, the invisible hand 
	A)	becomes truly invisible. 
	B)	serves to allocate resources on the basis of price as in unregulated markets. 
	C)	may or may not influence the market outcome. 
	D)	will guide resources on some basis other than the price that is regulated. 
	E)	is irrelevant. 

	17.	Suppose all firms in a perfectly competitive industry are experiencing economic losses to varying degrees.  One can predict that 
	A)	the number of firms remain the same. 
	B)	market supply will decrease. 
	C)	market supply will increases. 
	D)	market demand will decrease. 
	E)	market price will fall. 

	18.	The shutdown condition for a firm is where 
	A)	profits are negative. 
	B)	total revenues are less than the total cost of fixed and variable factors of production. 
	C)	total revenues are less than the cost of variable factors of production. 
	D)	profits are zero. 
	E)	total revenues are less than the cost of fixed factors of production. 

	19.	The profit maximizing rule MR=MC applies to 
	A)	monopolistic competitors only. 
	B)	monopolists only. 
	C)	all firms. 
	D)	both pure monopolists and perfect competitors. 
	E)	perfect competitors only. 

	20.	A tax of $1 on each unit a producer sells will 
	A)	decrease quantity supplied. 
	B)	shift supply to the right. 
	C)	increase quantity supplied. 
	D)	decrease demand. 
	E)	shift supply to the left. 

	21.	Producer surplus is the 
	A)	difference between the suggested retail price and the actual cost. 
	B)	value of the markup of price. 
	C)	cumulative difference between the price producers receive and price they require in order to produce. 
	D)	value of extra sales generated by loss leaders. 
	E)	difference between the brand name price and the generic brand price. 

	22.	Economic profits are 
	A)	only important to economists. 
	B)	equal to total revenue minus the sum of fixed and variable costs. 
	C)	the same as accounting profits. 
	D)	greater than accounting profits. 
	E)	equal to total revenue minus both explicit and implicit costs. 

	23.	Michael Jordan's economic rent from playing basketball in the NBA was equal to the difference between his 
	A)	final salary and the Chicago Bulls' initial offer. 
	B)	initial offer and the Chicago Bulls' initial offer. 
	C)	final salary and the average for guards in the NBA. 
	D)	final salary and the least he would be willing to accept to play in the NBA. 
	E)	initial offer and his final salary. 

Use the following to answer question 24:

Figure 7.5

	24.	A first come, first served pricing policy for parking at What'sAMatterU, i.e., free parking, results in 
	A)	a need to build more parking. 
	B)	all students having access to parking spaces. 
	C)	quantity supplied exceeding quantity demanded. 
	D)	an efficient market outcome. 
	E)	inefficiency because quantity demanded exceeds quantity supplied. 

	25.	Goods with few substitutes 
	A)	are usually expensive. 
	B)	have relatively inelastic demand. 
	C)	have relatively elastic demand. 
	D)	are classified as necessities. 
	E)	have, in absolute value, large price elasticities. 

Answer Key

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