Temple University
Department of Economics

Economics 52
Principles of Microeconomics
2nd Exam

Name: __________________________  Date: _____________

Directions:  You have 1.5 hours to complete this exam.  This is a closed book exam.  You must do all questions.  The work must be your own; you may neither give nor receive help.  Point values are shown.

Multiple Choice (40 points)

1.	The city of Metropolis is concerned that the incomes of families with head of household with an hourly wage job, are too low and fluctuate wildly.  Two proposals are suggested: a price floor on apartments and an income subsidy to families with head of household with an hourly wage job.  By the criteria of ______, Congress should pass______. 	
A)	equity; income subsidies 	
B)	efficiency; a price floor 	
C)	efficiency; neither 	
D)	equity; a price floor 	
E)	efficiency; income subsidies 	

2.	Perfect competition is efficient and monopoly is not because in perfect competition __________ while in monopoly __________. 	
A)	P=MR; P=MC 	
B)	P=MC; P<MC 	
C)	P<MR; P=MR 	
D)	P=MC; P>MC 	
E)	P=MR; P<MR 	

	

3.	Assuming the monopolist does not price discriminate, he will produce __________ units and charge a price of __________. 	
A)	6; $2 	
B)	4; $5 	
C)	2; $14 	
D)	1; $17 	
E)	3; $11 	

4.	At the point of profit maximization, a perfectly price discriminating monopolist would earn a profit of 	
A)	$41. 	
B)	$44. 	
C)	$67. 	
D)	$26. 	
E)	$35. 	

5.	Suppose the government sets the price for water and the market for water is always experiencing shortages. One can infer that the 	
A)	government has established a price floor for water. 	
B)	government has established a price ceiling for water. 	
C)	demand for water exceeds the supply of water. 	
D)	quantity of water supplied exceeds the quantity of water demanded. 	
E)	government is trying to protect the incomes of water supplier. 	

6.	Payments to an input above the supplier's reservation price is termed 	
A)	implicit rent. 	
B)	accounting rent. 	
C)	input surplus. 	
D)	economic profit. 	
E)	economic rent. 	

	
Debby used to work for an Accounting firm where she got a yearly salary of $35,000. She got tired of working for other firms and started her own consulting business. She pays her secretary $12,000/year and spends $24,000/year for rent and utilities. She earns $ 80,000 in total annual revenue. 

7.	Debby's economic profit is 	
A)	$44,000 	
B)	$3,000 	
C)	$9,000 	
D)	$56,000 	
E)	$35,000 	

8.	The price equals marginal cost rule for profit maximization is a specific example of which of the following core principles? 	
A)	Comparative advantage. 	
B)	Efficiency. 	
C)	Cost-benefit. 	
D)	Scarcity. 	
E)	Equilibrium. 	

9.	Suppose the market for coffee is in equilibrium at a price of $5 per pound.  This means 	
A)	all consumers who want to buy coffee are satisfied. 	
B)	all producers who want to sell coffee are pleased. 	
C)	all remaining consumers value a pound of coffee at less than $5. 	
D)	many trades between consumers and producers remain. 	
E)	all remaining producers require less than $5 to produce coffee. 	

10.	The statement, “ price distributes goods and services to those that value them the most” refers to the ______ function of price. 	
A)	multiplicative 	
B)	store of value 	
C)	nominal 	
D)	allocative 	
E)	rationing 	

11.	Suppose, a firm has $1500 in variable costs and $500 in fixed costs when it produces 500 units of output and sells it for $50 per unit. If the price of the product drops to $4 each, should this firm continue operation during the short run? 	
A)	No, because P<TC 	
B)	Yes, because P>AVC 	
C)	Yes, because P>ATC 	
D)	No, because P< ATC 	
E)	No, because P< AVC 	

	

12.	In the diagram, producer surplus is represented by the points 	
A)	BCF. 	
B)	0AFE. 	
C)	AFC. 	
D)	BAF. 	
E)	0CFE. 	

13.	Suppose a market is in equilibrium.  The area between the demand curve and the market price is 	
A)	the deadweight loss. 	
B)	consumer surplus. 	
C)	the degree of overconsumption. 	
D)	producers surplus. 	
E)	the total economic surplus. 	

14.	When a consumer must take some sort of additional action to receive a lower price, the consumer is being subjected to 	
A)	perfect price discrimination. 	
B)	the rebate and wait method of price discrimination. 	
C)	the long jump method of price discrimination. 	
D)	the hurdle method of price discrimination. 	
E)	the what-a-hassle method of price discrimination. 	

15.	In general, if the price of a fixed factor of production increases, 	
A)	the profit maximizing level of output falls. 	
B)	marginal costs increase. 	
C)	price rises. 	
D)	total costs are unchanged. 	
E)	marginal costs are unchanged. 	

16.	If the firm spends $200 to produce 17 units of output and spends $455 to produce 34 units, then the marginal cost of increasing production from 17 to 34 units is 	
A)	$7.50. 	
B)	impossible to calculate due to a lack of information. 	
C)	$11.76. 	
D)	$15. 	
E)	$13.38. 	

17.	In general, if the price of a variable factor of production increases, 	
A)	marginal costs fall. 	
B)	price rises. 	
C)	marginal costs rise. 	
D)	total costs fall. 	
E)	the profit maximizing level of output rises. 	

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

19.	Price setters face 	
A)	perfectly inelastic demand. 	
B)	less than perfectly elastic demand. 	
C)	a market determined price. 	
D)	more than perfectly elastic demand. 	
E)	perfectly elastic demand. 	

20.	The statement, “ price directs resources across different sectors of the economy” refers to the ______ function of price. 	
A)	store of value 	
B)	transitivity 	
C)	associative 	
D)	rationing 	
E)	allocative 	

Problem (40 points)

Suppose that the Ambler Cinema is a local monopoly whose demand curve for adult tickets on Saturday night is P = 12 – 2Q, where P is the price of a ticket and Q is the number of tickets sold in hundreds.  The demand for children’s tickets on Sunday afternoon is P = 8 – 3Q, and for adult tickets on Sunday afternoon P = 10 – 4Q. On both Saturday night and Sunday afternoon the marginal cost of an additional patron, child or adult, is $2.

a.	What is the marginal revenue curve for the adult Saturday night market?

b.	What is the marginal revenue curve for the children Sunday afternoon market?

c.	What is the marginal revenue curve for the adult Sunday afternoon market?

d.	What price should the Ambler Cinema set for the Saturday adult market and what number of tickets will be sold?

e.	If management of Ambler Cinema is able to practice price discrimination between adults and children, what prices should they charge the two groups on Sunday?

f.	Suppose that Ambler Cinema is NOT able to practice price discrimination on Sunday.  What price should they charge, and how many tickets will be purchased by each group? 

Essay (20 points)

What is it about monopoly that we, as economists, do not like?  Brevity, clarity, and precision in your answer are virtues.      

Answer Key

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