Econ 315 Midterm 2 -The causal view of the industry

Subject: Economics    / General Economics
Question

Name _______________________
Spring Semester, 2013
California State University, Fullerton
Economics 315, Section 22
Midterm 2 Part I: Multiple Choice (4 points each, 80 points total)
On your scantron, in pencil, please mark the letter corresponding to the most
accurate answer or statement.
1. The causal view of the industry believes that:
a.
b.
c.
d. 2. It is profitable to hire units of labor as long as the value of marginal product
a.
b.
c.
d. 3. vertical integration.
horizontal integration.
cointegration.
conglomerate integration. The marginal cost curve
a.
b.
c.
d. 5. is less than wage.
exceeds average product.
equals price.
exceeds wage. An electronic company takes over one of its original suppliers in a merger. This is an
example of:
a.
b.
c.
d. 4. market structure causes firms to behave in a certain way.
market performance causes firms to have a certain structure.
market performance causes firms to behave in a certain way.
behavior causes firms to have a certain structure. lies always below the average total cost curve (ATC).
lies always above the average variable cost curve (AVC).
intersects the ATC and AVC at their maximum points.
intersects the ATC and AVC at their minimum points. Hold-up
a.
b.
c.
d. is a hazard associated with relationship-specific exchange.
mitigates worker shirking.
makes spot exchange efficient.
solves the principal-agent problem. Economics 315, Section 22 – Midterm 2 6. The Yummee Diner is doing some market analysis to determine how its customers will
respond to a change in menu prices. The indifference map above shows the preferences of
many consumers in the market for ham and eggs. Suppose Yummee is considering an
increase in the price of ham. The substitution effect in this case will be
a.
b.
c.
d.
e. 7. point A to point B.
point B to point C.
point A to point D.
equal to the income effect.
zero. Which of the following is not an incentive scheme to ensure workers do a good job?
a.
b.
c.
d. 8. page 2 Paying waitresses low wages, but allowing them to collect tips.
Profit-sharing plans in large companies.
Commission pay schedules for salesmen.
Straight hourly wages for dock workers. At the equilibrium consumption bundle, which of the following holds?
a.
b.
c.
d. MRSX,Y = PX /PY.
MRSX,Y = -PX /PY.
MRSX,Y = -PY /PX.
MRSX,Y = PY /PX. Economics 315, Section 22 – Midterm 2 9. page 3 A firm might choose to produce its own inputs if
a.
b.
c.
d. specialized investment is not important.
long-term contracts are costly to write.
the exchange environment is not complex.
spot markets for the input exist. 10. If money income doubles and the prices of all goods triples, then the
a.
b.
c.
d. budget line remains unchanged.
consumer is worse off due to inflation.
consumer will buy more of normal goods.
budget line will shift out. 11. A firm has a marginal cost of $200 and charges a price of $500. The Lerner index for this
firm is:
a.
b.
c.
d. 0.20.
0.50.
1.50.
0.60. 12. What is the average product of labor, given that the level of labor equals 10, total output
equals 1200 and the marginal product of labor equals 200?
a.
b.
c.
d. 20.
120.
6.
2000. 13. The Dansby-Willig Index measures the potential for a change in
a.
b.
c.
d. production cost.
firm’s revenue.
firm’s profit.
social welfare. Economics 315, Section 22 – Midterm 2 page 4 14. Three points on the demand curve for gasoline are
a.
b.
c.
d.
e. (10, $10), (20, $5), and (50, $2).
(12, $76), (8, $60), and (5, $50).
(5,$10), (8,$5), and (12,$2).
(5, $100), (8, $100), and (12, $100)
This is not a demand curve. 15. Which of the following conditions is true when a producer minimizes the cost of
producing a given level of output?
a.
b.
c.
d. The MRTS is equal to the ratio of input prices.
The marginal product per dollar spent on all inputs is equal.
The marginal products of all inputs are equal.
The MRTS is equal to the ratio of input prices and the marginal product per dollar
spent on all inputs is equal. 16. Suppose that consumers’ preferences follow all our usual assumptions concerning
consumer choice. Furthermore, assume that both X and Y are normal goods and that the
price of good X increases. Then, which of the following effect is known with certainty.
a. the income and substitution effect reinforce one another leading to an overall increase
in the consumption of good X.
b. the income and substitution effect reinforce one another leading to an overall decrease
in the consumption of good X.
c. there will be an indeterminate effect on the consumption of good X.
d. the income and substitution effect will reinforce one another leading to an overall
increase in the consumption of good Y. Economics 315, Section 22 – Midterm 2 page 5 17. Long-term contracts are not efficient if
a.
b.
c.
d. a firm engages in relationship-specific exchange.
specialized investments are unimportant.
the contractual environment is simple.
managers shirk. 18. An industry consists of six firms with annual sales of $300, $500, $400, $700, $600, and
$600, respectively. What is the industry’s HHI?
a.
b.
c.
d. 1,659.
1,779.
1,839.
1,909. 19. Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the
wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm
should use
a.
b.
c.
d. more capital and less labor.
more labor and less capital.
three times more capital than labor.
none of the statements associated with this question are correct. 20. One problem with revenue-based incentive schemes is they do not provide an incentive to
a.
b.
c.
d. maximize profit.
maximize sales.
minimize costs.
maximize productivity. Economics 315, Section 22 – Midterm 2 Part II: Short Answer / Definition (6 points each, 60 points total)
In the space provided, in pen, briefly define or discuss the following.
1. Define short run. 2. Define concentration ratio. 3. What is meant by increasing returns to scale? 4. What is an meant by income effect? 5. Define Marginal Product of Capital (MPK). page 6 Economics 315, Section 22 – Midterm 2 6. List the 3 assumptions used in Consumer Choice theory. 7. What are barriers to entry and give an example of one. 8. What is the principle-agent problem? 9. What are transactions costs? 10. What is the marginal rate of substitution of pens for pencils? page 7 Economics 315, Section 22 – Midterm 2 page 8 Part III: Essay / Problem Solving (60 points)
In the space provided, in pen, answer or discuss the following in as much detail
as necessary. Use a well-labeled graph(s), if appropriate, to illustrate your discussion.
Show all work.
1. Suppose men receive $11.20 per hour and women receive $8.00 per hour. Moreover,
suppose the firm uses 81 female person-hours and 64 male person-hours to produce 144
units of output and the marginal product of labor for men is 27 while the marginal
product of labor for women is 16. Is the firm minimizing the cost of producing this level
of output? If so, explain why. If not, should the firm use more or less men to produce this
level of output?