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Introduction to Agricultural Economics

Agricultural Economics 105

Spring 2016 Second Hour Exam – Version 1

Name____________________________

There is only ONE best, correct answer per question. Place your answer on the attached

sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE

TEST AND ANSWER SHEET. Each question is worth 2 1/2.

1. The amount of input B that can be substituted for input A holding output constant is known

as the ________.

a. marginal rate of substitution.

b. marginal rate of technical substitution.

c. marginal rate of product transformation.

d. marginal rate of returns.

e. diminishing marginal returns.

2. When a firm chooses between two possible inputs (labor and capital), which of the following

represents or occurs at the least-cost combination?

a. −MPPlabor

MPPcapital= −

Wage rate

Rental rate

b. MPPlabor

Wage rate=

MPPcapital

Rental rate

c. The point of tangency between the iso-cost and iso-quant curves.

d. B and C

e. All of the above

3. Which Act, passed by the Senate with a vote of 51 – 1 and the House by a vote of 242 – 0,

was the first act to prohibit restrictive business practices?

a. Sherman Act of 1890

b. Clayton Act of 1914

c. Capper-Volstead Act of 1922

d. Dodd-Frank Act of 2010

e. Glass-Steagall Act of 1933

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4. Larry’s Car Shop specializes in Ford Pinto and Mustang car restorations. Larry sells his

Mustangs for $5,000 each and his Pintos for $2,500 each. Given the following figure for an

iso-revenue curve associated with revenue of $15,000, what are the intercept points A and B?

a. 5000; 2500

b. 2500; 5000

c. 6; 3

d. 3; 6

e. 15,000; 2,500

5. Taylor Swift drives a Ford Pinto in a new music video “Blank Space” (A song inspired by

her trying to answer AGEC 105 test questions). Larry can now sell Ford Pintos for $5,000

instead of $2,500. Which of the following best represents the shift in the iso-revenue line

following this change?

a. b.

c. d.

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6. Joe grows corn near Cedar Rapids, Iowa. He is contemplating what type of market structure

he operates in. He knows his corn is the same as all his neighbors’ corn, there was not any

entry or exit barrier for him to start or stop farming, he has access to any information he

wants, and he knows many other corn farmers. He also knows almost everyone consumes

corn. What market structure best describes the above situation?

a. Monopoly

b. Oligopoly

c. Duopoly

d. Monopolistic Competition

e. Perfect Competition

7. Given the following production possibility and iso-revenue curves, which point is the profit-

maximizing level of production between hamburgers and hot dogs?

a. A

b. B

c. C

d. D

e. E

8. Consider the four market structures

A. Perfect competition

B. Monopolistic competition

C. Oligopoly

D. Monopoly

Of these four structures, ______ typically has the highest price level, _______ has the

highest quantity sold in the market, and _______ has only a few sellers in the market.

a. A, D, B

b. A, D, C

c. B, B, B

d. D, A, C

e. C, A, D

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Consider the following figure for questions 9 – 11:

9. Before “Policy” is implemented (that is, the competitive equilibrium), what is total surplus?

a. 50

b. 100

c. 625

d. 1,250

e. 2,500

10. The government sets a maximum price of $25, seen in the above figure as “Policy.” This is

known as a price _______, and results in a ________.

a. Ceiling; surplus

b. Ceiling; shortage

c. Floor; surplus

d. Floor; shortage

e. None of the above

11. If the government set a minimum price at $25, this would be a ____?

a. Price ceiling

b. Price floor

c. Non-binding price ceiling

d. Non-binding price floor

e. None of the above

12. A public good is a good provided by the public

a. True

b. False

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Refer to the following figure for questions 13 – 15:

13. Which areas represent producer surplus for a market under perfect competition?

a. ABCDE

b. FGHI

c. ABCDFG

d. I

e. EH

f. ABCDEFGHIJKLM

14. If the market above transitioned from perfect competition to a monopoly, which areas

represent the loss in consumer surplus?

a. AB

b. CDE

c. FGH

d. EH

e. CDFG

15. Under a monopoly, which areas represent dead-weight loss?

a. CDE

b. FGH

c. EHJL

d. EH

e. Only K

16. As discussed in class, under which of the following market structures does Starbucks

operate?

a. Monopoly

b. Oligopoly

c. Duopoly

d. Monopolistic Competition

e. Perfect Competition

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Consider the following scenario and table for questions 17 and 18.

Ralph and Walter were recently arrested near the scene of a robbery in Austin. The police have

evidence the pair broke into Texas Star First National Bank, but not enough evidence to convict

the pair of robbery. The following table shows the potential jail time each man faces, depending

on confession strategy.

Walter

Don’t Confess Confess

Ralph

Don’t Confess Walter: 90 days

Ralph: 90 days

Walter: No jail time

Ralph: 10 years

Confess Walter: 10 years

Ralph: No jail time

Walter: 2 years

Ralph: 2 years

17. Upon their arrest, the police separated Ralph and Walter so they cannot collude. If each man

acts individually without knowledge of what the other will do, what is the best confusion

strategy for Ralph and Walter?

a. Ralph confesses, Walter does not

b. Walter confesses, Ralph does not

c. Neither confesses

d. Both confess

e. More information is necessary

18. If the pair was allowed to collude before speaking to police, what will most likely happen?

a. Ralph confesses, Walter does not

b. Walter confesses, Ralph does not

c. Neither confesses

d. Both confess

e. More information is necessary

19. In Castle Black, Jon has a pet wolf which he values at $200. However, the wolf sometimes

terrorizes other members in the castle. Alliser feels the cost of this fear is $400. If the Lord

Commander of the castle determines that Jon has the right to his wolf, but can negotiate with

Alliser, what will most likely happen?

a. Alliser will pay Jon $400 in damages the wolf has caused

b. Jon will pay Alliser $400 in damages the wolf has caused

c. Jon will pay Alliser $200 and gets rid of the wolf

d. Jon owes nothing, and will do nothing.

e. Alliser will pay Jon $300 to get rid of the wolf

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Consider the following scenario and drawing for questions 20 and 21.

Landowner A owns a house near Lake Bryan. She enjoys her view of the sunset each evening.

Landowner B owns the lot down the hill from Landowner A and is considering building either a

one or two story house. If he builds a one story house, Landowner A’s view would be

unobstructed, but if he builds a two story house, the view would be obstructed.

Landowner A receives net benefits of $100 from viewing the sunset, but $0 if she cannot.

Landowner B receives net benefits of $200 if he builds a one story house and $280 if he builds a

two-story house.

20. What would be society’s efficient solution in deciding the size of the house for Landowner

B?

a. One story, since Landowner A is receiving her maximum benefits

b. One story, since society’s net benefits are maximized

c. Two story, since Landowner B is receiving his maximum benefits

d. Two story, since society’s net benefits are maximized

e. There is no socially optimal solution as the two landowners disagree

21. A judge intervenes and assigns property rights to Landowner B and does not allow

negotiations, what will be the net benefits?

a. $0

b. $100

c. $180

d. $80

e. $200

f. $280

g. $300

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Consider the following figure for questions 22 - 25.

22. What kind of market failure is this?

a. Positive externality

b. Negative externality

c. Quota

d. Inappropriate government Intervention

e. This is not a market failure

23. What characteristic of property rights is violated?

a. Universality or Specificity

b. Enforcement

c. Transferability

d. Exclusivity

e. Public Good

24. For the good represented, what is the socially optimal level of output?

a. A

b. B

c. C

d. D

e. Undetermined, need to know the type of government intervention

25. For the good represented, what level of output will be seen in the marketplace?

a. A

b. B

c. C

d. D

e. Undetermined, need to know the type of government intervention

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26. When considering public goods, how is the aggregate demand curve obtained?

a. Horizontal summation of individual demand curves

b. Vertical summation of individual demand curves

c. Marginal summation of individual demand curves

d. The demand curve for a public good is perfectly inelastic, thus depends on the

quantity consumed

e. The demand curve for a public good is perfectly elastic, thus depends on the price

level

Consider the following table for four goods with different levels of excludability and rivalry for

questions 27 – 29. For example, good A is excludable but rival in consumption.

Excludable Non-Excludable

Rival A B

Non-Rival C D

27. Which good best fits the description of a public good?

a. A

b. B

c. C

d. D

e. None of the above

28. The writing instrument you have in your hand could best considered which type of good?

a. A

b. B

c. C

d. D

e. None of the above

29. Chilifest to be held at Snook in April 2016 would best be considered which type of good?

a. A

b. B

c. C

d. D

e. None of the above

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30. Lump sum taxes on the producer are often preferred by economist because they

a. do not create shortages or surpluses

b. do not influence the level of production

c. do not influence the marginal cost curve

d. All of the above

e. None of the above

31. A Pigouvian tax on the producer influences

a. total costs

b. the level of production

c. the marginal cost curve

d. All of the above

e. None of the above

32. A firm in a competitive market sells its output for $24 per unit. The 50th unit of output the

firm produces has a marginal cost of $22. It follows that the production of the 50th unit of

output

a. increases the firm's total revenue by $24.

b. increases the firm's total cost by $22

c. increases the firm's profit by $2.

d. All of the above

e. None of the above

33. Which of the following three characteristics apply to oligopoly?

1) A few large firms account for a high percentage of industry output

2) Many small firms account for a high percentage of industry output

3) Each firm faces a horizontal demand curve

4) Each firm faces a downward sloping demand curve

5) The industry is often characterized by extensive non-price competition

a. 2, 4, and 5

b. 2, 3, and 5

c. 1, 3, and 5

d. 1,4, and 5

e. 1, 2, and 4

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34. If a firm moves from one point to another point on a production isoquant, which of the

following will not happen?

a. A change in the level of output.

b. A change in the ratio in which the inputs are combined.

c. A change in the MPP of the inputs.

d. A change in the rate of technical substitution.

e. All of the above

35. Which of the following statements best describes the general form of a production function?

1) It is a purely technological relationship between quantities of input and quantities of

output.

2) It represents the technology of a firm.

3) Prices of inputs or outputs do not enter into the production function.

4) It is a flow concept describing the transformation of inputs into output per unit of time.

a. 1, 2, and 4

b. 1, 3, and 4

c. 2, 3, and 4

d. 2, 3, and 3

e. 1, 2, 3, and 4

36. A typical concave production possibility curve implies:

a. That economic resources are unlimited

b. Decreasing opportunity costs

c. That society is using a market system to allocate resources

d. Society must operate on the production possibility curve

e. That society must choose among various attainable combinations of goods

37. The socially economic efficient level of pollution occurs when

a. there is no pollution damaging the environment

b. marginal benefits of pollution control are equal

c. the market for the good is in equilibrium such as in perfect competition

d. the marginal costs of abatement are equal

e. the marginal cost of abatement equals the marginal cost of pollution damage

38. Firms in monopolistic competition can achieve product differentiation by

a. exploiting economies of scale in production

b. advertising special characteristics

c. expanding plant size

d. setting the price equal to average revenue

e. setting marginal costs equal to marginal revenue

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39. Which of the following could be considered an ecosystem service?

a. A rice field providing habitat to migrating birds

b. A corn field which grows corn for ethanol

c. A wheat field growing winter wheat for animal feed

d. Both A and C

e. All of the above

Refer to this figure for questions 40 and 41. The price of capital is $50.

40. What combination of labor (L) and capital (K) can produce 3,000 units of output at the least

cost?

a. 55K, 5L

b. 25K, 10L

c. 50K , 20L

d. 10K, 25L

e. Uncertain: need to know production function information

41. What is the lowest possible cost of producing 3,000 units of output?

a. $6,000

b. $4,500

c. $1,500

d. $3.000

e. $2,500

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There are 41 questions, only 40 will be graded. Please pick the one question you do not

want graded by placing XXX in the answer line. If you do not pick a question to not be

graded, question 41 will not be graded.

Test Version 1 Name

Question Answer Question Answer

1

22

2

23

3

24

4

25

5

26

6

27

7

28

8

29

9

30

10

31

11

32

12 33

13

34

14

35

15

36

16

37

17

38

18

39

19

40

20

41

21

Grade