Introduction to Agricultural Economics

Agricultural Economics 105

Spring 2013 First Hour Exam – Version 1

Name____________________________ Section _____________

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. _________ refers to the implicit cost associated with the next best alternative.

a. Fixed costs

b. Variable costs

c. Alternative costs

d. Average total costs

e. Opportunity costs

2. The own-price elasticity for bottle water is -2.5, whereas, the own-price elasticity for tap

water is -0.05. Which statement best describe this situation?

a. Because they are the same product, water, the own-price elasticities should be the same,

their must be an error in calculating the elasticities.

b. Bottled water has more substitutes than tap water; therefore, it is more elastic.

c. The elasticities are reasonable, because the more negative the elasticity the more inelastic

the demand for water and demand for bottled water should be more inelastic given it

costs more per gallon of water.

d. The elasticities are reasonable, because the more negative the elasticity the more elastic

the demand for water and demand for bottled water should be more inelastic given it

costs more per gallon of water.

e. Both elasticities are inelastic; therefore, the elasticites are reasonable with tap water being

more inelastic because tap water is required to live.

3. Stage II of production begins where

a. MPP is equal to zero.

b. TPP is maximized.

c. MPP is maximized.

d. APP equals TPP.

e. APP equals MPP.

4. In 2010, approximately what percentage of each dollar spent on food goes to the farmers

and ranchers?

a. 5

b. 15

c. 20

d. 25

e. 20

5. More than 170,000 small businesses closed between 2008 and 2010 according to U.S.

Census Bureau data. Many of these businesses closed because of decreasing prices for their

products. Which statement best describe this situation?

a. Small businesses were unable to cover their variable costs and their fixed costs, so they

closed – price was at or below their breakeven price.

b. Small businesses were unable to cover their variable costs but they were able to cover

their fixed costs, so they closed – price was below the breakeven price.

c. The demand for products from small business is elastic; therefore, changing price does

not matter.

d. Small businesses were unable to cover their variable costs and their fixed costs, so they

closed – price was below the shutdown price.

e. Small businesses are plagued with poor management and competition from large business

and will always fail.

6. You have started a new business that buys corn from farmers and creates a new stronger

chip for salsa dipping for marketing (sell) to local restaurants. This is an example of

a. the marketing bill in agriculture.

b. value added in agriculture.

c. consumer expenditures.

d. niche farming.

e. increasing the farm value of the marketing bill.

7. The marginal rate of substitution between Chips Ahoy

and Oreo cookies for the indifference curve with the

highest utility level in the following graph is

_________.

a. -4

b. -2

c. -0.25

d. -0.5

e. -1.0

8. Assume the marginal rate of substitution is of Chips Ahoy for Oreo cookies is -3. This

means that the consumer

a. indifference curves follow the law of diminishing marginal utility for Oreos but not for

Chips Ahoy.

b. is willing to give up three bags of Oreos for one bag of Chips Ahoy to obtain a higher

level of utility.

c. is willing to give up one bag of Oreos for three bags of Chips Ahoy to obtain a higher

level of utility.

d. is willing to give up three bags of Oreos for one bag of Chips Ahoy to obtain the same

level of utility.

e. is willing to give up one bag of Oreos for three bags of Chips Ahoy to obtain the same

level of utility.

9. Assuming the prices of cookies are $2.5 / bag

for Oreos and $4.0 / bag for Chips Ahoy,

which of the following yearly income

constraints represents having $100 to spend

on cookies for the year?

a. A

b. B

c. C

d. More information is necessary

e. Indifference curves must be included to

find the consumer equilibrium point.

10. The U.S. progressive income tax system (higher your income the larger the tax rate) is based

on the idea that the last dollar earned is worth more to a person making $10 / hour than a

multimillionaire. The economic principle this tax system is based on is

a. negative sloped indifference curves.

b. marginal utility.

c. law of diminishing marginal utility.

d. law of demand.

e. marginal rate of substitution.

11. The profit maximizing point for a producer is

a. where the marginal utility for input A divided by the price of input A equals the marginal

utility of input B divided by the price of good B, that is ⁄ ⁄ .

b. where the indifference curves intersect the budget constraint.

c. at the breakeven price.

d. where marginal revenue equals marginal cost, MR = MC.

e. where total costs are minimized.

12. According the U.S. Energy Information Administration, the national average retail price for

gasoline was $3.36 / gallon and 8.52 million barrels of gasoline where sold for the week of

12/28/12, however for the week of 1/11/13 the national average price was $3.43 / gallon and

8.3 million barrels were sold per day. This is an example of

a. big oil companies raising the price as students travel back to college.

b. a decrease in the supply of oil because of weather conditions.

c. a change in demand.

d. a change in quantity demanded.

e. a change in both demand and quantity demanded.

13. The U.S. in 2010 passed rules to increase the corporate average fuel economy for

automobiles and light duty trucks to 55 miles per gallon by 2025. Assuming everything else

is constant, this new rule

a. will lower the profits of oil companies.

b. will decrease the supply of oil.

c. represents a change in demand.

d. represents a change in quantity demanded.

e. represents a change in both demand and quantity demanded.

14. __________ represents the costs that must be paid regardless of the level of production.

a. Taxes

b. Fixed costs

c. Variable costs

d. Marginal costs

e. Opportunity or your average costs

15. Texas Almost Best Potato Chips supplies a specialty corn chip in such a way that if the price

of chips increases by 10% they are willing to supply 15% more chips. Their supply could

best be described as

a. elastic.

b. inelastic.

c. unitary.

d. normal Good.

e. necessity Good.

16. Which of the following statements “best” illustrates the concept of consumer surplus

associated with coffee?

a. The government steps into the market and lowers the market price by $0.50 / pound.

b. You enter Starbucks with $2.50 to purchase a grande coffee, but because of the special

today you have to only pay $2.

c. Recent government statistics show coffee drinks may life longer because of certain

antioxidants in coffee.

d. The market for coffee is such that the quantity demanded equals quantity supplied.

e. An importer of coffee is not willing to $1.20 / pound for coffee but is will to pay $1.10

per pound.

17. At a price of $2 / unit, the quantity sold is 40 units, whereas, at a price of $6 /unit only 24

units are sold. What is the own-price elastic for this good?

a. -1.0

b. -2.0

c. 2.0

d. 0.5

e. -0.5

18. In Britain, a restaurant finds it can sell 150 fish and chips dinners at a price of £3.50 and 200

dinners at a of £3.00. At a price of £2.5, how many dinners would you except the restaurant

to sell?

a. 50

b. 75

c. 100

d. 200

e. 300

19. Which statement best describes the graph?

a. A new variety of corn has been developed that

increases yields per acre.

b. New research suggests that eating corn on the cob

should be part of a healthy diet.

c. The ethanol craze has increased the price of corn.

d. A new study shows people are eating less corn

because of an aflatoxin scare.

e. Because of the drought in the Midwest, the

production of corn decreased in 2012.

20. At his current consumption level, John’s marginal utility for consuming a cheeseburger is 10

units, and the price is $5. His marginal utility for consuming a taco is 8 units and the price

is $2. Which of the following best describes John’s situation?

a. John is maximizing his utility at this point.

b. John is not maximizing his utility, he needs to eat more tacos and less cheeseburgers.

c. John is not maximizing his utility, he needs to eat more cheeseburgers and less tacos.

d. John needs to eat more of both cheeseburgers and tacos.

e. As pointed out in the class introduction obesity is a major issue caused by McDonalds

and Taco Bell.

21. Texas A&M University is considering increasing the price of student tickets to Aggie

football games by approximately 60% to increase total revenues to pay for stadium

renovations. This increase will only increase revenues if

a. own-price elasticity is unitary.

b. own-price elasticity is inelastic.

c. own-price elasticity is elastic.

d. football games are necessity goods.

e. will have no effect on revenues.

22. The income elasticity of demand for jewelry is 2. Jewelry is

a. a normal and luxury good.

b. a luxury but not a normal good.

c. a normal and a necessity good.

d. an inferior good.

e. a necessity good.

23. The main difference between "the short run" and "the long run" is

a. the law of diminishing returns applies in the short run, but not in the long run.

b. in the short run all resources are fixed, while in the long run all resources are variable.

c. fixed costs are more important to decision making in the long run than they are in the

short run.

d. short run is usually less than a year while the long run is more than a year.

e. in the long run all resources are variable, while in the short run at least one resource is

fixed.

24. The State of Texas wants to increase the

price of cigarettes from P2 to P1 to decrease

the number of cigarettes smoked. Consumer

of cigarettes will lose consumer surplus

equal to the area

a. P1ABP2

b. P2CQ20

c. P1BDP2

d. P1BCP2

e. P1BQ10

25. You have estimated the cross price elasticity

between two goods to be positive. Of the following sets of goods which set is the most

likely set?

a. Bread and margarine

b. Peanut butter and jelly

c. Bread and butter

d. Margarine and butter

e. Coffee and cream

26. Your significant other gave you a box of 10 chocolate hearts for Valentine’s Day. Which

law suggests that you consume received more utility from consuming the first heart than the

10th

heart?

a. Law of indifference curves

b. Law of rational consumers – more is preferred to less

c. Law of diminishing marginal utility

d. Law of diminishing marginal returns

e. Law of demand

27. Aggregate demand is the summation of all relevant individual consumers demand. To be

relevant a consumer must have both

____________________________and _________________________.

28. The average cost curve will be at its minimum (smallest average cost) when

a. production is zero because there are no costs.

b. production is at its largest because production is the denominator in determining average

costs.

c. total costs are minimized because total costs are the numerator in calculating average

cost.

d. variable costs are minimized.

e. marginal costs equal average costs.

29. The reason the marginal cost curve eventually increases as output increases for the typical

firm is because

a. of diseconomies of scale.

b. of inefficiencies in management discussed during the class introduction.

c. of the law of demand which indicates price must decrease to sell more (increase in

quantity demanded)

d. of the law of diminishing marginal product.

e. of the law of diminishing marginal utility.

30. Which of the following is not a characteristic of a perfectly competitive market structure?

a. All firms sell identical or homogeneous products.

b. There are no restrictions to entry or exit by firms.

c. There are a very large number of sellers and buyers that are small compared to the

market.

d. All participants in the market have perfect information.

e. All are characteristics of a perfectly competitive market.

31. The marginal physical product (MPP) of labor equals

a. total output divided by total labor input.

b. total output minus the total input.

c. the change in total output resulting from a small change in the labor input

d. total output produced by labor input.

e. the difference between average total costs and average variable costs.

32. Variable costs are

a. costs that change with the level of input use.

b. costs that change with the level of output.

c. are multiplied by the fixed cost level to get total costs.

d. defined as the change in total costs resulting from the production of an additional unit of

output.

e. both a and b.

33. Which stage of production is the economic stage of production assuming there are no

constraints?

a. Stage I

b. Stage II

c. Stage III

d. Stage I or II depending on the production process

e. Stage II and III

34. If the market price is $20 in a perfectly competitive market, the marginal revenue from

selling the fifth unit is

a. $1

b. $4

c. $100

d. $20

e. $25

35. You are currently on a lifesaving drug. The drug company increases the price from $10 /

day to $100 / day; however, your quantity demanded (amount of the drug taken each day)

does not change. Which of the above demand curves best illustrates this situation?

a. Panel A

b. Panel B

c. Panel C

d. Panel D

e. All but Panel C

36. The graph shows a consumer who is deciding

how often to eat at home and away from home.

Which point provides the largest utility? Which

point provides the largest utility that the

consumer can purchase (satisfies the budget

constraint)?

a. A, B

b. E, B

c. E, A

d. C, E

e. E, D

For questions 37 – 39 refer to the above figure.

37. Total revenue at the profit maximizing level of output is

a. area 10,E,110,0

b. area 8,D,C,6

c. area 6,F, 100, 0

d. area 8,D,100, 0

e. area 5,B,75, 0

38. Total cost at the profit maximizing level of output is

a. area 4, A, 50, 0

b. area 5,B,G,4

c. area 5,F,100,0

d. area 8,D,100,0

e. area 6, H,110,0

39. What is the shutdown price?

a. 4

b. 5

c. 6

d. 8

e. 10

Refer to the following table for questions 40 - 41.

Quantity Total Cost

(dollars)

Variable Cost

(dollars)

114 280 30

126 310 60

136 340 90

144 370 120

150 400 150

154 430 180

40. Referring the following table, the fixed cost of production is ___________.

41. The marginal cost per unit of production when the firm produces 150 units is _________.

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 1 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

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40

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41

21

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