Introduction to Agricultural Economics
Agricultural Economics 105
Spring 2013 Second 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. Monopolies exist because of
a. the ease of entry and exit to the industry.
b. a homogeneous product.
c. the Sherman Antitrust Act.
d. increasing returns to scale in the short run.
e. none of the above.
2. A binding price floor in a market is set
a. above equilibrium price and causes a shortage.
b. above equilibrium price and causes a surplus.
c. below equilibrium price and causes a surplus.
d. below equilibrium price and causes a shortage.
e. a binding price floor has no impact on the market.
3. When a price ceiling is imposed in a market and the ceiling is binding
a. price no longer serves as a rationing device.
b. the quantity supplied at the price ceiling exceeds the quantity that would have been
supplied without the price ceiling, i.e. a surplus.
c. buyers and sellers both benefit equally in terms of welfare increases.
d. buyers and sellers both are harmed equally in terms of welfare decreases.
e. a binding price celling has no impact on the market.
4. The rate at which firms are willing to substitute between two products in the current period
is known as
a. marginal rate of technical substitution (MRTS). b. marginal rate of substitution in utility (MRS).
c. production possibility curve (PPC).
d. marginal physical product (MPP).
e. marginal rate of product transformation (MRPT).
Refer to the following figure for questions 5 7.
5. Because of the high cost of beef steaks, the federal government is considering placing a
price ceiling on steaks because of the need and right for high quality food. What are the
market equilibrium price and quantity sold before the ceiling, and price and quantity sold
in the market place after imposition of the ceiling?
a. P1, Q2 and Pc, Q2.
b. P1, Q2 and Pc, Q3.
c. Pc, Q2 and Pc, Q1.
d. P1, Q3 and Pc, Q2.
e. P1, Q2 and Pc, Q1.
6. If the government imposed the price ceiling as illustrated in the figure, we would predict in
terms of consumer surplus, consumers would
a. gain area c and lose area b.
b. lose area b + d.
c. gain area c and lose area b + d.
d. lose area d.
e. gain area a + c.
7. Which area gives total economic surplus after imposition of the ceiling floor?
a. area b + d
b. area a + c + h
c. area a + c
d. area h
e. area a + c + h b - d
Refer to the following figure for questions 8 - 10. This figure represents the amount of capital
and labor necessary to produce GPS units.
8. What is changing between the three isocost lines given in the figure?
a. price of labor relative to capital
b. price of capital relative to labor
c. total costs
d. level of output
9. Assuming the price of labor is $10 / unit and capital is $5 / unit and the firm has $60,000 to
spend, what is the least cost combination of inputs that maximizes production?
a. use all labor as this input is cheaper
b. tangency between lines C and D
c. tangency between lines B and E
d. tangency between lines A and F
e. need to know MR and MC curves
10. Which isoquant is associated with the smallest output level?
11. Education is often used as an example of a public good because education, kindergarten
grade, is provided by the federal and state governments to all children.
For questions 12 - 13, refer to the following isoquant graph associated with the production of
GPS units (isoquant levels of output are 1, 2, and 3 GPS units) used on agricultural tractors and
isocost line (dashed line).
12. Notice for any isocost line other than an isocost line with the same slope as the isoquants,
the isocost and isoquant will be tangent at one of the axis. Why?
a. Intel and ADM chips are perfect substitutes in production b. Intel and ADM chips are perfect compliments in production
c. 3 Intel chips and 3 ADM chips go together to create one GPS unit
d. a and c
e. b and c
13. What is the marginal rate of technical substitution (MRTS) between Intel and ADM chips?
a. One half b. One
14. According to the American Farm Bureau, between 2002 and 2007 slightly over 4 million
acres of agricultural land in the U.S. and 7 million rural acres were converted to developed
uses. This is a concern because
a. this rate has been increasing over time. b. wasteful land use is the problem and not development.
c. 91% of our fruit and 78% of our vegetables are produced in urban influenced areas.
d. scenic lands are being lost along with farmland.
e. all of the above.
15. A student snoring loudly in AGEC 105 while you are trying to listen to the lecture is an
a. an externality.
b. violation of the exclusivity characteristic of property rights.
c. an example of nonrival and nonexcluability in consumption associated with the
provisions of a public good.
d. all are correct.
e. a and b.
For questions 16 17, refer to the following production possibility curve and isorevenue line for
your new business venture of making TAMU designer shirts and blue jeans. Let shirts sell for
$40 / shirt and blue jeans for $50 / jean.
16. Your production possibility curve depends on
a. money capital available (costs). b. technology used.
c. labor hired.
d. physical capital such as buildings.
e. all of the above.
17. Your business partner suggest you produce output levels at point A, after taking AGEC 105
you tell your business partner
a. point A is infeasible but points D and B are feasible as they lie on the isorevenue line.
b. point A is infeasible but we should produce at point C to be conservative in our new
c. point A is feasible and provides our new firm the largest output, therefore, maximizes
our revenue and profits.
d. our profit maximizing point is B.
e. point E lies on the PPC curve so is feasible with blue jeans selling at a higher price
than shirts we should produce more blue jeans than shirts.
18. If the MPP of labor is 30 and the MPP of machinery is 10 and the price of labor is $15 and
the price of machinery is $2, you should
a. use more machinery as its marginal physical product per last dollar spent is more than
b. use more labor as its marginal physical product per last dollar spent is more than for
c. increase the amount of labor as its MPP is higher.
d. increase the amount of machinery as it is the cheaper input (lower price).
e. you are at the optimal levels of input use.
19. Externalities could be either positive or negative. For a positive externality in which
society receives larger benefits (larger willingness to pay) than the individual, which curve
best illustrates this situation? In the graph the dashed lines represent the demand and
supply curves in the situation with no externality.
e. both A and C
20. A per unit tax on gasoline is sometimes mentioned as a way to reduce air pollution from
automobiles. This is an example of
a. marginal pollution control costs.
b. lump sum tax.
c. marginal abatement cost.
d. the government providing a private good, clean air.
e. internalization of negative externality.
For questions 21 22 use the following supply and demand table.
9 20 0
8 18 2
6 14 6
5 12 8
4 10 10
2 6 14
1 4 16
21. What is the equilibrium price and quantity in a perfectly competitive market?
a. Price = 8 and quantity = 18.
b. Price = 4 and quantity = 10.
c. Price = 2 and quantity = 14.
d. Price = 6 and quantity = 14 and 6.
e. Price = 5 and quantity = 12 and 8.
22. If price is $8, the market is experiencing
a. a change to a monopoly.
b. a shortage of 16 units.
c. a change to monopolistic competition.
d. surplus of 16 units.
e. no real change as a price of $8 is the market equilibrium price.
23. Which of the following forms of market competition do not incur social costs?
b. Perfect competition
c. Monopolistic competition
e. all except b
24. In the U.S., the wireless provider market share is dominated by four companies, Verizon
(31%), AT&T (27%), Sprint (16%), and T-mobile (12%). Which of the following forms of
market competition would best describe this industry?
b. Perfect competition