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CSUN ECON 310 - Exam 2 - Version C

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ECON 310 – Fall 2005 Name: ______________________ Exam 2 - Version C Multiple Choice: (circle the letter of the best response; 4 points each) 1. Mo has monotonic preferences for 1x and 2x . Which of the changes described below could possibly make him “worse off”? a. “An increase in I.” b. “A decrease in 2p .” c. “A simultaneous increase in I and decrease in 1p .” d. “A simultaneous increase in 1p and decrease in 2p .” e. None of the above answers are correct. 2. Joe produces shoelaces using =L (labor) and =K(capital). His Marginal Rate of Technical Substitution is KMRTSKL=,. Suppose that both )9,2(),( =LK and )1,6(),( =LK produce 8=q units of output. It must be that a. 0>LMP but 0<KMP . b. )18,4(),( =LK will produce 16=q units of output. c. )5,4(),( =LK will also produce exactly 8=q units of output. d. )5,4(),( =LK will produce more than 8=q units of output. e. )5,4(),( =LK will produce less than 8=q units of output. 3. Consider a market in which Demand is given by ppD 100000,2)( −=. If price were to decrease from 10=p to 8=p , the value of Consumers’ Surplus would a. increase by 80 . b. increase by 200 . c. increase by 000,2. d. increase by 200,2. e. increase by 400,2. 4. Consider a consumer with 21)( xxXU+=. In order to maximize utility, this individual should a. spend all income on 2x , so long as 21pp<. b. spend all income on 1x , so long as 21pp<. c. choose 21xx = for all possible prices. d. None of the above answers are correct. e. More than one of the above answers is correct.5. Consider a production process for which there is always a “Diminishing Marginal Product of Labor.” It must be that a. LMP becomes smaller as additional labor is hired. b. LMP is negative for L “sufficiently large.” c. KLMPMP < for all combinations of ),( KL . d. the firm would never want to hire any labor. e. More than one of the above answers is correct. 6. Consider the production function KLKLF 3),(+=. Which of the following must be true? a. The corresponding isoquants are upward sloping. b. The “Marginal Rate of Technical Substitution” is the same for all combinations of ),( KL . c. Doubling the amount of each input would produce more than twice as much output. d. The Marginal Product of Labor is always negative. e. More than one of the above answers is correct. 7. Suppose that under current market conditions “Product Z” is a Giffen Good. It must be that a. consumers of “Product Z” are irrational. b. “Product Z” is a normal good. c. “Product Z” is an inferior good. d. an increase in the price of “Product Z” would lead to an increase in quantity demanded for “Product Z.” e. More than one of the above answers is correct. 8. Mary produces grilled cheese sandwiches by combining =C (cheese) and =B(bread). In order to make one sandwich she needs one slice of cheese and two slices of bread (and no other inputs). Which of the following production functions is most consistent with this description of her production process? a. {}CBCBF ,min),(21= . b. {}CBCBF ,2min),( = . c. CBCBF += 2),(. d. CBCBF 2),( += . e. BCCBF 2),( = . 9. Consider a firm with a production function LKKLF 40),(=. This production process a. exhibits Decreasing Returns to Scale. b. exhibits Constant Returns to Scale. c. exhibits Increasing Returns to Scale. d. is characterized by a negative Marginal Product of Labor. e. More than one of the above answers is correct.For questions 10 through 12, consider the following scenario. Abhijit produces watches using two inputs, =L (labor) and =K(capital). Each unit of labor costs 0>w and each unit of capital costs 0>r . The graph below illustrates three of Abhijit’s isoquants, as well as the isocost curve along which “costs are equal to $1,600.” 10. Suppose Abhijit is operating in the Long Run. If he wants to produce 100 watches as inexpensively as possible, he should hire a. )10,40(),( =KL . b. )10,120(),( =KL . c. )14,60(),( =KL . d. )14,100(),( =KL . e. )0,320(),( =KL . 11. Suppose Abhijit is operating in the Long Run. If he wants to produce 80 watches as inexpensively as possible a. he should hire less than 14 units of capital. b. his costs of production will be less than $1,500. c. he should hire more than 40 units of labor. d. he should hire less than 260 units of labor. e. All of the above answers are correct. 12. Suppose Abhijit is operating in the Short Run with capital fixed at 14=K. When producing 120 watches at minimum cost, a. he chooses to hire 60 units of labor. b. his fixed costs of production are equal to zero. c. his total cost of production are equal to $1,600. d. his variable costs of production are equal to $500. e. None of the above answers are necessarily correct. K L 16 14 0 0 320 10 60 10040 120 Q = 120 Q = 100 Q = 80 26013. Tracyann makes telephones. She wants to produce q units of output as inexpensively as possible. In the Short Run, a. she is able to vary the amount of every input. b. total costs of producing zero output must always be equal to zero. c. her costs of producing a particular level of output are greater than or equal to the Long Run costs of producing the same level of output. d. she will always choose to hire a combination of labor and capital for which rwKLMRTS =,. e. None of the above answers are correct. For questions 14 through 16, consider the following scenario. Qihong produces baseball hats according to the production function LKKLF 10),( = . As a result, his Marginal Product of Labor is LKLMP 5= and his Marginal Product of Capital is KLKMP 5= . Each unit of labor costs 0>w and each unit of capital costs 0>r . 14. Qihong’s Marginal Rate of Technical Substituion a. depends upon K, but not upon L . b. depends upon L , but not upon K. c. is given by ()2,LKKLMRTS = . d. is given by LKKLMRTS=,. e. cannot be determined from the given information. 15. Suppose Qihong is operating in the Short Run with 9=K units of capital. His Short Run Cost Minimizing choice of Labor: a. depends upon the value of w (but not upon the value of r). b. depends upon the value of r (but not upon the value of w ). c. depends upon neither the value of r nor the value of w . d. depends upon the value of r and the value of w . e. None of


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