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CSUN ECON 310 - Exam 1 - Version D

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ECON 310 – Fall 2006 (ticket #15622) Name: __________________________ Exam 1 - Version D Multiple Choice: (circle the letter of the best response; 2 points each) 1) Paula has income of 400=I , which she devotes to consumption of 1x and 2x. Each unit of 1x costs 21=p ; each unit of 2x costs 82=p . If her income were to increase to 500=I (with prices fixed), then her budget line would a. shift outward. b. shift inward. c. become steeper. d. become flatter. e. More than one of the above answers is correct. 2) Consider a market in which Demand is given by ppD 100000,2)(−=. If price were to increase from 10=p to 12=p , the value of Consumers’ Surplus would decrease by a. 200. b. 1,600. c. 1,800. d. 3,200. e. 5,000. 3) Martin consumes only two goods: =1x (bubble bath) and =2x (Passion Fruit wine coolers). Both of these goods are normal goods for him. As a result, a. his Income Consumption Curve is positively sloped. b. his Engel Curve for good one is positively sloped. c. his Income Elasticity of Demand for good two is negative. d. his marginal utility for bubble bath must be diminishing. e. More than one of the above answers is correct. 4) Which of the following is NOT one of the “three basic analytical tools” (or “three key analytical tools”) upon which nearly all microeconomic analysis relies? a. Comparative Statics. b. The Law of Demand. c. Equilibrium Analysis. d. Constrained Optimization. e. More than one of the above is NOT one of the “three basic analytical tools.” 5) A ticket to see “We Are Marshall” at the Edward’s Cinema in Valencia costs a “student” $8.50, a “senior” $7.00, and an “adult” $9.50. This is an example of a. a firm failing to maximize profit. b. a firm failing to minimize costs. c. consumers failing to maximize utility. d. a firm engaging in Second Degree Price Discrimination. e. a firm engaging in Third Degree Price Discrimination.6) Chad’s preferences over beer and pizza are “monotonic,” “transitive,” and “convex.” If he is indifferent between )4,10(=A and )8,6(=B (that is, BA~), then a. his utility function must be 212)( xxXU+=. b. the bundle )6,8(=C is better than bundle A. c. the bundle )5,12(=D is better than bundle B. d. All of the above answers are correct. e. More than one of the above answers is correct. 7) When Jimmy produces 100 units of output his Average Variable Costs are AVC=$7.75 and his Average Total Costs are ATC=$9.25. It follows that his Average Fixed Costs of producing 300 units of output a. must be equal to his Average Fixed Costs of producing 100 units of output. b. are $0.50. c. are $7.75. d. are $150. e. Cannot be determined from the given information. 8) A perfectly competitive market is characterized by a. one single seller and one single buyer. b. one single buyer, but relatively few (but more than one) sellers. c. many buyers and many sellers. d. many buyers, but only one single seller. e. many sellers, but only one single buyer. 9) The value of Indirect Utility should a. increase if the price of good one were to decrease. b. decrease if the price of good two were to increase. c. increase if income were to increase. d. decrease if income were to decrease. e. All of the above answers are correct. For questions 10 and 11, consider a firm which produces output according to the production function )74(.)49(.),( KLKLF =. 10) This firm wants to produce 0>q units as inexpensively as possible. In the Long Run, a. they should choose a combination of labor and capital for which rwKLMRTS=,. b. they should hire zero units of capital whenever rw<. c. they should hire zero units of labor whenever rw > . d. Average Costs of production will decrease as more output is produced. e. More than one of the above answers is correct. 11) This production process a. is characterized by a negative Marginal Product of Labor. b. exhibits Decreasing Returns to Scale. c. exhibits Constant Returns to Scale. d. exhibits Increasing Returns to Scale. e. More than one of the above answers is correct.12) Which of the following inequalities describes the “competitive budget set” (or “set of affordable bundles”) for a consumer? a. )(2211XUxpxp ≤+ . b. Ixpxp ≤+2211. c. 21)( xxXU += . d. cXU ≥)( . e. 2121xxpp +≤+ . 13) An Exogenous Variable a. is one whose value is taken as given when analyzing an economic system. b. is one whose value is determined within the economic system being studied. c. is never included in an economic model. d. is the only type of variable used in economics models. e. None of the above answers are correct. 14) The price of bananas decreases from $0.54 per pound to $0.42 per pound. ___________ provides a “measure of how much money a consumer would be willing to give up after this price decrease in order to be exactly as well off as she was before the price decrease (with her actual income).” a. Equivalent Variation (in income). b. Compensating Variation (in income). c. Change in Consumer’s Surplus. d. Price Elasticity. e. Consumer’s Surplus. 15) Consider a profit maximizing firm operating in a competitive market in the short run. For this firm, the minimum value of Average Variable Costs is 50.47min=AVC and the minimum value of Average Total Costs is 95.54min=ATC . If the current price per unit of output in this market is 20.56=p , then a. the firm will want to “shutdown” and produce zero units of output. b. the maximum profit of the firm is equal to F−. c. the maximum profit of the firm is positive. d. the firm will want to produce the positive level of output for which Average Total Costs are minimized. e. More than one of the above answers is correct. 16) As the price of DVDs decreases from $20 to $16, Scott’s Compensating Variation (in income) is 95.18$=CV and his Equivalent Variation (in income) is 17.24$=EV. From this information alone, we can infer that a. DVDs are an inferior good for Scott. b. DVDs are a normal good for Scott. c. the corresponding change in Consumer’s Surplus for this price decrease is greater than $18.95. d. the corresponding change in Consumer’s Surplus for this price decrease is greater than $24.17. e. More than one of the above answers is correct.17) Tracyann makes telephones. She wants to produce q units of output as


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