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CSUN ECON 310 - Final Exam - Version B

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ECON 310 – Fall 2005 Name: ______________________ Final Exam - Version B Multiple Choice: (circle the letter of the best response; 3 points each) 1. Mo has monotonic preferences for 1x and 2x . Which of the changes described below could possibly make him “better off”? a. “A decrease in I.” b. “A increase in 2p .” c. “A simultaneous increase in both I and 1p .” d. “A simultaneous increase in both 1p and 2p .” e. None of the above answers are correct. 2. Tracyann makes telephones. She wants to produce q units of output as inexpensively as possible. In the Short Run, a. her costs of producing a particular level of output are less than the Long Run costs of producing the same level of output. b. she will always choose to hire a combination of labor and capital for which rwKLMRTS =,. c. she is able to vary the amount of every input. d. total costs of producing zero output must always be equal to zero. e. None of the above answers are correct. 3. “Spaghetti Dinners” are a normal good. If income increases (with all other factors fixed), then in the market for “Spaghetti Dinners” a. equilibrium price and quantity must both decrease. b. equilibrium price and quantity must both increase. c. equilibrium price must increase and equilibrium quantity must decrease. d. equilibrium price must decrease and equilibrium quantity must increase. e. equilibrium price must increase, but equilibrium quantity could either increase, decrease, or stay the same. 4. Consider a firm with a production function LKKLF 10),( = . This production process a. is characterized by a negative Marginal Product of Labor. b. exhibits Increasing Returns to Scale. c. exhibits Constant Returns to Scale. d. exhibits Decreasing Returns to Scale. e. More than one of the above answers is correct.5. 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. Opportunity Cost. b. Comparative Statics. c. Equilibrium Analysis. d. Constrained Optimization. e. More than one of the above is NOT one of the “three basic analytical tools.” 6. Consider a market in which both the Law of Demand and Law of Supply hold, and further 500)10( =D and 900)10(=S . It must be that: a. there is “excess supply” at a price of 12=p . b. there is “excess demand” at a price of 4=p . c. in equilibrium, more than 500 units are traded. d. in equilibrium exactly 700*=q are traded. e. More than one of the above answers is correct. 7. Suppose that demand for paper is given by the inverse function qqPD3140)(−= . It follows that demand is unit elastic a. only at a price of ()613121==p . b. only at a price of 20)40(21==p . c. only at a price of 4=p . d. only at a price of ()6012021==p . e. at all prices. 8. Paul likes both =1x (peanut butter) and =2x (grape jelly). He always gets the same additional satisfaction from “3 more ounces of peanut butter” as he does from “one more ounce of grape jelly.” Which of the following utility functions is consistent with these preferences? a. ()21213, xxxxU = . b. () { }21213,min, xxxxU = c. ()21213, xxxxU += d. ()21213, xxxxU += e. Any of the above utility functions is consistent with the stated preferences.9. Consider a firm with Long Run Average Costs of 220)( qqACLR= . a. The underlying production function exhibits Decreasing Returns to Scale. b. The underlying production function exhibits Constant Returns to Scale. c. The underlying production function exhibits Increasing Returns to Scale. d. The underlying production function exhibits Increasing Returns to Scale for low levels of q and Decreasing Returns to Scale for high levels of q . e. More information is needed in order to make any statement regarding the Returns to Scale of the production process. 10. Jesse 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 Engel Curve for good one is positively sloped. b. his Income Consumption Curve is positively sloped. c. his Income Elasticity of Demand for good two is positive. d. an increase in income would lead to a rightward shift of his demand curve for good one. e. All of the above answers are correct. 11. Consider a production process for which there is a “Diminishing Marginal Product of Labor.” This implies that a. doubling the use of every input will less than double the amount of output. b. the demand curve for the commodity being produced must satisfy the “Law of Demand.” c. LMP becomes negative at “high levels of labor.” d. LMP becomes smaller as more labor is hired. e. KLMRTS, does not depend upon the level of either L or K. 12. Bob produces output according to the production function )36(.)12(.),( KLKLF = . He wants to produce q units as inexpensively as possible. In the Long Run, a. he should hire zero units of capital whenever rw<. b. he should hire zero units of labor whenever rw > . c. he should choose a combination of labor and capital for which rwKLMRTS =,. d. his Average Costs of production are constant for all levels of output. e. he should hire “three times as much labor as capital” (i.e., “LK 3= ”), regardless of the factor prices.13. Microeconomics a. analyzes the performance of national economies. b. deals with issues such as inflation rates, unemployment rates, and business cycles. c. studies choices of individual consumers but never businesses. d. examines the behavior of all types of individual decision makers, including consumers, households, managers, and firms. e. is never useful for making sound business decisions. For questions 14 and 15, consider the following estimates for elasticities for “Good X” and “Good Y,” under current market conditions: Good X Good Y Price Elasticity of Demand -.93 -1.23 Cross-Price Elasticity of Demand .34 .45 Income Elasticity of Demand -.12 .26 14. Based upon these values, an increase in consumer income would result in a. a decrease in demand for Good X (since 012.<−) and an increase in demand for Good Y (since 026. > ). b. an increase in demand for Good X (since 034. > ) and an increase in demand for Good Y (since 045. > ). c. a decrease in demand for Good X (since 093.<−) and


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