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Midterm I.Econ 101Professor GuseMonday October 15, 2007.Instructions. You have 55 minutes to complete the exam. There are 55 points available. Pleasewrite your responses on the exam itself in the space provided. If you require additional space, writeon the back of the page. You may refer only to your own handwritten, two-sided, “cheat sheet”.Calculators and all other references materials are not allowed. If a question asks for a numericquantity you may leave your answer in expression form for full credit. (e.g. “40−305” would beperfectly acceptable in place of “2”.) Be sure to label any diagrams you draw, to show your workand to explain your reasoning. Please turn in your cheat sheet with your exam. Thank you andgood luck!Name:Pledge:11. (5 Points) Define Average Product of Labor. AP(L)2. (10 Points) For value of L where AP(L) is greater than the marginal product of labor, MP(L)...MP(L) [must be1] / [is typically2] [increasing]/[decreasing] whileAP(L) [must be]/[is typically] [increasing]/[decreasing].For each slash, “/”, circle one option on either side of it - or simply write a sentence usingthose options. Explain briefly, using a diagram, if helpful.1“must be” = regardless of the underlying production function2“typically” = in the case of the classical production function studied in class.23. (15 Points) Marc has $300 to spend on mice and test-tubes. The price of mice is $1 each.Test-tube are $2 each. Marc decides to buy 100 mice.(a) (5 Points) Draw a budget line showing the choices available to Marc and mark his choice.Be sure to indicate how many test-tubes he bought.(b) (10 Poi nts) Suppose instead of $300 Marc was given 50 mice and 125 test-tubes. Whatcan you say about Marc’s willingness to trade mice for additional test-tubes? (i.e. Howmany test-tubes would he ask for in exchange for one of his mice?) Hint: an exactanswer may not be possible.34. (15 Points) Suppose that Zach’s Clothes Pins, Inc. has, in the short run, a fixed level ofcapital investment in pin-making equipment worth $80. Meanwhile labor (L) is a variableinput for Zach’s. For their current capital investment, the maximum of Zach’s AP(L) curveis 50 pins / hour. Assume the wage is $10/hour and the price of additional capital is $1 /unit.(a) (10 Points) How many clothes pins will Zach produce if the price of cl othes pins is $0.15per pin. Explain.(b) (5 Points) What is Zach’s profit when the price is $0.15?45. (15 Points) The diagram below shows Al and Betty’s combined daily PPF for crepes (C) anddijon mustard (D). Al’s individual PPF for these two good is also shown in the same picture.Assume that both individual and combined PPFs represents the production possibilities whenthe agents work alone.3(pieces)3 91091Dijon Mustard (Cups)CrepesCombined PPFAl’s PPFAl & Betty’sFigure 2.(a) (6 Points) Draw Betty’s individual PPF for crepes and dijon mustard (in the samediagram, if possible).(b) (1 Point) Al has a comparative advantage in the production ofi. Crepesii. Dijon Mustardiii. Bothiv. Neither(c) (1 Point) Betty has a comparative advantage in the production ofi. Crepesii. Dijon Mustardiii. Bothiv. Neither(d) (7 Points) Explain your answers.3In other words, the combined PPF does not represent any possible complementarities from having Al and Bettywork together in a production


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W&L ECON 101 - Midterm Exam

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