Econ 310 29031a Final Exam Multiple Choice: (circle the correct letter) (4 points each) 1) Consider a consumer with income 100=I . Suppose 101=p and 52=p . For this consumer, the bundle )10,5(),(21=xx : a. is affordable. b. is not affordable. c. must be optimal. d. Both (a) and (c) are correct. e. None of the above answers are correct. 2) The production function KLKLF=),( (which results in KMPL= and LMPK= ) a. exhibits constant returns to scale. b. is such that LKMRTSKL=,. c. indicates that the firm must be operating in the short run. d. implies that the Law of Demand must be satisfied for the product which the firm is producing. e. More than one, but not all of the above are correct. 3) Consider a monopolist with zero costs of production (and therefore marginal costs equal to zero), facing demand ppD−=100)( . For this monopolist qqMR 2100)( −= . This monopolist maximizes profits by: a. producing 50*=q units of output. b. charging 50*=p for each unit sold. c. maximizing revenues. d. operating where 1,−=pqε. e. All of the above are correct. f. None of the above are correct. 4) Suppose market supply is given by )(pS and market demand is given by )( pD . Consider a price pˆ such that )ˆ()ˆ(pDpS > . At this price: a. the market is in equilibrium. b. there is “excess supply.” c. there is “excess demand.” d. consumers are not maximizing utility. e. Both (b) and (d) are correct. f. None of the above are correct.5) A perfectly competitive firm: a. maximizes profits by producing a level of output for which marginal revenue is equal to marginal cost. b. is a “price taking” firm. c. produces output which is identical to the output produced by its competitors. d. has a constant marginal revenue equal to the market price. e. All of the above are correct. f. (b) and (d) are correct, but (a) and (c) are not. 6) Consider a firm producing output according to the production function ),(KLF . Suppose this firm is operating in the short run with capital fixed at KK= . In order to minimize short run costs of production (subject to producing Q units of output), this firm must: a. hire an amount of labor for which wMPL=. b. figure out some way to change the level of capital hired. c. choose ),(KL so that rwMRTSKL=,. d. choose *SRLL = such that QKLFSR=),(*. e. All of the above answers are correct. f. None of the above answers are correct. True or False: (circle TRUE or FALSE) (3 points each) 1) TRUE or FALSE: The opportunity cost of a chosen alternative is the value of the most attractive alternative that is not chosen. 2) TRUE or FALSE: So long as the Law of Demand is satisfied, 1,−=pqε. 3) TRUE or FALSE: For a consumer with monotonic preferences, it must be that )1,6()3,7(f . 4) TRUE or FALSE: A consumer with 21)( xxXU+= will optimally spend all income on the commodity with the lower price. 5) TRUE or FALSE: The Engel Curve illustrates the optimal choice of 1x and 2x as income is continually varied. 6) TRUE or FALSE: For a firm with the production function LLF 10)( = , average costs of production increase as the target level of output increases.Problems and/or short answer questions: 1) Consider a consumer with preferences given by }2,min{)(21xxXU=. Suppose the consumer has income I, the price of commodity one is 1p , and the price of commodity two is 2p . a. State an inequality which describes the set of feasible bundles for this consumer (that is, state the budget constraint of this consumer). (4 points) b. Determine the optimal consumption bundle as a function of prices and income? (8 points) c. Clearly sketch the Income Consumption Curve for this consumer. (6 points)d. Based upon your answers thus far, do these commodities appear to be normal or inferior goods? Explain. (8 points) e. EXTRA CREDIT (8 points): As a function of income and prices, derive an expression for the “maximum level of utility that this consumer can achieve” (denote this function by ),,(21IppV ). How does ),,(21IppV change as income increases? Is this what you would expect intuitively? 2) Consider a competitive firm with short run costs of production given by 10002510)(2++= qqqCSR. For this firm qqMCSR5010)(+=. a. Determine variable costs and fixed costs of production. (8 points)b. Determine average variable costs of production. (4 points) c. For what levels of output are marginal costs greater than average variable costs? (4 points) d. Determine the short run supply of this firm as a function of price. (8 points) e. Derive an expression for producer’s surplus for any arbitrary price p resulting in a positive level of output. Explain how this function behaves as price increases. (8 points)(…this page has intentionally been left