Micro 350 Prac Exam 2 Ans

Micro 350 Prac Exam 2 Ans - Practice Exam 2 Answers 1...

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Practice Exam 2 Answers Intermediate Microeconomics 350 Practice Exam 2 Answers IX-1 1. Diminishing returns begin to occur a. when the slope of the ray from the origin reaches a maximum. b. when the total product curve reaches a maximum. *c. when the slope of the total product curve reaches a maximum. d. when the marginal product curve intersects the average product curve. Diminishing returns means that total output begins to increase at a decreasing rate. IX-2 2. A production function for which proportional changes in all inputs leads to a more-than-proportional change in output is said to exhibit a. diminishing returns b. constant returns to scale c. decreasing returns to scale *d. increasing returns to scale This is the definition of increasing returns to scale. Note that ATC diminishes for production functions with increasing returns to scale. It is a reason why natural monopolies exist. IX-3 3. An isoquant refers to: a. a collection of combinations of outputs which give the same total revenue b. a collection of combinations of inputs (bundles of goods) which produce the same total utility c. the production possibility frontier for a given level of technology d. the combination of inputs which produces a given level of output at the same total cost *e. a collection of combinations of inputs (labor and capital) which produce the same quantity of output An isoquant has the same (iso) number (quant) of units of output produced by different combinations of inputs. It does not directly refer to revenue. (b) describes an indifference curve. (c), the PPF, gives different types of outputs, not the same quantity of a single type of output. (d) describes the budget line. (e) is correct. 1
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Practice Exam 2 Answers X-1 4. Output is produced using land, labor and capital. What happens to the wage if the quantity of land and capital increases, but there is no change in the labor force? Assume technology is unchanged. a. the wage decreases b. the wage is unchanged *c. the wage increases d. the wage may increase, decrease or stay the same The wage, in equilibrium, will be the marginal product of labor. MPl is a positive function of the capital/labor and land/labor ratios, so the wage will increase. X-2 5. The sandy soil of the great state of Idaho is well suited to raising potatoes. Now the low carb craze reduces the demand for potatoes and the price per bushel of Idaho potatoes. What happens to the rent per acre of Idaho farmland in spud country? a. The rent is unchanged because input markets are independent of output markets. b. The rent rises, because farm owners must make up for the loss of potato revenue some way. *c. The rent falls, because the MRP of the land falls. d. It may rise, fall, or stay the same. It depends on the
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This note was uploaded on 04/16/2008 for the course ECON 350 taught by Professor Cunningham during the Spring '07 term at Chapman University .

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Micro 350 Prac Exam 2 Ans - Practice Exam 2 Answers 1...

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