# 102fin14 - Final Exam Elements of Microeconomics 180.102...

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Chapter 5 / Exercise 10
International Economics
Carbaugh
Expert Verified
Final Exam NAME:___________ Elements of Microeconomics 180.102 Spring 2014 GRADE: Q1 Q2 Q3 Q4 Q5 Q6 Q7 TOT 1. a. [6] Define the Law of Diminishing Returns and explain why it makes sense. b. [6] How does the Law of Diminishing Returns affect the shape of the firm’s short-run marginal cost curve? Explain. c. [4] How does the Law of Diminishing Returns affect the firm’s short-run average cost curve? Explain.
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Chapter 5 / Exercise 10
International Economics
Carbaugh
Expert Verified
d. [8] Below is a “typical” short-run average-cost curve for a firm. i. Draw a short-run marginal cost curve that is consistent with this curve, and explain. ii. Assume that the firm is in a competitive industry and the price of the good is as indicated on the vertical axis. Find the profit-maximizing level of output and the amount of profit the firm will earn. Explain. e. [6] Continue to assume that the industry is competitive and now also assume that the production process is subject to constant returns to scale. What will the equilibrium look like in the long run? Explain. P
2. a. [8] Using appropriate tools, find two points on a consumer/worker’s supply curve of labor. Explain. b. [7] In general, which way would you expect a consumer/worker’s labor supply curve to slope – upward or downward? Explain.
c. [15] Consider a consumer/worker, named Ishmael, who lives on a desert island. Ishmael likes two goods, C (for consumption) and l (leisure). He is able to produce C by giving up leisure, as depicted in the production-possibilities curve below: i. Initially Ishmael lives all alone and has no access to the outside world. Using appropriate tools, find how much time he will spend working. Explain. C l
ii. Now a ship arrives off Ishmael’s island. (You would think the ship captain, Ahab, would take Ishmael onboard to reunite him with his family, but that’s not going to happen. Read on.) Captain Ahab offers Ishmael the following deal: Ahab offers to hire Ishmael to work on the ship (which for some reason never leaves the island) at a wage \$w. Ishmael can spend his earnings on C, which Ahab will sell for price \$P. (In case you’re wondering, Ahab’s ship has the ability to produce C with Ishmael’s labor.) Using appropriate tools, show whether Ishmael will work on the ship at the wage offered by Ahab, and if so how much labor he will offer to Ahab. Explain.