Midterm_1___Answer_Key - Econ 101 Spring 2009 Introductory...

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Econ 101 Spring 2009 Prof. Mike Aguilar Introductory Economics UNC at Chapel Hill Test #1 02/16/09 Partial Solutions This answer key has detailed solutions to the problems that presented a higher degree of difficulty. For the questions worth 2.5 points and 3 points we only present the correct answer, without further explanation. The correct answers are highlighted in yellow.
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1) (2.5 points) Consider the following graph of a PPF. Points _______ are attainable and point ________ is efficient. A and C; B A and C; C A and C; A B and C; A 2) (2.5 points) The PPF of a furniture manufacturer is given by the following equation: Tables = 40 – ½ × Chairs. What is the opportunity cost of producing a table? ½ Chair ½ Dollar 2 Chairs 40 Chairs
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3) (4.5 points) Paul and Chris work for a furniture maker, where they produce tables and chairs. They have identical PPF’s, which are measured in units of output per day. They currently are producing at the combinations identified in the graph. Their boss needs to produce an extra table. Who should he ask to produce that extra table, according to each worker’s opportunity cost? Paul Chris Either employee The given information is not enough to answer the question Solution: The opportunity cost of chairs is the absolute value of the slope of the PPF. Therefore, we can view the opportunity cost of Tables as the absolute of the inverse of the slope of the PPF. Notice that the slope is steepest for Chris. Therefore, the opportunity cost of a Table (i.e. inverse of the slope) is smallest for Chris. 4) (3points) Consider the PPF of a computer manufacturer, measured in units of output per day. At what point is the opportunity cost of producing a desktop highest? A B C D The opportunity cost is constant along the curve
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5) (2.5 points) Consider a farmer that grows both corn and cattle. The initial PPF of daily production for these products is given by curve A in the graph below. The PPF then shifts to B. Which of the following could explain this shift? A new growth hormone for cattle has been released in the market The farmer acquired a new tractor. The tractor can be used to carry the corn crops and to transport the cattle’s food A new pesticide has been released. It reduces corn’s exposure to pests All of the above 6) (2.5 points) John and Louise are both in the shoe business. Their PPF’s for daily production are sketched in the graph below. _________ has an absolute advantage in the production of shoes and ____________ has a comparative advantage in the production of shoes. Louise; Louise; Louise; John; John; John; John; Louise.
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The following corresponds to questions 7 & 8. The tables below provide the daily production possibilities of pizza and pasta for two different Italian restaurants, one owned by Sophie and one owned by Mark. Pizza Pies Pounds of Pasta 0 8 2 4 Mark Pizza Pies Pounds of Pasta 1 6 2 5 Sophie 7) (4.5 points) The two restaurant owners decide to join efforts. They agree to specialize completely in the production of the food in which they have a comparative advantage. Therefore, ______________ will cook pizzas and __________ will cook pasta.
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