# mt2f06 - Version #1 Econ 101-Fall 2006 Midterm exam 2...

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Version #1 Page 1/14 Econ 101-Fall 2006 Professor Carranza Midterm exam 2 November 13, 2006

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Version #1 Page 2/14 Use the following information to answer the next two questions: Figure (a) shows the total product curve, and figure (b) shows the average product of labor and marginal product of labor curves for a small firm. 1. When the firm produces at point A of figure (a), it is also true that in figure (b) the firm produces at point (notice that after point A adding more labor decreases production): a) B b) C c) D d) E *e) F 2. In figure (b), the firm faces decreasing marginal returns of labor when hiring more labor than at point: a) B b) C *c) D d) E e) F Use the following table to answer the next six questions: Some small firm faces the following production possibilities in the short-run. Labor Capital Output (Q) 0 5 0 1 5 50 2 5 400 3 5 700 4 5 900 5 5 1000 3. What is the average product for 5 units of labor? *a) 200 b) 100 c) 20 d) 1000 e) 10 A C E figure (b) figure (a) Labor AP MP TP Labor D B F AP, MP TP
Version #1 Page 3/14 4. What is the marginal product of the 4 th worker? *a) 200 b) 100 c) 20 d) 1000 e) 900 5. Diminishing marginal returns of labor start between the ____ and ____ unit of labor. (in other words at what output level does the MP of labor start to decrease?) a) 1 st ; 2 nd *b) 2 nd ; 3 rd c) 3 rd ; 4 th d) 4 th ; 5 th e) There are no diminishing marginal returns to labor for the given information 6. Suppose that the price of labor is \$10 and the price of capital is \$20. Then, the short run cost function of this firm evaluated at an output of Q= 900 is: a) \$40 b) \$45 c) \$100 d) \$104 *e) \$140 7. (Harder) Again, suppose that the price of labor is \$10 and the price of capital is \$20. Moreover, suppose that the price of output is 10 cents, i.e. P=\$0.1, and that the firm has chosen to produce 900 units to maximize profits. In this situation the firm (Hint: notice that the producer surplus is just the difference between revenue and variable cost): a) Is having economic losses of 0 and surplus of 90. b) Is having economic losses of 90 and surplus of 0. c) Is having economic profits of 50 and surplus of 50. d) Is having economic profits of 0 and surplus of 0. *e) Is having economic losses of 50 and surplus of 50. 8. (Harder) Again, suppose that the price of labor is \$10 and the price of capital is \$20. In the long run, if the firm is hiring 4 workers and has 5 units of capital, to produce 900 units of output, then the marginal product of capital is (Hint: remember that at the long run optimum K L MP MP / =w/r): a) 50 a) 200 b) 300 *c) 400 d) 800 e) None of the above

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Version #1 Page 4/14 Use the graph above to answer the following six questions. The graph illustrates the isoquant corresponding to an output level of q=100 and the long run optimal choice of inputs K and L at the given input prices r and w, respectively. It also illustrates the corresponding isocost curve, for which the cost is \$1000.
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## mt2f06 - Version #1 Econ 101-Fall 2006 Midterm exam 2...

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