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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Spring 2007 Midterm Examination II This is a 90-minute exam, with closed books and notes. No calculators allowed. There are four questions in the exam. Each question is worth 25 points. Remember to label your graphs carefully, and show your work. GOOD LUCK! 1 P r o fi t M a x i m i z a t i o n Assume, that a firm has Cobb-Douglas production function q = l 1 2 k 1 2 , and the amount of capital is fixed at k = 4 in the short run. The wage rate is w = 1, the rental rate of capital r = 1, and the market price P = 2. (a) Determine the short-run optimal labor demand, l SR and output level q . (b) In a clearly labeled graph, with l on the horizontal and q on the vertical axis, draw the short-run production function and an isoprofit line. Clearly mark the optimal labor demand/output point in the graph. (c) Analyze the results to short-run labor demand and output of 1. a change in P from P = 2 to P = 3 (keeping w = r = 1), 2. a change in2....
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- Spring '08