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Unformatted text preview: Economics 302 Silve Parviainen Intermediate Microeconomics Spring 2007 Midterm Examination II This is a 90minute 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 CobbDouglas 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 shortrun 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 shortrun production function and an isoprofit line. Clearly mark the optimal labor demand/output point in the graph. (c) Analyze the results to shortrun 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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This note was uploaded on 09/27/2008 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.
 Spring '08
 TOOSSI
 Microeconomics

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