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Quiz 3 Ec21 W2014.pdf

Quiz 3 Ec21 W2014.pdf - Dartmouth ID(not name Economics 21...

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Page 1 of 8 Dartmouth ID ( not name): ___________________________ Economics 21 Winter 2014 Quiz 3 Instructions: Show all your work! (no credit for correct answers unless the intermediate steps are shown) You can earn 45 points in total. All items (including the axes) in a graph need to be labeled to get full credit There one extra page at the end in case you need additional space Do not remove the staple or tear out pages Books, notes, your own calculators or cell phones are not allowed. You are only allowed to use the calculator provided by me. Good luck!
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Page 2 of 8 1. Short Answer Questions (14 points) a. Define “decreasing returns to scale.” b. In words, explain why a profit-maximizing firm sets its level of output such that marginal revenue equals marginal cost.
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Page 3 of 8 c. Define “Pareto-efficient allocation.” d. A firm is using a cost-minimizing combination of labor and capital. The firm’s total cost of production is 300. The wage rate is 20 and the rental rate of capital is 30. At the firm’s choice of quantities of labor and capital, the marginal product of labor is 4 and the marginal product of capital is 5.
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