econ302-m2-spring08-solution-1 - University of Illinois at...

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University of Illinois at Urbana-Champaign ECON302 Intermediate Microeconomics Exam 2 April 3, 2008 Solutions PART I: Multiple Choice Questions (50 points) 1. The link between the productivity of labor and the standard of living is a. tenuous and changing. b. Inverse. c. that over the long run consumers rate of consumption is not related to labor productivity. d. that over the long run consumers as a whole can increase their rate of consumption only by increasing labor productivity. e. that the productivity of labor grows much more erratically than the standard of living. 2. Marginal product crosses the horizontal axis (is equal to zero) at the point where a. average product is maximized. b. total product is maximized. c. diminishing returns set in. d. output per worker reaches its maximum. e. all of the above are true. 3. Consider the production function 3 5 q K L = + , where K and L are the amounts of capital and labor inputs, respectively. Assume that capital is fixed in the short run. Then a. the average product of labor is always greater than the marginal product of labor. b. the average product of labor is always equal to the marginal product of labor. c. the average product of labor is always less than the marginal product of labor. d. as more labor is used, the average product of labor rises. e. there is no unambiguous relationship between labor's marginal and average product. 4. A firm's marginal product of labor is 3 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should a. use five fewer units of capital. b. use 0.6 fewer units of capital. c. use 1.67 fewer units of capital. d. use 1.67 more units of capital. e. use the same amount of capital as before. 5. An L-shaped isoquant a. is impossible. b. would indicate that the firm could switch from one output level to another costlessly. c. would indicate that the firm could not switch from one output level to another. d. would indicate that capital and labor can not be substituted for each other in production. e. would indicate that capital and labor are perfect substitutes in production. 1
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6. Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II. Diminishing returns to all factors of production implies decreasing returns to scale. a. both I and II are true. b. I is true and II is false. c. I is false and II is true. d. both I and II are false. 7. If input prices are constant, a firm with increasing returns to scale can expect a. costs to double as output doubles. b. costs to more than double as output doubles. c.
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This note was uploaded on 08/26/2009 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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econ302-m2-spring08-solution-1 - University of Illinois at...

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