Spring '08 - Midterm 1 Answers

Spring '08 - Midterm 1 Answers - Econ 100B, Midterm 1...

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Econ 100B, Midterm 1 LAST NAME: __________________________ Tuesday, April 22, 2008 FIRST NAME: _________________________ STUDENT ID: _________________________ SIGNATURE: __________________________ You have one hour and twenty minutes for the exam. Show all work. We reserve the right to deduct points from answers that are hard to read. There are a total of 80 points possible. No notes, calculators, electronic devices, etc. are allowed. Relax and enjoy! 1) A firm uses labor ( L ) and capital ( K ) to produce output ( Q ). The firm’s short run total cost function (where K is fixed at K and L varies) is given by: SRTC=50+Q 2 (10 pts total) a. What is the firm’s short run average variable cost? (2 pts) AVC=Q b. What is the firm’s short run marginal cost? (2 pts) MC=2Q c. At what level of Q is short run average variable cost minimized? (2 pts) Q=0 d. What will MC be at the point where short run average variable cost is at its minimum? (1 pt) MC=0 e. If Q=KL, can you find values of w, r, and K that result in the total cost function above? Show work. (3 pts) -- REVISED to be L K Q = r=50, w=1, K=1
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2) I can become a faster bicyclist by getting better parts for my bike (e.g. lighter frame, faster wheels, etc.), or I can spend more time training on my bike. Specifically, my production function for speed is q=100(K 1/2 L 1/4 ) where q is my quickness, K is parts input, and L is training input. (12 pts total) a. What is my marginal productivity of capital? (2 pts) 2 1 4 1 50 - = K L MP K b. What is my marginal productivity of labor? (2 pts) 4 3 2 1 25 - = L K MP L c. What is my marginal rate of technical substitution |MRTS| between capital and labor? Simplify this expression as far as you can. (2 pts)
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This note was uploaded on 09/07/2009 for the course ECON Econ 100C taught by Professor Tang during the Spring '09 term at UCSD.

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Spring '08 - Midterm 1 Answers - Econ 100B, Midterm 1...

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