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Unformatted text preview: Econ 212 Practice Final Exam True/False Indicate whether the statement is true or false. ____ 1. If there are two goods and the prices of both goods rise, then the budget line must become steeper. ____ 2. If someone has a utility function U = 2 min{ x , y } , then x and y are perfect complements for that person. ____ 3. Henriettas utility function is U ( x 1 , x 2 ) = x 1 x 2 . She has diminishing marginal rate of substitution between goods 1 and 2. ____ 4. A firm uses a single variable input x to produce outputs according to the production function f (x) = 300 x 6 x 2 . This firm has fixed costs of $300. This firms shortrun marginal cost curve lies below its shortrun average variable cost curve for all positive values of x . ____ 5. If the marginal product of each factor decreases as the amount of that factor used increases, then there must be decreas ing returns to scale. ____ 6. If a profitmaximizing competitive firm has constant returns to scale, then its longrun profits must be zero. ____ 7. Average cost can never rise while marginal costs are declining. ____ 8. If there are constant returns to scale in a competitive industry, then the longrun industry supply curve for that industry is horizontal. ____ 9. Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than in competitive industries. ____ 10. A monopolist will always equate marginal revenue and marginal cost when maximizing profit. ____ 11. If consumer 1 has the demand function x 1 = 1,000  2 p and consumer 2 has the demand function x 2 = 500  p , then the ag gregate demand function for an economy with just these two consumers would be x = 1,500  3 p for p &lt; 500. ____ 12. If the demand curve is a linear function of price, then the price elasticity of demand is the same at all prices. ____ 13. The equivalent variation in income from a tax is the amount of extra income that a consumer would need in order to be as well off after the tax is imposed as he was originally....
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This note was uploaded on 01/26/2010 for the course ECONOMICS EC212 taught by Professor Yu during the Spring '08 term at Mt. Holyoke.
 Spring '08
 Yu
 Utility

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