exam2_sol_fall06 - Massachusetts Institute of Technology...

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Massachusetts Institute of Technology Department of Economics 14.01 Principles of Microeconomics Midterm Exam #2 Wednesday, November 6th, 2006 Last Name (Please print): ______________ First Name: __________________ MIT ID Number: __________________ Instructions. Please read carefully. The exam has a total of 100 points. Answers should be as concise as possible. This is a closed book exam. You are not allowed to use notes, equation sheets, books or any other aids. You are not allowed to use calculators. You must write your answers in the space provided between questions. DO NOT attach additional sheets of paper. This exam consists of (21) sheets (17 pages + 4 blank pages for scratch work). Please circle the section or recitation which you are attending below. The marked exam will be returned to you in the section or recitation that you indicate. R01: F10 (Peter Hinrichs) R02: F11 (Peter Hinrichs) R03: F12 (Chia-Hui Chen) R04: F1 (Chia-Hui Chen) R05: F2 (Chia-Hui Chen) R06: F2 (Peter Hinrichs) S01: MWF9 (Henry Zhang) S02: MWF10 (Ummul Ruthbah) S03: MWF11 (Ummul Ruthbah) S04: MWF1 (Daniel Gottlieb) DO NOT WRITE IN THE AREA BELOW: Question 1 __ /30 Question 2 __ /20 Question 3 __ /30 Question 4 __ /20 Total __ /100
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Short Questions: 1. ( TOTAL: 30 points ) In this section, write whether each statement is True or False. Please fully explain your answer, using a diagram if appropriate. No credit will be given for an answer without an explanation. (a) ( 5 points ) A Cobb-Douglass production function that exhibits decreasing returns to scale will always have diminishing marginal products to inputs. True. Because output increases less proportionately than inputs, marginal products will always decline with more inputs. (b) ( 5 points ) When the long run average cost function is horizontal the number of firms in the industry is indefinite. (Assume that all the firms in the industry are identical) True. The long run equilibrium price is at the minimum average cost. Since the average cost curve is horizontal each firm can produce any number of output. Therefore there can be any number of firms in the industry. (c) (
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This note was uploaded on 04/20/2010 for the course ECON 14.01 taught by Professor Pindyck during the Spring '08 term at MIT.

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exam2_sol_fall06 - Massachusetts Institute of Technology...

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