test2_jun26

# test2_jun26 - Department of Economics University of Toronto...

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Page 1 of 13 Department of Economics Prof. Gustavo Indart University of Toronto June 26, 2008 ECO 100Y INTRODUCTION TO ECONOMICS Midterm Test # 2 LAST NAME FIRST NAME STUDENT NUMBER Circle your section of the course : L0201 – T/R from 3:00 to 5:00 PM L5101 – T/R from 6:00 to 8:00 PM INSTRUCTIONS : 1. The total time for this test is 1 hour and 50 minutes. 2. Aids allowed: a simple calculator. 3. Write with pen instead of pencil. DO NOT WRITE IN THIS SPACE Part I 1. /10 2. /10 3. /10 4. /10 5. /10 Part II 1. /15 2. /15 Part III /40 TOTAL /120

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Page 2 of 13 PART I (50 marks) Instructions : Answer all questions in the space provided (if space is not sufficient, continue on the back of the previous page). Each question is worth 10 marks. Marks will be given entirely for the explanation. 1. (From Test 1 – Summer 2007) Oranges are produced with a fixed factor (land) and a variable factor (labour). Statement: Ronaldo – a former ECO100 student – states with authority that when the average product of labour is increasing, the marginal product of labour must also be increasing in the orange industry. Position: Do you agree with Ronaldo’s statement? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Ronaldo.
Page 3 of 13 2. (From Test 2 – Summer 2006) Scooters are produced in a constant cost industry with two factors of production: capital [K] and labour [L]. The price of labour [the wage rate] increases by 5% and, at the same time, the price of capital [rental fee] increases by 2%. Statement: Wendy is of the view that the long-run impact of this change in the relative prices of the factors of production will be an increase in both the marginal product of labour and the marginal product of capital. Position: Do you agree with Wendy’s view? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Wendy’s view.

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Page 4 of 13 3. Mariya owns a small firm in a perfectly competitive market. Her firm generates the following short-run information at the current level of output: the market price is \$20; the average variable cost is \$20; the marginal cost is \$15; and the average fixed cost is \$10. Statement: Mariya believes her firm is making economic losses and should, therefore, shut down production. Nataliya — a good friend of Mariya’s and an ECO100 student — advises her not only not to shut down but to hire more workers to expand production. Position: Do you agree with Nataliya’s advice? Use a proper diagram to analyze this situation and indicate, with reasons, whether you agree or disagree with Nataliya’s advice.
Page 5 of 13 4. (From Test 2 – Summer 2007) A perfectly competitive industry is in long-run equilibrium. Property taxes increase by \$500 for each firm in the industry.

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## This note was uploaded on 06/09/2010 for the course ECO ECO100 taught by Professor Inheart during the Spring '09 term at University of Toronto.

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test2_jun26 - Department of Economics University of Toronto...

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