e360_apape_midterm2practice

e360_apape_midterm2practice - Econ 360 Practice Questions:...

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Econ 360 Practice Questions: Midterm 2 Nov 06, 2008 Andreas Duus Pape Department of Economics Binghamton University email: apape@binghamton.edu Office Hours: Wed 2-4pm or by app’t Phone: x72660 Office: LT 904 1. There is a producer of pencils in Binghamton ( q ) who uses both K apital and L abor in produc- tion. His production function is q = L 1 / 4 K 1 / 2 . (a) One day, the producer got a large inheritance, and decided to use it to expand his business. He is deciding whether he’d be better off opening a second firm to make pencils (with the same production function) or expand his current firm. Which is a better idea (or can’t you tell)? Why? (b) Suppose labor costs the same as capital; both cost $10 per unit. Find the producer’s optimal ratio of Labor to Capital in the short run , or explain why you do not have enough information. Then, find the producer’s optimal ratio of Labor to Capital in the long run , or explain why you do not have enough information. 2. Suppose we are examining a perfectly competitive market. Claim: The quantity and price in this market is socially optimal; that is, society would not be better off by requiring a higher or lower price. Is this claim true, false, or uncertain? Why? Explain.
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e360_apape_midterm2practice - Econ 360 Practice Questions:...

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