This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Final Exam
Econ 10002
Fall 1998 IF YOU WOULD LIKE TO RECEIVE PARTIAL CREDIT THEN YOU MUST
SHOW ALL OF YOUR WORK. ' Questions 17 are each worth 4 points. 1) If Peter’s utility function for apples and bananas is U(A,B)=min{A,5B}, then apples
and bananas must be a) perfectly elastic b) perfect substitutes
c) perfect complements
d) perfectly inelastic 2) The diagram below indicates that X is ' a) normal .and a Giffen good
b) inferior and a Giffen good
c) inferior but not a Giffen good
d) a Giffen good but not inferior 3) Which of the following sentences best describes the output effect? a) the change in the amount of a good produced by a ﬁrm, when the price of the good
changes b) then change in the amount of a good produced by a ﬁrm when the price of an input
changes c) the change in the amount of input used by a ﬁrm when the price of the good it
produces changes (1) the change in the amount of input used by a ﬁrm when the amount of the good it
produces changes 4) Susan is a saver. This means that when the interest rate falls the income effect will
cause her to a) increase her current consumption and reduce future consumption b) increase both her current consumption and her future consumption
c) decrease her current consumption and decrease future consumption
d) decrease her current consumption and increase future consumption 5) The demand for CD’s is C=2/I + PcPs. Where PS is the price of stereo’s. Stereo’s are
a normal good. From this demand equation, we can see that CD’S a) are inferior, giffen and complements with stereos. b) Are inferior, not giffen, and complements with stereos.
0) Are normal, not giffen and complements with stereos
d) Are normal, not giffen and substitutes with stereos. 6) If a ﬁrm’s proﬁts are negative, then it shOuld stay open only if a) it is the short run and P>AVC
b) it is the short run and P<AVC
c) it is the long run and P>AVC
d) it is the long run and P<AVC 7) The production function for Firm X is F(K,L)=K2 + L2 . This ﬁrm exhibits a) constant returns to scale b) increasing returns to scale c) a downward sloping marginal revenue product curve for labor
d) a downward sloping marginal revenue product curve for capital 8) Yummy Bakeries production function for mufﬁns is F(K,L)=K2+logL . Yummy
Bakeries charges $1 for its mufﬁns. The cost of one unit of labor is $.25 and the cost of one unit of capital is 2. How many mufﬁns should Yummy Bakeries produce? What
will its proﬁts be when it produces this many mufﬁns? (10 points) 9) Gary’s utility function for chess and tennis is U=(3c+2)t2. ,
If Gary starts with 1 game of chess and 5 games of tennis, how many games of tennis
would he be willing to give up to play another game of chess? (5 points) 10) Professor Harris grades her students according to whether they write well, do well on
exams, and speak up in class. If student A is better than student B in two of these
characteristics then Professor Harris gives student A a higher grade than student B. If
student B is better than student A in two of these characteristics then Professor Harris
gives student B a higher grade than student A. Otherwise, they get the same grade. Judy writes eloquently, fails exams, and asks one question per week.
Alice writes eloquently, gets 100% on exams, but never asks any questions in Class.
Barbara writes poorly, gets 50% on exams, and asks one question per class. a) Which student will Professor Harris give a higher grade to, Judy or Alice? (5 points)
'b) Does Professor Harris have transitive preferences? (5' points) 11) The diagram below shows Andy’s budget constraint for two goodsleisure and
consumption. 1"\\ Dollars of
Consumption 32 16 Daily hours
of Leisure a) What is Andy’s wage rate? (3 points) ‘b) A new policy is implemented. This policy would give Andy a daily subsistence
guarantee of $10. At the same time, a minimum wage is implemented. The new
minimum wage is $3. How do these two policy changes affect Andy’s budget
constraint? Show on the diagram above. What is the new Y intercept? (7 points) c) Discuss the likely effects of the policy changes on Andy’s hours of work. Use the
notions of income and substitution effects. (7 points) 12) Rain City, WA is considering holding a rain festival. The cost of the festival would
be $100,000. It is hoped that the festival would make enough of an advertising splash
that in the following year tourism would bring in $150,000. How low would the interest
rate need to be in order to make the festival worthwhile? (6 points) 13) Tony’s demand equation for ﬂowers is F=10'Pf2PA where Pf is the price of ﬂowers
and PA is the price of all other goods. If Pf=2 and PA =1 then will Tony spend more
or less money on ﬂowers when the price of ﬂowers rises? (Hint: you need to
calculate the price elasticity of demand to get full credit). (10 points) 14) Is the economy below in general equilibrium? Why or why not? (9 points) Alfalfa EBeth’s Utility

\\ i PPF
May’s Utility Bean Sprouts 15) A ﬁrrn’s production function is F(L)=Ll/2. Find an equation that describes the ﬁrm’s
demand curve for labor. Under what circumstances will the demand for labor be
equal to 0? Will these conditions ever occur? (10 points). 16) The diagram below shows the marginal revenue product curve for labor and the marginal factor cost (wage). Show what happens to these curves and to the proﬁt maximizing amount of labor that should be hired when the price of the output good
increases. (5 points) I wage ...
View
Full Document
 Fall '10
 RANDHAL

Click to edit the document details