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Unformatted text preview: Ecn 100 - Intermediate Microeconomic Theory University of California - Davis September 9, 2009 Instructor: John Parman Final Exam - Solutions You have until 1:50pm to complete this exam. Be certain to put your name, id number and section on both the exam and your scantron sheet and fill in test form A on the scantron. Answer all multiple choice questions on your scantron sheet. Choose the single best answer for each question; if you fill in multiple answers for a question you will be marked wrong. Answer the long answer questions directly on the exam. You must show your work for full credit. Answers may be left as fractions. Please place a box around final answers when appropriate. Good luck! Name: ID Number: Section: SECTION I: MULTIPLE CHOICE (60 points) 1. A firm with smooth, convex isoquants and a diminishing technical rate of substitution is currently minimizing costs by using 10 units of capital and 10 units of labor. If the rental rate of capital increases and the firm wants to keep producing the same amount of output, it will: (a) Switch to using more than 10 units of labor and more than 10 units of capital. (b) Switch to using less than 10 units of labor and more than 10 units of capital. (c) Switch to using more than 10 units of labor and less than 10 units of capital. (d) Switch to using less than 10 units of labor and less than 10 units of capital. (c) If the rental rate of capital increases relative to the wage, the isocost lines will get flatter (on a graph with labor on the horizontal axis and capital on the vertical axis). At the old combination of capital and labor, there will now be points down and to the right along the isoquant that will lie below the isocost curve. So the firm can lower its costs by switching to using more labor and less capital. 2. Bundles on the same indifference curve: (a) Will give a consumer the same level of utility but may cost different amounts. (b) Will cost a consumer the same amount but may give the consumer different levels of utility. (c) Will be preferred to bundles lying above the indifference curve if preferences are mono- tonic. (d) None of the above. (a) By definition, two bundles on the same indifference curve give the consumer the same level of utility. Indifference curves don’t tell us about how much the bundles cost. 3. If average variable costs are rising as output increases, which of the following must be true? (a) Average costs are rising as output increases. (b) Marginal costs are above average costs. 2 Final Exam - Solutions (c) Marginal costs are above average variable costs. (d) Average costs are falling as output increases. (c) When marginal costs are above average variable costs, the next unit produced will increase variable costs by an amount greater than the current average, pulling up the average variable costs. Average total costs may still be falling due to falling average fixed costs....
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This note was uploaded on 10/22/2010 for the course ECN 100 taught by Professor Parman during the Fall '08 term at UC Davis.
- Fall '08