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ECN100 MT2 S09 Key Parman

ECN100 MT2 S09 Key Parman - Ecn 100 Intermediate...

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Ecn 100 - Intermediate Microeconomic Theory University of California - Davis May 14, 2009 Instructor: John Parman Midterm 2 - Solutions You have until 4:30pm 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. If a production technology exhibits diminishing marginal product of labor and the 10th worker hired increases output by 20 units: (a) The 20th worker hired will increase output by more than 20 units. (b) The 20th worker hired will decrease output (c) The 5th worker hired will increase output by more than 20 units. (d) The 5th worker hired will decrease output. (c) Each successive worker will generate a smaller increase in output than the previous worker. So the fifth worker hired will generate a greater increase in output than the 10th worker hired. 2. A market has two consumers. Each consumer has a downward sloping demand curve with a slope of - 2. The market demand curve: (c) If both individual demand curves are downward sloping, the market demand curve will also be downward sloping but will be flatter than either individual de- mand curve. This means it must have a negative slope with a magnitude of less than 2. 3. If the price of x increases, the income and substitution effects for good y will have different signs if:
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2 Midterm 2 - Solutions (b) If the price of x increases, the substitution effect for y will be positive because y has gotten relatively cheaper. Because of the increase in the price of x effective income will have gone down. If y is a normal good, this will mean a negative substitution effect. If y is an inferior good, it will mean a positive substitution effect.
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