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Unformatted text preview: 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: (a) May be upward sloping. (b) Will have a slope of- 2. (c) Will have a slope between 0 and- 2. (d) Will be steeper than the individual demand curves. (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: (a) y is an inferior good. (b) y is a normal good. (c) y is a Giffen good. (d) They will have the same sign no matter what type of good y is. 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. 4. At current prices, the price elasticity of demand for pizza is- 4 5 . Which if the following will happen if the pizza parlor raises its price by a small amount? (a) Demand for pizza will increase. (b) Revenues will increase. (c) Costs will increase....
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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