Exam 2- Answer Key

Exam 2- Answer Key - Economics 310, Section 1 Summer 2007...

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Economics 310, Section 1 Summer 2007 Name _ANSWER KEY____ The following exam consists of 60 questions on 6 pages. Please check to see that you have all parts of the exam before beginning. The exam is worth 100 points. You have 90 minutes to complete the exam. Time may be a factor, so do not get stuck on any question. You may use a calculator. Good Luck. A. Multiple Choice (15 points, 16 Questions. Miss one for free) 1. The marginal product of labor is defined to be a. the additional output attributable to the last unit of labor employed. b. the amount of output obtained, on average, from each unit of labor employed. c. the percentage increase in output caused by a 1% rise in labor usage. d. the amount of capital that the firm can use to replace one unit of labor. 2. The shapes of the total product and marginal product curves are related because a. An increase in total product pulls marginal product up. b. Marginal product gives the slope of total product. c. Marginal product increases as total product increases. d. The marginal product curve lies above the total product curve. 3. An isoquant shows the various combinations of labor and capital that a. the firm will choose to employ in the long run. b. yield the same total cost. c. can produce some fixed level of output. d. minimize the firm's average cost of production. 4. If the marginal rate of technical substitution of labor for capital (MRTS LK ) exceeds the relative price of labor in terms of capital (P L /P K ), then a. the firm's long-run average cost curve is rising. b. the firm is producing its output at the least possible cost, but the firm should reduce its output level to increase its profits. c. the firm has increased its output level beyond the point of diminishing marginal returns. d. the firm needs to use less capital and more labor to reach its expansion path. 5. A competitive firm will shut down its operations in the short run when the market price falls below its a. marginal revenue. b. marginal cost. c. average cost. d. average variable cost. 6. In the long-run, a firm will exit the industry if the market price is less than its a. break-even price. b. shutdown price. c. marginal cost. d. fixed cost. 7. Which of the following best summarizes the essence of the Invisible Hand Theorem? a. Competitive markets guarantee that any shortages or surpluses existing in an economy will be quickly eliminated. b. Of all the possible economic systems, competitive markets are the most philosophically compatible with democracy and freedom. c. Within competitive markets, people who selfishly pursue their own interests end up achieving a socially desirable outcome. d. The social gain created by competitive markets is second only to what a hypothetical benevolent dictator could achieve. 8. In an Edgeworth box, a point where two indifference curves are tangent represents
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Exam 2- Answer Key - Economics 310, Section 1 Summer 2007...

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