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Midterm 2 - solutions

# Midterm 2 - solutions - ECO303.02 Midterm 2 Fall 2010...

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ECO303.02 Midterm 2 Fall 2010 Solutions Part I. Multiple-Choice Questions (3 pts per question) There is only one correct choice in the following questions. 1) Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor? A) MP = 5 B) MP = 5K C) MP = 5L D) MP = 5K/L Answer: B 2) A straight-line isoquant A) is impossible. B) would indicate that the firm could switch from one output to another costlessly. C) would indicate that the firm could not switch from one output to another. D)would indicate that capital and labor cannot be substituted for each other in production. E) would indicate that capital and labor are perfect substitutes in production. Answer: E 3) In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, marginal cost is A) below average total cost. B) above average total cost. C) between the average variable and average total cost curves. D) below average fixed cost. Answer: A 4) If current output is more than the profit-maximizing output, which must be true?

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Midterm 2 - solutions - ECO303.02 Midterm 2 Fall 2010...

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