Midterm 2 Revew Problem Set

# Midterm 2 Revew Problem Set - ECO303.03 Midterm 2 Review...

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ECO303.03 Midterm 2 Review Problem Set Multiple-Choice Questions 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 average product of labor? A) AP = 5 B) AP = 5K C) AP = 5L D) AP = 5K/L Answer: B 2) An L-shaped 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: D 3) If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: A) technical efficiency. B) free disposal. C) diminishing marginal returns. D) positive average product. Answer: C 4) A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C = L 0.5 M 0.75 . This production function exhibits A) decreasing returns to scale for all output levels B) constant returns to scale for all output levels C) increasing returns to scale for all output levels D) no clear pattern of returns to scale Answer: C

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ECO303.03 Midterm 2 Review Problem Set 5) The diagram below shows an isoquant for the production of wheat. Which point has the highest marginal productivity of labor? A) Point A B) Point B C) Point C D) Point D Answer: D 6) A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should A) use five fewer units of capital. B) use 0.8 fewer units of capital.
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Midterm 2 Revew Problem Set - ECO303.03 Midterm 2 Review...

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