Econ+101+Winter+2009+Exam+3+V1+-+answer+key

Econ+101+Winter+2009+Exam+3+V1+-+answer+key - 1. _Which of...

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1. ___Which of the following statements regarding public goods is FALSE? (a) There is little or no rivalry in consumption of a public good. (b) It is very costly to exclude consumers from consuming a public good. (c) The freely operating market will typically under-provide public goods. (d) To provide incentives for efficient provision of a public good, each consumer should pay a price equal to the marginal cost of the public good. (e) None of the above: all answers (a) – (d) are true. 2. ___Housecleaning services in Ann Arbor are provided in a competitive market. Each housecleaner has the same variable cost curves. In order to enter the housecleaning market, a prospective housecleaner must give up his or her best alternative job. Therefore, the monthly salary from that alternative job is the (fixed) opportunity cost of operating in the industry. Suppose this is the only fixed cost that housecleaners bear. Also suppose that those who work in the housecleaning industry care only about their net monthly income (i.e. their salary net of any expenses when working elsewhere, or their profits when working as a housecleaner). The housecleaning market is initially in long-run equilibrium. Each housecleaner cleans for 50 hours per week at a wage of $30/hour. At this level of output, each housecleaner has average variable cost of $10/hour. Equilibrium in this market is disturbed by an unspecified shock that does not affect any firm’s marginal cost function. Once the market returns to long run equilibrium it is observed that no housecleaner forgoes an alternative salary greater than $750. Which of the following must be true of this long run equilibrium? (a) There are more housecleaners operating in the final equilibrium than in the initial equilibrium. (b) Total industry output is higher in the final equilibrium than in the initial equilibrium. (c) No individual housecleaner will work more hours in the final equilibrium than in the initial equilibrium. (d) It can not be determined if the market price in the final equilibrium is higher or lower than in the initial equilibrium. (e) The marginal firm in the final equilibrium will make less profit than the marginal firm in the initial equilibrium.
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Questions 3, 4 and 5 refer to the data in the following table . Complete the table showing output (Q), marginal product of labor (MPL), the price of output (P) and the marginal revenue product of labor (MRPL) all as determined by the labor input (L). Assume the firm takes both output and input prices as given, and that labor is the only variable factor of production. L Q MPL P MRPL 1 2 10 3 31 6 4 300 5 35 1 3. ___If the wage is $660 per unit of labor, then the profit maximizing firm will choose to employ (a) 1 unit of labor (b) 2 units of labor (c) 3 units of labor (d) 4 units of labor (e) 5 units of labor 4. ___If the firm were producing 34 units of output, its marginal cost (specifically, the cost of producing the last unit of output – i.e. the 34 th unit) would be
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This note was uploaded on 01/17/2011 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Econ+101+Winter+2009+Exam+3+V1+-+answer+key - 1. _Which of...

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