practice exam 2 solutions - University of Illinois at...

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1 University of Illinois at Urbana-Champaign ECON302 Intermediate Microeconomics Exam 2 Solutions PART I: Multiple Choice Questions (50 points) 1. Identify the truthfulness of the following statements. I. When the marginal product of labor is falling, the average product of labor is falling. II. When the marginal product curve lies above the average product curve, then average product is rising. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true. Ans: D K=0 K=1 K=2 K=3 K=4 L=0 0 0 0 0 0 L=1 0 1 2 3 4 L=2 0 8 16 24 32 L=3 0 27 54 81 108 L=4 0 64 128 192 256 Table 1 2. Refer to the table 1. Holding labor constant, what do you notice about the marginal productivity of capital? a) The marginal product of capital is always increasing. b) The marginal product of capital is always constant. c) The marginal product of capital is always decreasing. d) The marginal product of capital increases, then decreases. Ans: B
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2 3. An isoquant represents a) all combinations of inputs that produce a given level of output at the same cost. b) all combinations of inputs that produce a given level of output. c) all combinations of output that require the same levels of inputs. d) all combinations of inputs that cost the same amount. Ans: B 4. When a production function can be expressed as ( )( ) Q aKbL , the relationship between capital and labor in the production function is that a) capital and labor are perfect substitutes, and the isoquants are linear. b) capital and labor must be combined in fixed proportions, and the isoquants are L- shaped. c) capital and labor are substitutable, and the isoquants are convex to the origin. d) capital and labor are perfect substitutes, and the isoquants are L-shaped. Ans: C 5. Identify the true statement. a) Decreasing returns to scale and diminishing marginal returns are just two different ways of saying the same thing. b) Returns to scale pertains to the impact on output of increasing all inputs simultaneously; diminishing marginal returns pertains to the impact of changing a single input while holding all other inputs constant. c) Returns to scale pertains to the impact on output of changing a single input while holding all other inputs constant; diminishing marginal returns pertains to the impact on output of increasing all inputs simultaneously. d) Returns to scale can be identified by calculating the slope of an isoquant. Ans: B 6. Consider a production function of the form 2 2 L K . What is the marginal rate of technical substitution of labor for capital at the point where K = 5 and L = 5? a) 5 b) 25 c) 50 d) 1 Ans: D
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3 7. When the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis, the slope of the isocost line is (assuming w is the price of labor and r is the price of capital and production uses only these two inputs) a) b) c) K L MP d) Ans: A 8. Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital.
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This note was uploaded on 05/25/2011 for the course ECON 302 taught by Professor Toossi during the Spring '08 term at University of Illinois at Urbana–Champaign.

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practice exam 2 solutions - University of Illinois at...

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