Practice Quiz 1 Solution

Practice Quiz 1 Solution - + = + = = Increasing return to...

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Practice Quiz 1 Solution January 31 01 1. ) , min( 2 1 bz az y = = = = = b y z bz y a y z az y 2 2 1 1 Correct Answer: c. 2. Correct answer: c. ) , ( ) , ( L K cF cL cK F < Increasing both K and L by a factor c increases output by less than c . 3. Correct answer: c. See the graphical illustration below. TP MP TP MP Input Input 4. L L L Q 1620 18 2 . 0 2 3 + + - = 45 18 4 . 0 0 18 4 . 0 1620 18 2 . 0 2 = = = + - = + + - = = L L L dL dAP L L L Q AP L L Correct answer: b. Page 1 of 3

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5. a) K L MP MP MRTS L K Q = = , 9 2 1 2 1 L K L K L K MRTS K L K Q MP L K L Q MP K L = = = = = = 2 1 2 1 2 1 2 1 2 1 2 1 2 1 2 1 9 2 2 9 2 9 , 2 9 5. b) 0 2 < - = L K dL dMRTS . The function does exhibit diminishing MRTS . 5. c) Equate K L K L P P MP MP MRTS = = Q K Q L L L L L Q L K L K 54 1 (1) into (2) Substitute ) 2 ( 3 2 for Solve 2 3 36 9 function production into (1) Substitute ) 1 ( 36 36 1 * * 2 1 2 1 = = = = = = 5. d) * * L P K P C L K + = constant. is 3 4 3 4 3 2 54 36 ) , , ( = = = + = dQ dTC LMC Q Q Q Q P P TC L K Page 2 of 3
6. a) Suppose double inputs y bz az z b z a z z F y 8 ) ( 2 ) 2 ( ) 2 ( ) 2 , 2 ( 3 2 3 1 3 3 2 3 1 2 1 * =
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Unformatted text preview: + = + = = Increasing return to scale. 6. b) 3 2 3 2 3 2 27 ) 3 ( ) ( bz a bz a z TP + = + = 2 2 2 2 2 2 2 2 2 2 2 3 ) ( ) ( 27 ) ( ) ( bz dz z dTP z MP bz z a z z TP z AP = = + = = 6. c) 2 2 2 1 2 2 2 1 2 1 3 3 bz az bz az MP MP MRTS = = = 7. a) Choose any two points, e.g. (1, 4) and (8, 2), that satisfy 4 2 3 1 1 = = z z y , and plot the isoquant. 1 1 8 27 2 4 2 z 1 z y = 4 y = 3 7. b) Given the input bundle (27, 1), 3 1 27 3 1 = × = y . Hence the bundle lies on a lower isoquant, as shown in the above diagram. Page 3 of 3...
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This note was uploaded on 06/18/2011 for the course ECON 2X03 taught by Professor Jamesbruce during the Spring '10 term at McMaster University.

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Practice Quiz 1 Solution - + = + = = Increasing return to...

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