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Unformatted text preview: Sheet1 Page 1 BUSINESS 702SECOND EXAM KEYFALL 1998 MANAGERIAL ECONOMICS PLEDGE: ________________________________________ Signature ________________________________________ Name (Print) SHORT PROBLEMS (40 pts, 10pts each) 1.LP Basics (P9.1). Indicate whether each of the following statements is true or false and explain why. A.Constant returns to scale and constant input prices are the only requirements for a total cost function to be linear. B.Changing input prices will always alter the slope of a given isocost line. C.In profit-maximization linear programming problems, negative values for slack variables imply that the amount of an input re D.Equal distances along a given process ray indicate equal output quantities. E.Nonbinding constraints are constraints that intersect at the optimum solution. SOLUTION A.True. Constant returns to scale, when coupled with constant input prices, will result in a linear total cost function. B.False. The slope of an isocost line is given by the ratio of input prices (e.g., Y = C0/PY + (PX/PY)X). Therefore, if all input C.True. Slack variables can never take on negative values. For example, in output, revenue, or profit maximization linear pro D.True. Output along a given process ray increases proportionately with increases in the input factors. Therefore, equal dista E.False. Binding constraints are constraints that intersect at the optimum solution. 2.Production Function Concepts (P7.2). Indicate whether each of the following statements is true or false. Explain your answ A.Decreasing returns to scale and increasing average costs are indicated when Q &lt; 1. On my honor, I have neither given nor received any unauthorized aid on this exam, nor am I aware of anyone giving or receiving any unauthorized aid on this exam. Sheet1 Page 2 B.If the marginal product of capital falls as capital usage grows, the returns to capital are decreasing. C.L-shaped isoquants describe production systems in which inputs are perfect substitutes. D.Marginal revenue product measures the profit earned through expanding input usage. E.The marginal rate of technical substitution will be affected by a given percentage increase in the marginal productivity of all SOLUTION A.True. When Q &lt; 1, the percentage change in output is less than a given percentage change in all inputs. Thus, decreasin B.True. Returns to the capital input factor are decreasing when the marginal product of capital falls as capital usage grows. C.False. L-shaped production isoquants reflect a perfect complementary relation among inputs. D.False. Marginal revenue product is the revenue generated by expanding input usage and represents the maximum that cou E.False. The marginal rate of technical substitution is measured by the relative marginal productivity of input factors. This rel 3.Factor Productivity (P7.3). During recent years, computer-aided design (CAD) and computer-aided manufacturing (CAM) ha A.Rising worker pension costs B.Technical advances in computer mainframe designB....
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This note was uploaded on 07/31/2011 for the course ECON 1201 taught by Professor Smith during the Spring '11 term at Waseda University.
- Spring '11