HW5_Soln

# HW5_Soln - Homework 5 Solution (Chapter 9, 10) DUE : IN...

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Homework 5 Solution (Chapter 9, 10) DUE : IN CLASS 13 th MARCH 2009 (Friday) ECON 80A Professor: Paroma Sanyal Microeconomic Theory 126 Sachar Bldg. Brandeis University (781) 736-2268 Spring 2009 psanyal@brandeis.edu Total 100 points Section 1: Multiple Choice Questions (2 points each) (30 points) 1.Given input prices and the usual strategy of a profit maximizing firm, efficient production occurs at A) the highest isoquant Q for a given isocost C. C) the highest isocost C for a given isoquant Q. B) the lowest isoquant Q for a given isocost C. D) the lowest isocost C for a given isoquant Q. . Answer: A/D 2.Whenever the ratio of marginal product to input price of a firm differs across inputs, A) the market will adjust the price of the higher priced input. B) it will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions). C) it will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio. D) The market will adjust the price of the lower priced input. Answer: C 3. Suppose labor and capital are both used to produce output. In the long run, if the wage rate rises while the rental rate on capital remains unchanged, A) the process will become more labor intensive. B) the process will become more capital intensive. C) market forces will come into play to bring the prices back to their earlier relationship. D) the marginal product of capital will rise and the marginal product of labor will fall. Answer: B 4. With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is A) horizontal. B) a straight line. C) U-shaped. D) a and b. E) none of the above. Answer: B 5.The short run total cost of zero output is equal to A) variable cost. B) fixed cost. C) zero. D) vvariable cost plus fixed cost. 1

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Answer: B 6.Geometrically, marginal cost at any level of output may be interpreted as the slope of A) a ray to the total cost curve at that level of output. B) the total variable cost curve at that level of output.
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## HW5_Soln - Homework 5 Solution (Chapter 9, 10) DUE : IN...

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