This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Mock Multiple Choice, the MPs
Kyle F. Herkenhoﬀ∗
UCLA
Department of Economics
April 15, 2011 1 Marginals Which of the following are true? (We assume a CobbDouglas production function Y =
AK α L1−α )
(a) If α = 1/3, then a 6% increase in labor results in a 2% increase in output.
(b) If α = 1/3, then a 6% increase in labor results in a 4% increase in output.
(c) If α = 1/5, then M PK K
Y = 1
5 (d) If α = 1/5, then M PK K
Y = 4
5 (e) The following statement M PK K + M PL L = Y holds for α = 1/3 but not for α = 1/5.
(f) Two of the above
(g) Three of the above
(h) None of the above ∗ Correspondence: kfh@ucla.edu 1 ANS:
(a) If α = 1/3, then a 6% increase in labor results in a 2% increase in output. FALSE: Use
the fact that eY,L = 1−α, now %∆Y = (1−α)%∆L so %∆Y = 2/3·%∆L = 2/3·6 = 4
(b) If α = 1/3, then a 6% increase in labor results in a 4% increase in output. TRUE
(c) If α = 1/5, then M PK K
Y = 1
5 Y
TRUE: this is just using M PK = α K , so it is 1/5 (d) If α = 1/5, then M PK K
Y = 4
5 FALSE (e) The following statement M PK K + M PL L = Y holds for α = 1/3 but not for α = 1/5.
FALSE: Always true with constant returns to scale production functions like
CobbDouglas for all α
(f) Two of the above ANSWER
(g) Three of the above
(h) None of the above 2 ...
View
Full
Document
 Spring '08
 Serra
 Economics

Click to edit the document details