Review Problems 1 _TFU_ - Econ 100A – UC Berkeley Fall...

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Unformatted text preview: Econ 100A – UC Berkeley Fall 2011 Prof. Santesteban Midterm 2 Review Problems 1 True/False/Uncertain 1. Consider a worker who has chosen to supply a certain amount of labor L* when faced with the wage rate w. Now suppose its employer offers the worker a higher wage w’ > w, for extra time the worker chooses to work beyond L*. We cannot predict for certain whether this higher wage will increase or decrease his labor supply. 2. The cost function of a firm with production function f(K,L) = αK+ βL increases with the wage rate. 3. If labor is fixed and capital can change in the short run, then capital will change more in response to an exogenous price change in the short run than in the long run. 4. Short run economic costs must be lower than long run economic costs because long run economic costs include the cost of inputs that are fixed in the short run (and thus are not part of short run cost). 5. Except for the output level for which short‐run fixed capital is long run cost‐minimizing, short‐run average expenses incurred by the firm are higher than long run average costs. 6. If the rental rate increases, we know that output and labor input will fall in the long run. 7. If producer choice sets are convex and a production plan satisfies the condition that the (marginal) technical rate of substitution is equal (in absolute value) to the ratio of input prices, then the production plan is profit maximizing. 8. All economically efficient production plans are technologically efficient. 9. Technologically efficient production plans are also economically efficient. 10. A price taking firm employs each of its inputs into production until its marginal product is equal to 1. 11. The long run market supply curve is formed by adding up individual firm supply curves in the industry. 12. Suppose Congress passes a one‐time tax refund of all taxes paid by firms in an industry last year. This will lead to a drop in output price in the industry. 13. If firms differ in terms of their technologies, a drop in demand will cause a long run decrease in output price. 14. The reduction in the market output resulting from the imposition of a price floor depends on both the price elasticity of demand and the price elasticity of supply. 15. To identify the burden of a per‐unit tax on consumers, we have to use the aggregate marginal willingness to pay curve whenever the underlying good is not quasilinear. 16. Regardless of whether goods are inferior or normal, the deadweight loss from a per‐unit tax is always greater the more price elastic the market demand curve for a good. 17. Regardless of how price elastic labor demand curves are, employers are unaffected by wage taxes if labor supply is perfectly inelastic. 18. In perfectly competitive industries with identical firms, consumers always end up paying the entire burden of a per‐unit tax on output in the long run. 19. Suppose demand has price elasticity of 1 everywhere and the industry is perfectly competitive with identical firms. In the long run, tax revenue increases as tax rates increase. 20. If the demand faced by a firm is inelastic, selling one more unit of output will increase revenues. 21. An increase in the wage rate will have a greater effect on average costs, the larger the proportion labor costs are of total costs and the easier it is to substitute capital for labor. 22. If the production function is f (x1, x2) = min{x1, x2},then the cost function is c(w1, w2, y) = min{w1, w2}y. 23. A competitive, cost‐minimizing firm has the production function f (x, y) = x + 2y and uses positive amounts of both inputs. If the price of x doubles and the price of y triples, then the cost of production more than doubles. ...
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This note was uploaded on 11/03/2011 for the course ECON 100A taught by Professor Woroch during the Fall '08 term at University of California, Berkeley.

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