FinalSpring06aAnswers - Econ 001 Final May 5th 2006...

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Econ 001: Final May 5 th 2006 Instructions: This is a 120-minute examination. Write all answers in the blue books provided. Show all work. Use diagrams where appropriate and label all diagrams carefully. Write your name and your Recitation Instructor's name in every blue book that you use. This exam is given under the rules of Penn's Honor system. All blue books, blank or filled, must be handed in at the end of this exam. No blue books may be taken from the room. The use of Programmable Calculators is in violation of Departmental rule. It is strictly forbidden! The exam has 2 parts. Part 1 consists of 21 multiple-choice questions. Please use the first page of a blue book to record your answers. Part 2 consists of 2 short answer questions. Please use a separate blue book for each. Good Luck! Part I: Multiple Choice Questions (21 questions, 2.5 points each/50 points total): 1. David is considering going to school at Penn for four years. The tuition is $25,000 a year, but he knows that after graduation he can earn $30,000 more than high school graduates for each subsequent year of work. If he does not go to college, he can work right away and earn $20,000 a year. What is David’s true economic cost of going to Penn for 4 years? a. $20,000 b. $45,000 c. $80,000 d. $180,000 2. If interest rates are positive, and assuming that wages and tuition are fixed and the same as in the previous question, is the economic cost: a. Bigger than calculated in Q1. b. Smaller than calculated in Q1. c. The same as in Q1. d. The answer would depend on the exact interest rate.
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3. Amy and Ben are married. Their production possibilities are given in the next table: Potatoes (per day) Tomatoes (per day) Amy 10 20 Ben 3 15 Which of the following is true? a. Amy has an absolute advantage in both goods. b. Amy has a comparative advantage in Tomatoes. c. Ben has a comparative advantage in Potatoes. d. All of the above are correct. 4. Suppose Amy and Ben choose to produce 11 potatoes. What must be the marginal benefit of the last potato in this case? a. 2 tomatoes b. 5 tomatoes c. 3 tomatoes d. 0 tomatoes 5. A decrease in the price of a good and a resulting increase in total expenditure on this good are associated with: a. Inferior goods b. Substitute goods c. Elastic demand d. Normal goods 6. Consider the following cost function: TC(Q)=25+15Q The fixed cost and marginal cost of the second unit are (respectively): a. 25, 30 b. 25, 15 c. 15, 25 d. 30, 25 e. Not enough information to decide
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Mr. Potato is a small farmer in Idaho. The graph below depicts his marginal cost and average total cost curves (per ton) of growing potatoes. Use this graph to answer questions 7 & 8. 7.
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FinalSpring06aAnswers - Econ 001 Final May 5th 2006...

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