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# 27Midterm+II+with+Answers - UCI Winter 2011 Econ 100...

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UCI- Winter 2011 Econ 100 A-Midterm II Prof El Hag Part I: Please answer all of the following multiple choice questions ( possible points 15) 1) Increasing returns to scale in production means A) more than 10% as much of all inputs are required to increase output 10%. B) less than twice as much of all inputs are required to double output. C) more than twice as much of only one input is required to double output. D) isoquants must be linear. Answer: B 2) Assume that two investment opportunities have identical expected values of \$100,000. Investment A has a variance of 25,000, while investment B's variance is 10,000. We would expect most investors (who dislike risk) to prefer investment opportunity A) A because it has less risk. B) A because it provides higher potential earnings. C) B because it has less risk. D) B because of its higher potential earnings. Answer: C 3) The budget line in portfolio analysis shows that 4) When the average product is decreasing, marginal product 5) Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital),

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and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case? A) Yes, if capital also exhibits diminishing marginal returns. B) Yes, this is true for all values of K. C) No, the marginal product of labor is constant (for a given K). D) No, the marginal product of labor is increasing (for a given K). Answer: C
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