# test2a-07 - Economics 120 Test 2 Friday November 2 2007 3...

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EC120 Test 2 – Fall 2007 page 2 of 16
Part A: Answer each question by marking the computer card with the best answer. 1. Sue runs a sewing store. Revenues are \$120,000 per year and raw materials costs (cloth, thread) are \$50,000 per year. Sue owns her own store and thus does not pay any rent. If she rented out her store she could earn \$30,000 per year in rent. In order to run her business Sue had to give up a \$20,000 per year job. Her annual accounting profits are __. Her annual economic profits are __. a) \$70,000 \$20,000 b) \$70,000 \$40,000 c) \$70,000 \$50,000 d) \$40,000 \$20,000 e) \$20,000 \$20,000 2. Which of the following statements about the relationship between marginal product (MP) and average product (AP) is correct? (Pick the best answer). a) If MP > AP then AP must be rising b) If AP > MP then MP must be rising c) If MP is falling then AP must be falling d) If AP = MP then MP is maximized e) Both a) and c) are correct 3. In the short-run an increase in the price of the variable factor with no change in productivity will (pick the best answer) a) cause the ATC curve to shift up b) cause the AFC curve to shift up c) not cause the MC curve to shift d) All of the above are correct e) Both a) and c) are correct 4. If the production function is given by Q = 0.5 K + 0.5 L then the production function exhibits ___ and thus the long-run cost function will exhibit ___.

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test2a-07 - Economics 120 Test 2 Friday November 2 2007 3...

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