MIC Unit 2 Practice Exam 3 and Solns

MIC Unit 2 Practice Exam 3 and Solns - NAME Student ID...

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Unformatted text preview: NAME ____________________________________________________ Student ID Number_________________ Northwestern University Second Midterm Economics 310-1 Summer Quarter, 2011 Professor Hornsten INSTRUCTIONS: (1) Write your name and student ID number in the spaces at the top of this page. (2) This a 60 minute, closed-book examination. Answer all questions in any order. (3) There are 7 pages in this examination. Please check to see that you have received all 7 pages. (4) The use of calculators or other electronic devices is not permitted during the exam. (5) The examination is worth 100 points. The potential score on each question is indicated in parentheses at the beginning of each question. (6) Show all work clearly and concisely in the space provided after each question . You must support your answer with clearly demonstrated reasoning to receive any credit. Question 1 (15 points possible ) _________ Question 2 (20 points possible ) _________ Question 3 (10 points possible ) _________ Question 4 (20 points possible ) _________ Question 5 (15 points possible ) _________ Question 6 (20 points possible ) _________ ================================== Total Score (100 points possible) ________ Economics 310-1. Professor Hornsten Page 2 Second Midterm, Summer 2011 1) A firm uses L units of labor and K units of capital to produce Q units of output according to production function Q [ L , K ] = L " K # , where α > 0, β > 0, and α + β = 1. The input prices are w for labor and r for capital, and the production target is Q units of output. a) (10 points) Derive the input demand functions, L[Q , w, r] and K[Q , w, r]. b) (5 points) What is the long run total cost function, TC[Q , w, r]? Economics 310-1. Professor Hornsten Page 3 Second Midterm, Summer 2011 2) A firm produces Q units of output using K units of capital and L units of labor. Its production function is Q = L + K . a) (5 points) Does this production function exhibit constant, increasing, or decreasing returns to scale? b) (10 points) Suppose the production manager is instructed to produce Q = 50 units. Input prices are w = 20 for labor and r = 1 for capital. Find the long run cost-minimizing outputs, L* and K*. c) (5 points) The production target remains at Q = 50, but a long-term labor contract effectively fixes the labor input at L = 30 . Find the short-run cost-minimizing level of capital. Economics 310-1. Professor Hornsten Page 4 Second Midterm, Summer 2011 3) A firm manufactures Q units of output using K units of capital and L units of labor. The factor prices of capital and labor are r and w, respectively. The firm’s long run total cost function is TC [ Q , w , r ] = 2 Qwr ....
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MIC Unit 2 Practice Exam 3 and Solns - NAME Student ID...

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