Practice%20Exam%202%20-%20Key

Practice%20Exam%202%20-%20Key - Name _Key_ Practice Exam 2...

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1 Name ___ Key _________________________________________ Practice Exam 2 ECON 3550 / 5030 Please show all your work and explain your answers. Without an explanation for your answer, you will not receive credit. Clearly label all graphs for full credit and please write legibly. A. True / False __F __ 1. If a firm’s marginal cost is rising as more output is produced, then average total cost is also rising. Explain your answer both graphically and in words. $/Q MC ATC Q 1 Q 2 Q Between Q 1 and Q 2 , MC is rising but ATC is still falling. ATC falls when MC < ATC, and rises when MC > ATC. __T_ _ 2. If a firm is experiencing diminishing marginal returns, then its marginal cost must be rising. Q/L $/Q MC Q* MP L Q * Q MC rises after Q* because to produce each additional unit of output, the firm has to hire more and more labor, which means its cost rises by more and more. B. Essay and Problem Solving 3. Briefly describe the 2 methods a firm can use to decide how much output to produce in order to maximize its profit. Method #1: Produce the level of output at which profit (TR – TC) is the greatest. Method #2: Produce the level of output at which MR = MC.
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2 4. Suppose that the hourly production of Economics Textbooks (Q) at Economics’R’Us depends on the number of printing presses (K) and workers (L) hired each hour, according to the following production function: Q = 2K 0.5 L 0.5 . They currently have a fixed amount of capital at K = 9. The price of capital is $8 and the price of labor is $6. (note: L 0.5 = L ) a. What is the firm’s short-run total cost function (in terms of Q)?
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This note was uploaded on 03/14/2012 for the course ECON 2243 taught by Professor Henryfors during the Spring '12 term at Abant İzzet Baysal University.

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Practice%20Exam%202%20-%20Key - Name _Key_ Practice Exam 2...

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