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Unformatted text preview: Info for Exam 1
Exam 1: 8:00 — 9:30 PM Tuesday March 1st in Lily G126 ID required This exam covers Chapters 1, 2, 6, 7, 8, and 9 which corresponds to classes through
February 16le and homework assignments 2 — 11. The homework problems, the Sample Problems posted on katalyst, and the types of
questions addressed in class, are good examples of the types of questions to expect on the exam.
There will be problems and possibly short—answer type questions. There will not be any multiple-
choice questions. In order to receive credit, you will need to show your work on problems and to provide explanations when they are requested. Note the homework was not graded. Be sure to read the sample solutions posted on
katalyst for complete answers. Important Topics for the First Exam Basic Demand and Supply Demand and supply functions
Movements along a demand (supply) curve versus shifts in the curve How to find the aggregate supply function given individual supply functions
Elasticity What is it? How is it computed [based on a demand function, for example, or based on an observed change
in quantity demanded in response to a price change]? How is it used? What does it mean or what are the implications if it has a particular value? How is a point elasticity used to estimate a demand (supply) curve? Production Production functions
Recognize special production functions [perfect substitutes, fixed—proportions (perfect complements), Cobb—Douglas] and their implications for optimal input choices and expansion
paths. What is the marginal product of labor [capital], how is it computed, what are the implications if
it has a particular value? What is the average product of labor [capital], and how is it related to the marginal product? Isoquants
The types of returns to scale [decreasing, constant, or increasing] and their implications i
i Marginal Rate of Technical Substitution What is it? How is it computed? How is it used? What does it mean or what are the implications if it has a particular value? What does “diminishing marginal rate of technical substitution” mean and what are its
implications for isoquants? How is MRTS related to the optimal input bundle chosen (for an interior solution or a corner solution) in the long—run cost minimization problem?
Productive Efﬁciency What is productive efficiency? What conditions characterize (interior) productively efficient choices? Given information about a particular starting position [for example, MRTS values for a pair of
firms], how could that information be used to determine changes that would improve productive efficiency?
Cost Opportunity cost
Avoidable fixed cost
Understand the long—run cost minimization problem and the corresPonding cost functions
Normal input and inferior input
Understand the short—run cost minimization problem and the corresponding seven cost functions
Note the relationship between
marginal and average curves;
short-run and long—run average cost curves and marginal cost curves; cost curves and supply curves
Supply Functions What is a firm’s supply function? What is a firm’s producer’s surplus and how does it differ from proﬁt? Given a cost function (with or without sunk costs; with or without avoidable fixed costs), you
should be able to find the corresponding supply function and producer’s surplus at any p.
Aggregate supply for constant-cost, increasing—cost, and decreasing-cost industries Area under the aggregate supply function out to Q* as the (non—sunk) cost of producing Q* in
the least cost way [given the available firms] —— Prdductive Efﬁciency is built into the aggregate
supply function Height of the aggregate supply function at Q=i= as the “social marginal cost” of production at Q* Consumers’ Surplus What is consumer’s surplus?
Given an aggregate demand function, you should be able to ﬁnd the corresponding consumers’ surplus at any p.
Area under the aggregate demand function out to Q* as the “social value” of Q* when allocated
to consumers in the highest value way - Allocative Efficiency among consumers is built into the aggregate demand function
Height of the aggregate demand function at Q* as the “social marginal value” of the next unit Competitive equilibrium You should be able to find competitive equilibrium price and quantity in the short run and in the
long run as well as the resulting aggregate consumers’ surplus and aggregate producers’ surplus.
What is economic rent? ...
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- Spring '08