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Economics 301 – Intermediate Microeconomics
Problem Set
- Which of the following is NOT an expression for the cost minimizing combination of inputs? a. MRTS = MPL /MPK. b. MPL/w = MPK/r. c. MRTS = w/r. d. MPL/MPK = w/r. e. None of these.
- At the optimum combination of two inputs,
a. the slopes of the isoquant and isocost curves are equal. b. costs are minimized for the production of a given output. c. the marginal rate of technical substitution equals the ratio of input prices. d. all of the above. e. (a) and (c) only.
- The cost-output elasticity equals 1.4. This implies that:
a. there are neither economies nor diseconomies of scale. b. there are economies of scale. c. there are diseconomies of scale. d. marginal cost is less than average cost.
- Which of the following is true of cost curves? a. The ATC curve goes through the minimum of the MC curve. b. The AVC curve goes through the minimum of the MC curve. c. The MC curve goes through the minimum of the ATC curve, to the left of the minimum of the AVC curve. d. The MC curve goes through the minimum of the AVC curve, to the right of the minimum of the ATC curve. e. The MC curve goes through the minimum of both the AVC curve and the ATC curve.
- At the profit-maximizing level of output, marginal profit a. is also maximized. b. is zero. c. is positive. d. is increasing. e. may be positive, negative or zero.
- If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is a. raise prices. b. lower prices to gain revenue from extra volume. c. shut down immediately, but not liquidate the business. d. shut down immediately and liquidate the business. e. continue operating, but plan to go out of business.
- In a long run constant-cost industry, price always equals a. LRMC and minimum LRAC. b. LRMC and LRAC, but not necessarily minimum LRAC. c. minimum LRAC, but not LRMC. d. LRAC and minimum LRMC. e. minimum LRAC and minimum LRMC.
- If the marginal cost is 50 and the average total cost is 75 at a given level of output, we can be sure that a. Marginal cost is rising b. Average total cost is rising. c. Marginal cost is falling. d. Average total cost is falling.
- The marginal rate of technical substitution can be measured by
a. The slope of an isoquant. b. The ratio of the marginal products of the two inputs. c. The amount of capital that must be substituted for a given reduction in labor in order to keep output constant. d. all of the above. e. None of the above.
15. Recently, many groups have begun advocating a doctrine known as the “living wage.” The idea is
that all members of society are entitled to a wage sufficient to meet the basic costs of living. Leaving aside for the time being issues related to fairness and social justice, we will focus on the positive economic consequences of living wage ordinances. In particular, suppose that the city of Syracuse is considering adopting a living wage ordinance that would require all businesses operating within the city limits to pay a minimum wage of $15 per hour. Consider a university operating within Syracuse that produces an educational output using only two inputs: faculty members, F, who are paid more than $15 an hour, and teaching assistants, A, who are paid less than $15 an hour. Suppose that in producing a given quantity of educational output, Q, (measured in terms of the number of students enrolled at the university), the university can substitute between faculty and teaching assistants, but that such substitutions are subject to diminishing marginal rates of substitution. Suppose that at the time the ordinance is being debated the size of the incoming class, Q, has already been determined. It is observed that the ordinance enjoys widespread support from faculty members but, curiously, not from the teaching assistants who would presumably benefit from the law. Can you offer an explanation for this apparent paradox? Please illustrate your explanation using the relevant graphical analysis.
- A certain student who is cramming for final exams has only six hours of study time remaining. Her goal is to get as high of a grade point average as possible in three subjects: microeconomics, macroeconomics, and econometrics. She must decide how to allocate her time among the subjects. According to the best estimates she can make, her grade in each subject will depend upon the time allocated to it according to the following schedule:
Microeconomics Macroeconomics Econometrics
Hours of
Study
Grade Hours of
Study
Grade Hours of
Study
Grade
How should the student allocate her time? What principle does your answer illustrate?
- Consider the following diagram where a perfectly competitive firm faces a price of $20. (a)Clearly label Total Revenue, Total Cost, Profit on the graph. (b)Should the firm shut down the firm or not in the short run? Why? (c)Clearly label firm’s supply curve.
MC
AC
AVC
D
