Midterm_2___solutions_page-0001

EC0303.02 Midterm 2 Fall 2010 — Solutions Part 1. Multiple-Choice Questions (3 pts per question) There is only one correct choice in the following questions. 1) Joe owns a coffee house and produces coffee drinks under the production function q = SKL where q 1s the number of cups generated per hour, K 1s the number of coffee machines (capital), and L 1s the number of employees hired per hour (labor). What 1s the marginal product of labor? A)MP =5 B) MP =5K C) MP=5L D) MP = 5K/L Answer: B 2) A straight-line 1soquant A) 1s impossible. B) would indicate that the firm could switch from one output to another costlessly. C) would indicate that the firm could not switch from one output to another. D)would indicate that capital and labor cannot be substituted for each other in production. E) would indicate that capital and labor are perfect substitutes in production. Answer: E 3) In a short-run production process, the marginal cost is rising and the average total cost 1s falling as output is increased. Thus, marginal cost is A) below average total cost. B) above average total cost. C) between the average variable and average total cost curves. D) below average fixed cost. Answer: A 4) If current output is more than the profit-maximizing output, which must be true? A) Total revenue is less than total cost. B) Average revenue is less than average cost. C) Average revenue is greater than average cost. D) Marginal revenue is greater than marginal cost. E) Marginal revenue is less than marginal cost. Answer: E 5) In the short run, a perfectly competitive firm that is earning negative economic profit but still producing A) 1s on the downward-sloping portion of its AVC. B) 1s at the minimum of its AVC. O) 1s on the upward-sloping portion of its AVC. D) is not operating on its AVC. This study source was downloaded by 100000824773271 from CourseHero.com on 10-22-2023 01:02:47 GMT -05:00 https://Awww.coursehero.com/file/6050579/Midterm-2-solutions/