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MIDTERM EXAMINATION III
Intermediate Microeconomics
(ECON 520)
April 13, 2000 Professor D. Weisman
Instructions: There are two parts to this examination weighted 50 points each. Please
write legibly and think carefully about your answers. You may find that graphical and/or
mathematical analysis will assist you in answering some of these questions. Good Luck!
Part I. Multiple Choice (50 points). Please indicate your answers on the standardized
answer sheet provided.
1. Which of the following inputs are variable in the long run?
a. labor.
b. capital and equipment.
c. plant size.
d. land.
e.* all of these.
2. Suppose that a firm’s production function is given by Q = 6KL, where K is capital
and L is labor. What is the marginal product of labor when 6 units of capital are
employed?
a. 48.
b. 6.
c.* 36.
d. 1.
e. none of the above.
3. According to the law of diminishing returns
a. the total product of an input will eventually be negative.
b. the total product of an input will eventually decline.
c. the marginal product of an input will eventually be negative.
d* the marginal product of an input will eventually decline.
e none of the above
4. A production function in which the inputs are perfectly substitutable would have
isoquants that are
a. right angles.
b. convex to the origin.
c. linear.
d. characterized by a constant MRTS.
e.* c. and d.
5. A firm’s marginal product of labor is 2 and its marginal product of capital is 8. If
the firm adds one unit of capital, but does not want its output quantity to change,
the firm should
a. reduce its use of labor by 8 units.
b.* reduce its use of labor by 4 units.
c. maintain the same level of labor utilization.
d. also increase capital by 1.5 units.
6. In a production process, all inputs are doubled; but output less than doubles. This
means that the firm experiences
a.* decreasing returns to scale.
b. constant returns to scale.
c. increasing returns to scale.
d. decreasing costs.
e. c. and d.
7. A firm is operating in a range of production where there are increasing returns to
labor. The firm’s total product when 8 units of labor is employed is 20. The
marginal product of the 8th unit of labor is 4. The firm’s total product when 6
units of labor is employed is
a. greater than 16 but less than 18.
b. less than 10.
c. less than 12.
d.* greater than 12 but less than 16.
e. none of the above.
8. A firm’s production function is given by Q = 2 min {K, L}. The marginal product
of labor when K = 4 and L = 5 is equal to
a.* 0.
b. ∞.
c. 4/5.
d. 2.
e. none of the above.
9. Which of the following statements is true regarding sunk costs?
a. Sunk costs have zero opportunity costs.
b. Sunk costs cannot be recouped once they are incurred.
c. Sunk costs are irrelevant for making forward-looking decisions.
d.* all of the above.
10. Long distance carriers AT&T and MCI are attempting to move into the market for
local telephone service in order to exploit
a. economies of scale.
b. diseconomies of scale.
c.* economies of scope.
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d. diseconomies of scope.
e. diminishing returns to capital.
11. Assume that a firm’s production process is subject to increasing returns to scale
over a broad range of outputs. Long run average costs over this range of output
will tend to
a. increase.
b.* decrease.
c. remain constant.
d. fall to a minimum and then rise.
12. A firm that produces using a typical production function finds that at current levels
of input utilization it is producing the desired level of output and MP > MP , but
K L
r = w. To minimize the cost of producing this level of output, the firm should
a.* increase capital utilization and decrease labor utilization.
b. maintain current levels of capital and labor utilization.
c. increase labor utilization and decrease capital utilization.
d. increase both capital and labor utilization.
e. none of the above.
13. The firm’s total cost of producing 10 units of output is 120. At this output level,
the firm’s fixed costs are equal to 40. It follows that the firm’s average variable
costs are equal to
a. 12.
b. 6.
c.* 8.
d. 4.
e. none of the above.
14. A firm produces bicycles (B) using wheels (W) and frames (F). Which one of the
following production functions describes the production process for bicycles.
a. B = 2W + 1F.
b.* B = min {1/2W, 1F}.
c. B = min {2W, 1F}.
d. B = W•F.
e. none of the above.
15. Suppose that your grade on this examination is described by the production
0.5 0.5
function G = 2.25A E , where G is your numerical score, A is ability, and E is
effort measured in terms of hours studied. Suppose that A = 100. How many hours
would you need to study in order to earn a score of 90?
a.* 16.
b. 12.
c. 10.
d. 8.
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e. none of the above.
16. The government is more likely to approve a merger between two firms if it is
known that the production process is characterized by
a.* increasing returns to scale.
b. constant returns to scale.
c. decreasing returns to scale.
d. b. or c.
e. the law of diminishing returns.
17. A production function is given by Q = 2K + L, where K is capital and L is labor.
Initially, r = 2 and w = 1. Suppose that w decreases, ceteris paribus. Relative to
the initial equilibrium,
a.* the total cost of production will fall.
b. the total cost of production will not change
c. more units of capital will be used in production.
d. more units of labor will be used in production.
18. A firm’s production function is given by Q = K•L, where MP = L and MP = K.
K L
Suppose that w = 1 and r = 2. What are the firm’s costs of producing 8 units of
output in equilibrium?
a. 16
b 12
c.* 8
d. none of the above
19. There are two inputs to the firm’s production process, K and L. Suppose that the
firm has 0 units of L and 10 units of K and is able to produce a positive level of
output. What type of production function is the firm operating with?
a.* perfect substitutes.
b. perfect complements.
c. “typical.”
d. b. or c.
e. none of the above.
20. The firm employs a “typical” production function that gives rise to convex
isoquants. With K plotted on the vertical axis and L plotted on the horizontal axis,
the slope of the isoquant is equal to –2 in equilibrium. If w = 4, then r =
a.* 2.
b. 4.
c. 8
d. 12.
e. none of the above.
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