Question

1.

True/False/Uncertain

Answer each of the following statements True/False/Uncertain. Give a full explanation of your answer including graphs where appropriate. (When in doubt, always include a fully labeled graph.)

A) Firms typically make investment choices over a small time horizon when profit maximizing.

B) The Cobb-Douglas production function can exhibit increasing, decreasing, or constant returns to scale.

C) An isoquant represents every point of economically efficient production for a given quantity.

D) In the short-run, the marginal product of labor is equal to the slope of the production function (assuming only capital and labor as inputs).

E) A firm’s production function is ordinal in nature, not cardinal.

Answer #1

For each of the following statements, indicate whether it is
true, false, or uncertain and EXPLAIN WHY.
a. In the long-run the typical monopolistically competitive firm
earns no economic profit and that indicates that the firm is
economically (productively) efficient.
b. Monopolists have complete pricing freedom as they seek to
maximize profits.
c. In the short-run, if price drops below the average total
cost, the perfectly competitive firm must shut down
immediately.

True or False
Answer each of the following statements True/False. Give a full
explanation of your answer. Include clearly labelled graphs where
appropriate. (9 points)
a. Consider the following consumption bundles of two goods:
(x1,x2) = (27,10), (x1, x2) = (40, 18), and (x1, x2) = (200, 7).
Monotonicity implies that (40, 18) is preferred to (27, 10), but
does not imply that (200, 7) is preferred to (27, 10).
b. If the marginal rate of substitution between two goods...

State whether the following statements are true, false or
uncertain and briefly explain the reason for your choice. Your
grade will largely depend on the quality of your explanations.
a. Suppose that a firm’s short-run total cost function is STC=
0.1q2 + 4q +100. Will the producer surplus at P=$15 be $302.5?
b. Suppose that a firm is price taker. If the price is equal to
marginal cost, then the profit is being maximized.
c. If a firm wished to...

Answer if each statement is true, false, or uncertain. Support
your answer with a few lines.
1. When the real wage is below the equilibrium price in the
labor market we have an excess demand of labor and the real wage
should increase.
2. With perfect capital mobility, the domestic real interest
rate must be the same as the world real interest rate.
3. In the quantity theory of money, real output is an endogenous
variable.
4. The Keynesian consumption...

Explain why each of the following statements is True, False, or
Uncertain according to economic principles. Use diagrams where
appropriate. Unsupported answers will receive no marks. It is the
explanation that is important.
A4-1. Suppose your roommate enjoys loud music and values this
activity at $50/day. If you value peace and quiet at $30/day, the
efficient solution is for your roommate to listen to the efficient
solution is for your roommate to listen to the music.
A4-2. Private markets will...

State whether the following question is true
or false. Support your answer with brief explanation.
If a firm with marginal cost equal to $2 faces a
demand curve defined as Q_d = 100 - 5P, then profit is at a maximum
when price is $10. [3 marks]
If a firm with marginal cost equal to $2 faces a
demand curve defined as Q_d = 100 - 5P, then revenue is at a
maximum when price is $10. ...

Answer the following questions in this section using
True, False or
Uncertain and EXPLAIN your
answers.
Question 1. The best interpretation for the
slope of the production possibility frontier is the degree of
specialization.
Question 2. Trade is not beneficial to
countries if there are minor differences between them.
Question 3. In the Ricardian model, differences
in productivity of labor across countries result in comparative
advantage.
Question 4. Gains from trade are likely to
occur because of differences in opportunity...

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