MICROECONOMICS

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FINAL EXAM ADVANCE MICROECONOMICS Professor Angel L. Ruiz

I. PROBLEMS: THEORY OF PRODUCTION AND COSTS

A. The following table shows data on the amount of total output produced from various combinations of labor and capital.

Units of Units of Capital Labor 1 2 3 1 80 100 120 2 180 220 260 3 270 330 390 4 340 420 500 5 390 490 590 6 410 530 650

Based on the values of this table answer the following questions: 1. If capital is fixed at two units, what is the marginal product of the fourth unit of labor? 2. If capital is fixed at one unit, diminishing returns begin with the: 3. If labor is fixed at three units, how much does the third unit of capital add to total output? 4. What is the marginal rate of technical substitution when the firm uses two units of capital and three units of labor. Problem B Fill the blanks of the following table and answer questions a to e

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PROBLEM C. Answer questions 1-6 using the following graph C. In the following graph, the price of capital is $100 per unit.

1. The price of labor is $ ----------

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2. To produce 500 units efficiently, a manager would use ------- units of labor and ------- units of capital. The minimum cost of producing 500 units is ------- 3. To produce 1,000 units efficiently, a manager would use ------- units of labor and ------- units of capital. The minimum cost of producing 1,000 units is $ ------- 4. To produce 1,500 units efficiently, a manager would use ------ units of labor and ------- units of capital. The minimum cost of producing 1,500 units is -------- 5. In the graph, construct the expansion path. 6. Along the expansion path constructed in question 5, the marginal rate of technical substitution is equal to ---------. PROBLEM D Answer the following 4 questions using as reference the following table

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PROBLEM E D. Fill the blanks in the following table.

TOTAL TOTAL AVERAGE AVERAGE AVERAGE TOTAL FIXED VARIABLE FIXED VARIABLE TOTAL MARGINAL

OUTPUT COST COST COST COST COST COST COST 100 260 - 60 - - - - 200 - - - - - - 0.30 300 - - - - 0.50 - - 400 - - - - - 1.05 - 500 - - 360 - - - - 600 - - - - - - 3.00 700 - - - - 1.60 - - 800 2,040 - - - - - -

PROBLEM F Answer questions 9-85 to 9-87 using the following graph as reference

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PROBLEM G Suppose that the firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 and the marginal product of labor is 75. The wage rate is $80 and the total cost of the fixed input is $500 (answer question 1-3). 1. What is average variable cost? 2. What is the marginal cost? 3. What is the average total cost? LONG RUN COST PROBLEM A

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PERFECT COMPETITIVE MARKETS PROBLEM A: MULTIPLE CHOICE

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PROBLEM B GRAPHICAL ANALYSIS: COMPETITIVE MARKETS Answer the following 6 questions using the cost curves for a perfectly competitive firm shown in Figure below.

1. If price is $3 per unit of output, draw the marginal revenue curve. The manager should produce ------. units in order to maximize profit. 2. Since average total cost is $-------- for this output, total cost is $-------.

3. The firm makes a profit of $---------.

4. Let price fall to $1, and draw the new marginal revenue curve. The manager should now produce ---------- units in order to maximize profit. 5. Total revenue is now $-------- and total cost is $---------. The firm makes a loss of -----------.

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6. Total variable cost is $--------, leaving $-------, to apply to fixed cost. MONOPOLY: GRAPHICAL ANALYSIS PROBLEM A For questions 1 to 7 use figure below which illustrates the demand and costs curves for a monopolist.

1. Does the monopolist produce in the short run? a. Yes, since P > AVC. b. Yes, since P > AFC. c. No, since P < AVC. d. No, since P < AFC. 2. How much output should the firm produce in the short run? a. 0 units b. 10 units c 15 units d. 20 units e. 25 units

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3. What price should be charged?

a. The firm will not produce in the short run, so no units are sold. b. $40 c. $30 d. $27 e. $20

4. How much profit or loss will the monopolist earn in the short run?

a. -TFC b. -$175 c. -$200 d. $300 e. $450

5. If total fixed cost for the monopolist increases, a. profit falls. b. the optimal output level falls and price rises. c. the optimal output level and price remain the same. d. both a and b e. both a and c.

6. In the long run, the firm builds the plant designed to produce units of output optimally.

a.20 b.25 c.35 d. 40

7. In the long run, the monopolist makes a profit of

a. $600 b. $400 C. $200 d. $100

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OLIGOPOLY PROBLEM A: MULTIPLE CHOICE

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