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Name;McMaster I.D. #;McMaster University;Economics 2GG3;Dr. Robert Jefferson;Mid Term Examination 2;Practice Questions;Instructions;1.;2.;3.;On the FRONT of your Scantron (SIDE 1), fill out the items in the box at the top (your;McMaster i.d. number, name, date, signature, course, section (C01), instructor name (R.;Jefferson);On the FRONT of your Scantron (SIDE 1) use a dark lead pencil to bubble in your Student;Number, the Version number (#), and your section number (001).;Leave blank Sheet Number and Seat Number.;Be sure to fill in # in the column marked VERSION;4.;You have 90 minutes. No student may leave before 8:00. Hand in the computer card AND;the question paper.;5. There are 30 multiple-choice questions. Answer by completely filling in the box. If you;change an answer then completely erase your previous answer.;You will be given one mark for each correct answer and zero marks for missing, incorrect or;multiple answers.;6. Permitted examination aid: Casio FX-991 calculator. Dictionaries or any other books are;not permitted.;7. All cell phones, pagers, and other electronic devices must be turned OFF and put away.;Proctors will confiscate any such device seen on the desk of an exam candidate.;1;1.;Diana consumes commodities x and y and her utility function is U(x, y) = xy2.;Good x costs $2 per unit and good y costs $1 per unit.;If she is endowed with 3 units of x and 6 units of y, how many units of good y will she;consume?;a.;b.;c.;d.;2.;Rhoda takes a job with a construction company.;She earns $5 an hour for the first 40 hours of each week and then gets double-time for;overtime. That is, she is paid $10 an hour for every hour beyond 40 hours a week that she;works.;Rhoda has 70 hours a week available to divide between construction work and leisure.;She has no other source of income, and her utility function is U = cr, where c is her income;to spend on goods and r is the number of hours of leisure that she has per week.;She is allowed to work as many hours as she wants to.;How many hours will she work?;a.;b.;c.;d.;3.;3;8;11;14;50;30;45;35;Mario consumes eggplants and tomatoes in the ratio of 1 bushel of eggplants per 1 bushel of;tomatoes.;His garden yields 30 bushels of eggplants and 10 bushels of tomatoes.;He initially faced prices of $25 per bushel for each vegetable, but the price of eggplants rose;to $100 per bushel, while the price of tomatoes stayed unchanged.;After the price change, he would;a.;b.;c.;d.;e.;increase his eggplant consumption by 6 bushels.;decrease his eggplant consumption by at least 6 bushels.;increase his consumption of eggplants by 8 bushels.;decrease his consumption of eggplants by 8 bushels.;decrease his tomato consumption by at least 1 bushel.;2;4.;Mr. Cog has 18 hours per day to divide between labor and leisure.;His utility function is U(C, R) = CR, where C is dollars per year spent on consumption and R;is hours of leisure.;If he has nonlabour income of 40 dollars per day and a wage rate of 8 dollars per hour, he;will choose a combination of labor and leisure that allows him to spend;a.;b.;c.;d.;e.;5.;Harvey Habit has a utility function U(c1, c2) = min{c1, c2}, where c1 and c2 are his consumption;in periods 1 and 2 respectively.;Harvey earns $189 in period 1 and he will earn $63 in period 2.;Harvey can borrow or lend at an interest rate of 10%. There is no inflation.;a.;b.;c.;d.;e.;6.;184 dollars per day on consumption.;82 dollars per day on consumption.;112 dollars per day on consumption.;92 dollars per day on consumption.;138 dollars per day on consumption.;Harvey will save $60.;Harvey will borrow $60.;Harvey will neither borrow nor lend.;Harvey will save $124.;None of the above.;Mr. O. B. Kandle has a utility function c1c2, where c1 is his consumption in period 1 and c2 is;his consumption in period 2.;He will have no income in period 2.;If he had an income of $70,000 in period 1 and the interest rate increased from 10 to 17%;a.;b.;c.;d.;e.;his savings would not change but his consumption in period 2 would increase by;an amount > $2,500.;His saving would not change but his consumption in period 2 would increase by;an amount < $2,500;his consumption in both periods would increase.;his saving would increase by 7% and his consumption in period 2 would also;increase.;his consumption in both periods would decrease.;3;7.;Mandy has an income of $800 in period 1 and will have an income of $500 in period 2.;Her utility function is U(c1, c2) = c0.801c0.202, where c1 is her consumption in period 1 and c2 is;her consumption in period 2.;The interest rate is.25.;If she unexpectedly won a lottery which pays its prize in period 2 so that her income in period;2 would be $1,000 and her income in period 1 would remain $800, then her consumption in;period 1 would;a.;b.;c.;d.;e.;8.;Molly has income $200 in period 1 and income $920 in period 2.;Her utility function is ca1c1a2, where a = 0.80 and the interest rate is 0.15.;If her income in period 1 doubled and her income in period 2 stayed the same, her consumption;in period 1 would;a.;b.;c.;d.;e.;9.;stay constant.;double.;increase by $320.;increase by $400.;decrease by $320.;increase by $160.;double.;increase by $80;stay constant.;increase by $200.;Harvey Habit has a utility function U(c1, c2) = min{c1, c2}.;If he had an income of $1,230 in period 1 and $615 in period 2 and if the interest rate were;0.05, how much would Harvey choose to spend in period 1?;a.;b.;c.;d.;e.;$1,860;$465;$1,395;$930;$310;4;10. In an isolated mountain village, the harvest this year is 6,000 bushels of grain and the harvest;next year will be 900 bushels.;The villagers all have utility functions U(c1, c2) = c1c2, where c1 is consumption this year and;c2 is consumption next year.;Rats eat 40% of any grain that is stored for a year.;How much grain could the villagers consume next year if they consume 1,000 bushels of grain;this year?;a.;b.;c.;d.;e.;11.;A firm has the production function;a.;b.;c.;d.;e.;12.;f (x, y) x1.4 y 1.0. This firms production exhibits;constant returns to scale and decreasing marginal product of factor x;increasing returns to scale and decreasing marginal product of factor x;decreasing returns to scale and increasing marginal product of factor x;constant returns to scale and increasing marginal product of factor x;increasing returns to scale and increasing marginal product of factor x;A firm has the production function g (x, y) x 0.2 y 0.8. This firms production exhibits;a.;b.;c.;d.;e.;13.;5,850 bushels;3,000 bushels;3,900 bushels;6,900 bushels;1,000 bushels;constant returns to scale and decreasing marginal product of factor x;increasing returns to scale and decreasing marginal product of factor x;decreasing returns to scale and increasing marginal product of factor x;constant returns to scale and increasing marginal product of factor x;increasing returns to scale and increasing marginal product of factor x;A firm has the production function Q x, y 60x0.8 y 0.2.;dy;The slope of the firms isoquant;at the point (x, y) = (40, 80) is (pick the;dx Q Q;closest one);a.;b.;c.;d.;e.;0.25;0.50;1;4;8;5;14.;A competitive firm produces output using three fixed factors and one variable factor.;The firms short-run production function is q (x) 524 x 4 x 2, where x is the amount of;variable factor used.;The price of the output is $3 per unit and the price of the variable factor is $12 per unit.;In the short run, how many units of x should the firm use?;a.;b.;c.;d.;15.;130;65;32;25;A profit-maximizing competitive firm uses just one input, x.;Its production function is q (x) 8 x 0.5.;The price of output is $24 and the price of the factor x is $8.;The amount of the factor x that the firm demands (uses) is;a.;b.;c.;d.;16.;11;128;144;27.7;The production function is given by f (L) 6 L2 3.;Suppose the cost per unit of labour is $16 and the price of output is $8.;How many units of labour will the firm hire?;a.;b.;c.;d.;17.;4;8;16;24;The production function is given by f (x) 4 x1 2.;If the price of the commodity produced is $60 per unit, and the cost of the input is $20;per unit, how much profit can the firm make (what is the firms maximum profit?);a.;b.;c.;d.;e.;$720;$363;$1,440;$358;$705;6;18.;A small economy has only two consumers, Charlie and Doreen.;Charlies utility function is U (x, y) x 154 y1 2.;Doreens utility function is U (x, y) x 7 y.;At a Pareto-optimal allocation in which both Charlie and Doreen consume some of each;good (neither consumes zero of either good), how much y does Charlie consume?;a.;b.;c.;d.;e.;9;18;22;121;we cannot tell without knowing the initial endowments;The following information applies to Questions 19-22;Frank and Danny are the two agents in an exchange economy. Each has preferences;over consumption of "X" and "Y", and each is endowed with some of each good.;U F X F, YF X F YF2;Frank's utility function is;Danny's utility function is;U D X D, YD;X Y;2;D;D;Franks endowment is 10 units of "X" and 20 units of "Y", while Dannys endowment is;20 units of "X" and 40 units of "Y".;19.;At his endowment, considering his utility function, how much "Y" will Frank be willing to;offer for one unit of "X" (what is Franks marginal rate of substitution of Y for X)?;a. Frank is willing to offer 0.5 or fewer units of Y for another unit of X.;b. Frank is willing to offer more than 0.5 units of Y but not more than one unit;of Y for a unit of X.;c. Frank is willing to offer more than one unit of Y but not more than two units;of Y for a unit of X;d. Frank is willing to offer more than two units of Y for a unit of X.;7;20.;If trade between Frank and Danny takes place, what will be the equilibrium relative price;P;of X (what is p X)?;P;Y;a.;b.;c.;d.;21.;PX;0.5.;P;Y;0.5 p;1 p;PX;1;P;Y;PX;2;P;Y;2 p;PX.;P;Y;At this equilibrium relative price, what will Frank offer Danny, and what does Frank want;from Danny in exchange?;a.;b.;c.;d.;22.;p;Frank offers 5 or fewer units of X to Danny in exchange for Y.;Frank offers more than 5 units of X to Danny in exchange for Y.;Frank offers 5 or fewer units of Y to Danny in exchange for X.;Frank offers more than 5 units of Y to Danny in exchange for X.;At the allocation that results from trade at equilibrium prices;a.;b.;c.;d.;Frank has more X than his endowment, and is better off than he is at his;endowment.;Frank has less X than his endowment and is better off than he is at his;endowment.;Frank has more Y than his endowment, and is exactly as well off as he is at;his endowment.;Frank has less Y than his endowment, and is exactly as well off as he is at his;endowment.;8;23.;Colette and Boris both consume the same goods in a pure exchange economy.;Colette is endowed with 9 units of good 1 and 6 units of good 2.;Boris is endowed with 18 units of good 1 and 3 units of good 2.;1;2;They both have the utility function U x1, x2 x1 3 x2 3;If we let good 1 be the numeraire, so that p1 = $1, then what is the equilibrium price of;good 2?;a.;b.;c.;d.;e.;24.;$1;$2;$3;$6;$12;Dan and Marilyn consume two goods, x and y. They have identical Cobb-Douglas utility;functions.;Initially Dan owns 10 units of x and 10 units of y. Initially Marilyn owns 40 units of x and;20 units of y.;They make exchanges to reach a Pareto optimal allocation which is better for both than the;no-trade allocation.;Which of the following is not necessarily true about the allocation to which they trade?;a. Marilyn consumes 5 units of x for every 3 units of y that she consumes.;b. The locus of Pareto optimal allocations is a diagonal straight line in the;Edgeworth box.;c. Dans consumption of x is greater than his consumption of y.;d. Dan consumes more than 10 units of x.;e. Marilyn consumes at least 40 units of x.;25.;An economy has two people, Charlie and Doris. There are two goods, apples and bananas.;Charlie has an initial endowment of 6 apples and 6 bananas. Doris has an initial;endowment of 12 apples and 3 bananas.;Charlies utility function is U(AC, BC) = ACBC, where AC is his apple consumption and BC;is his banana consumption.;Doriss utility function is U(AD, BD) = ADBD, where AD and BD are her apple and banana;consumptions.;At every Pareto optimal allocation;a.;b.;c.;d.;e.;Charlie consumes more bananas per apple than Doris does.;Charlie consumes the same number of apples as Doris.;Doris consumes equal numbers of apples and bananas.;Charlie consumes 2 apples for every banana that he consumes.;Doris consumes 4 apples for every banana that she consumes.;9;26.;A small company produces two goods, swords and plowshares. The company has 100 type;alpha employees and 100 type beta employees.;If an alpha devotes all his time to producing swords, he can make 3 swords per week. If he;devotes all his time to producing plowshares, he can make 6 plowshares per week. A beta;can produce either 1 plowshare per week or 1 sword per week.;The company wants to produce 324 swords and as many plowshares as it can. How many;type betas should it employ at making swords?;a.;b.;c.;d.;e.;27.;0;24;85;100;None of the above;John and Paul both make pizzas for a living.;Making a pizza consists of two tasks: making the crust and applying toppings.;John can make crusts at the rate of 20 crusts per hour. He can apply toppings at the rate of;5 toppings per hour.;Paul can make crusts at the rate of 5 crusts per hour. He can apply toppings at the rate of 20;toppings per hour.;After years of operating separate, one-man shops, they realize they can produce more;efficiently by combining operations and dividing the tasks between them.;How many more pizzas per hour can they make if they work together and allocate tasks;efficiently than they made when they worked separately? Call the number of additional;pizzas M;a.;b.;c.;d.;e.;They can make 5 M pizzas by working together;They can make 5 < M 10 pizzas by working together;They can make 10 < M 15 pizzas by working together;They can make 15 < M 20 pizzas by working together;They can make 20 < M pizzas by working together;10;28.;Robinson Crusoes preferences over coconut consumption, C, and leisure, R, are;represented by the utility function U(C, R) = CR. There are 48 hours available for;Robinson to allocate between labor and leisure. If he works L hours, he will produce the;square root of L of coconuts. He will choose to work;a.;b.;c.;d.;e.;29.;Robinson Crusoe has exactly 14 hours per day to spend gathering coconuts or catching;fish. He can catch 4 fish per hour or he can pick 12 coconuts per hour.;His utility function is U(F, C) = FC, where F is his consumption of fish and C is his;consumption of coconuts.;If he allocates his time in the best possible way between catching fish and picking;coconuts, his consumption will be the same as it would be if he could buy fish and;coconuts in a competitive market where the price of coconuts is $1.;a.;b.;c.;d.;e.;30.;8 hours;12 hours;16 hours;20 hours;24 hours;His income is $168 and the price of fish is $3.;His income is $56 and the price of fish is $4.;His income is $224 and the price of fish is $4.;His income is $168 and the price of fish is $.25.;His income is $112 and the price of fish is $.25;5;Suppose that Romeo has the utility function U R S R S 1 and Juliet has the utility function;J;1 5;U J S R S J, where SR is Romeos spaghetti consumption and SJ is Juliets spaghetti;consumption. They have 36 units of spaghetti to divide between them.;a. Romeo would want to give Juliet some spaghetti if he had more than 18 units of;spaghetti.;b. Juliet would want to give Romeo some spaghetti if she had more than 25 units.;c. Romeo and Juliet would never disagree about how to divide the spaghetti.;d. Romeo would want to give Juliet some spaghetti if he had more than 24 units of;spaghetti.;e. Juliet would want to give Romeo some spaghetti if she had more than 30 units;of spaghetti.;11

Paper#18283 | Written in 18-Jul-2015

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