E) Diminishing marginal returns begin when the fourth worker is hired.

MIDTERM EXAM IN MICROECONOMICS

(November 2007)

Section 1. Multiple Choice Questions

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if an answer has not been given.

1. Two countries A and B produce oil and cars. The only resource is labor. It takes 3 man hours for a country A to produce a barrel of oil and 30 to produce a car. For country B it takes 10 man hours to produce a barrel of oil and 60 man hours to produce a car.

1. Countries should not trade because A has and absolute advantage in producing both oil and cars.
2. A should trade only if it is offered to buy 1 car for 6 barrels of oil.
3. There is a range of prices over which trade will be beneficial for both A and B.
4. B have a comparative advantage in producing oil and A in producing cars.
5. More than one statement is correct.
6. None of the above.

1. During the last 30 minutes of the mock exam a student can solve 10 multiple choice problems or 1 free response one. The opportunity cost of a multiple choice problem for him is

1. 3 minutes
2. 1/3 minutes
3. Time it takes to answer it
4. 1/10 of a free response question
5. The chance of getting -0,25 for answering it incorrectly
6. There is not enough information to answer this question.

3. What is the most precise definition of the long run period in microeconomics as apposed to the short run

1. The period long enough to change capital stock
2. The period long enough to build a new factory
3. The period long enough to be able to vary all the factors of production
4. The period long enough to start\leave a business
5. The period when we will all be dead according to J.M.Keynes

4.

1. 1 – Average Total Costs, 2- Marginal Costs, 3- Average Fixed Costs,
2. 2 – Average Total Costs, 1- Marginal Costs, 3- Average Fixed Costs
3. 3 – Average Variable Costs, 1- Marginal Costs, 3- Average Fixed Costs
4. 1-Marginal costs, 2- Marginal revenue, 3- Average revenue
5. 2-Marginal costs, 1- Marginal revenue, 3- Average revenue
6. None of the above.

5. Which quantity of output will a producer produce in order to maximize his profit (provided it is positive)?

1. The quantity where his average costs are minimized
2. The quantity where his average costs are equal to the market price
3. The quantity where his marginal costs are equal to his average costs
4. The quantity where his marginal costs are equal to his marginal revenue
5. The quantity where his short run average costs are equal to the market price

6. The market price faced by a producer is 500Rb per unit. He can not sell a fraction of the unit. His cost structure is the following:

Quantity	MC	AC

How much he should produce to maximize his profit?

A. none

B.2 units

C.3 units

D.4 units

E. 5 units

7.

Number of workers	Total pizzas per hour

The table above provides the total number of workers and the resulting total output a pizza shop per hour, holding all other inputs constant. Which of the following statements can be made with certainty based on the available information?

A) The firm faces decreasing returns to scale.

B) Diminishing marginal returns begin when the second worker is hired.

C) The firm faces decreasing returns to scale.

D) The firm should not hire 5 workers.

E) Diminishing marginal returns begin when the fourth worker is hired.

8. Every time Mr. Hamm makes another pizza in his shop, he places $0.45 worth of sauce on top. For Mr. Hamm, the cost of pizza sauce is a component of which of the following?

I. Total fixed costs

II. Total variable costs

III. Average variable costs

IV. Marginal costs

A) I and IV only

B) II and III only

C) II and IV only

D) III and IV only

E) I, III and IV only

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