c) The firm must have faced increasing returns to scale

D. The country will produce 600 units of x

In a world of two goods (X and Y) an individual with income in-kind initially chooses to be a net seller of good X. After a decrease in the price of Y the consumer may become a net buyer of X if:

(a) Good X is inferior;

(b) Good Y is necessity;

(c) Good Y is luxury;

(d) Good Y is inferior.

Carlos consumes only two goods, apples and bananas. His utility function is given by U(x; y) = a3b2. He is endowed with wa apples and wb bananas. Unaware that prices are about to change, Carlos buys the quantities of apples and bananas that maximize his utility subject to his budget constraint. After he has made his purchases, but before he has eaten them, the relative prices change. Carlos is then free to make further trades at the new relative prices if he wishes.

a. Carlos will definitely be worse off after the price change.

B. Carlos will be better off after the price change if the price of the good for which he is a net seller rises relative to the price of the other good.

c. Carlos will be better off after the price change if the price of the good for which he is a net buyer rises relative to the price of the other good.

d. Carlos' utility will not be affected by the price change.

4) Lucy spends all her monetary income on lipstick and romance novels. Due to inflation, the prices of lipstick and romance novels increased by 50% and 20% respectively. For lipstick, the income effect calculated according to Hicks’ definition…

a) Is smaller than according to Slutsky’s definition

b) Is greater than according to Slutsky’s definition

c) Is greater than according to Slutsky’s definition only if lipstick is a normal good

d) Is greater than according to Slutsky’s definition only if lipstick is an inferior good

Due to the slowdown in the economy the _rm has cut the use of inputs to the half of the initial

level. We can say:

(a) If there are increasing returns to scale then the average product of labor has increased;

(b) If there are decreasing returns to scale then the average product of capital has increased;

(c) If there are decreasing returns to scale then the average product of labor has decreased;

(d) Nothing of the above, since returns to scale and average product are di_erent concepts.

1.10 After a firm who produced its output with labor and capital has increased the amount of both inputs by 10%, its managers observed an increase in average labor productivity. This would mean that

a) Before the change, the firm must have been productively inefficient

b) The firm's technology is characterized by increasing marginal returns to labor

c) The firm must have faced increasing returns to scale

d) Average capital productivity must have decreased

If a production function with two inputs, labor and capital, exhibits constant returns to scale then

(a) The average product of labor is decreasing, while long run marginal cost is constant;

(b) The average product of labor and average product of capital are constant;

(c) The marginal product of labor and marginal product of capital are constant;

(d) The average product of labor and long run marginal cost are constant.

The contribution to output per worker is maximized when:

(a) Average and marginal products are the same;

(b) Average product is greater than marginal product;

(c) Average product is smaller than marginal product;

(d) Average cost is falling and so is marginal cost.

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