Question 1

When there is production, a competitive equilibrium is not Pareto optimal unless there are increasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 2

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 4 swords per week.If he devotes all his time to producing plowshares, he can make 20 plowshares per week.A beta can produce either 1 plowshare per week or 1 sword per week.The company wants to produce 413 swords and as many plowshares as it can.How many type betas should it employ at making swords?

Accepted Answer

A) 80 
B) 0 
C) 100 
D) 13 
E) None of the above. 
A) 80 
B) 0 
C) 100 
D) 13 
E) None of the above.

Question 3

Mandy is a master wood-carver and Jerry is her apprentice.They will each work the same number of hours making toy cars.Each car requires 4 wheels and 1 body.Mandy makes wheels at the rate of 25 per hour and bodies at the rate of 10 per hour.Jerry makes wheels at the rate of 10 per hour and bodies at the rate of 10 per hour.If they wish to maximize output, how many wheels should Jerry make per hour?

Accepted Answer

A) 3 
B) 2 
C) 10 
D) 6 
E) There is not enough information to determine the answer. 
A) 3 
B) 2 
C) 10 
D) 6 
E) There is not enough information to determine the answer.

Question 4

Tip can write 2 pages of term paper or solve 4 workbook problems in an hour, while Spot can write 4 pages of term paper or solve 12 workbook problems in an hour.If they each decide to work a total of 6 hours and to share their output, then if they produce as many pages of term paper as possible given that they produce 10 workbook problems,

Accepted Answer

A) Spot will write term papers only and Tip will do workbook problems only. 
B) Spot will spend all of his time writing term papers and Tip will spend some time at each task. 
C) both students will spend some time at each task. 
D) Tip will spend all of his time writing term papers and Spot will spend some time at each task. 
E) Tip will write term papers only and Spot will do workbook problems only. 
A) Spot will write term papers only and Tip will do workbook problems only. 
B) Spot will spend all of his time writing term papers and Tip will spend some time at each task. 
C) both students will spend some time at each task. 
D) Tip will spend all of his time writing term papers and Spot will spend some time at each task. 
E) Tip will write term papers only and Spot will do workbook problems only.

Question 5

In the process of producing 1 hormone-free, stress-free, happy cow, the New Age Cattle Ranch produces 1 ton of natural, organic plant fertilizer.Demand for the ranch's cattle is given by Pc = 2,000 - 5Qc, and demand for fertilizer is given by Pf = 500 - 4Qf.The cost of producing Q cow-fertilizer bundles is C = 5,000 + 400Q.To maximize profits, the ranch should

Accepted Answer

A) produce 160 cow-fertilizer units, sell 160 cattle, and sell 62.50 tons of fertilizer. 
B) produce 160 cow-fertilizer units, sell 160 cattle, and sell 12.50 tons of fertilizer. 
C) produce 160 cow-fertilizer units, sell 160 cattle, and sell 160 tons of fertilizer. 
D) produce 116.67 cow-fertilizer units, sell 116.67 cattle, and sell 116.67 tons of fertilizer. 
E) produce 200 cow-fertilizer units, sell 200 cattle, and dispose of all the fertilizer in an environmentally friendly manner. 
A) produce 160 cow-fertilizer units, sell 160 cattle, and sell 62.50 tons of fertilizer. 
B) produce 160 cow-fertilizer units, sell 160 cattle, and sell 12.50 tons of fertilizer. 
C) produce 160 cow-fertilizer units, sell 160 cattle, and sell 160 tons of fertilizer. 
D) produce 116.67 cow-fertilizer units, sell 116.67 cattle, and sell 116.67 tons of fertilizer. 
E) produce 200 cow-fertilizer units, sell 200 cattle, and dispose of all the fertilizer in an environmentally friendly manner.

Question 6

Tip can write 2 pages of term paper or solve 2 workbook problems in an hour, while Spot can write 2 pages of term paper or solve 6 workbook problems in an hour.If they each decide to work a total of 8 hours and to share their output, then if they produce as many pages of term paper as possible given that they produce 14 workbook problems,

Accepted Answer

A) Tip will spend all of his time writing term papers and Spot will spend some time at each task. 
B) Spot will spend all of his time writing term papers and Tip will spend some time at each task. 
C) Spot will write term papers only and Tip will do workbook problems only. 
D) both students will spend some time at each task. 
E) Tip will write term papers only and Spot will do workbook problems only. 
A) Tip will spend all of his time writing term papers and Spot will spend some time at each task. 
B) Spot will spend all of his time writing term papers and Tip will spend some time at each task. 
C) Spot will write term papers only and Tip will do workbook problems only. 
D) both students will spend some time at each task. 
E) Tip will write term papers only and Spot will do workbook problems only.

Question 7

Robinson Crusoe spends 4 hours a day catching fish and picking coconuts.He can always catch 2 fish per hour and he can always gather 3 coconuts per hour.His utility function is CF, where C is the number of coconuts he eats per day and F is the number of fish he eats per day.How many fish will he choose to eat per day?

Accepted Answer

A) 8 
B) 6 
C) 4 
D) 2 
E) 1 
A) 8 
B) 6 
C) 4 
D) 2 
E) 1

Question 8

In the process of producing 1 hormone-free, stress-free, happy cow, the New Age Cattle Ranch produces 1 ton of natural, organic plant fertilizer.Demand for the ranch's cattle is given by Pc = 2,000 - 5Qc, and demand for fertilizer is given by Pf = 500 - 2Qf.The cost of producing Q cow-fertilizer bundles is C = 5,000 + 200Q.To maximize profits, the ranch should

Accepted Answer

A) produce 164.29 cow-fertilizer units, sell 164.29 cattle, and sell 164.29 tons of fertilizer. 
B) produce 180 cow-fertilizer units, sell 180 cattle, and sell 125 tons of fertilizer. 
C) produce 180 cow-fertilizer units, sell 180 cattle, and sell 75 tons of fertilizer. 
D) produce 180 cow-fertilizer units, sell 180 cattle, and sell 180 tons of fertilizer. 
E) produce 200 cow-fertilizer units, sell 200 cattle, and dispose of all the fertilizer in an environmentally friendly manner. 
A) produce 164.29 cow-fertilizer units, sell 164.29 cattle, and sell 164.29 tons of fertilizer. 
B) produce 180 cow-fertilizer units, sell 180 cattle, and sell 125 tons of fertilizer. 
C) produce 180 cow-fertilizer units, sell 180 cattle, and sell 75 tons of fertilizer. 
D) produce 180 cow-fertilizer units, sell 180 cattle, and sell 180 tons of fertilizer. 
E) produce 200 cow-fertilizer units, sell 200 cattle, and dispose of all the fertilizer in an environmentally friendly manner.

Question 9

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?

Accepted Answer

A) 0 
B) 85 
C) 24 
D) 100 
E) None of the above. 
A) 0 
B) 85 
C) 24 
D) 100 
E) None of the above.

Question 10

Every consumer has a red-money income and a blue-money income and each commodity has a red price and a blue price.You can buy a good by paying for it either with blue money at the blue price or with red money at the red price.Harold has 7 units of red money to spend and 32 units of blue money to spend.The red price of ambrosia is 1 and the blue price of ambrosia is 4.The red price of bubble gum is 1 and the blue price of bubble gum is 2.If ambrosia is on the horizontal axis, and bubble gum on the vertical axis, then Harold's budget set is bounded by

Accepted Answer

A) two line segments, one running from (0, 23)to (7, 16)and another running from (7, 16)to (15, 0). 
B) two line segments one running from (0, 23)to (8, 7)and the other running from (8, 7)to (15, 0). 
C) two line segments, one running from (0, 24)to (7, 16)and the other running from (7, 16)to (14, 0). 
D) a vertical line segment and a horizontal line segment, intersecting at (7, 16). 
E) a vertical line segment and a horizontal line segment, intersecting at (8, 7). 
A) two line segments, one running from (0, 23)to (7, 16)and another running from (7, 16)to (15, 0). 
B) two line segments one running from (0, 23)to (8, 7)and the other running from (8, 7)to (15, 0). 
C) two line segments, one running from (0, 24)to (7, 16)and the other running from (7, 16)to (14, 0). 
D) a vertical line segment and a horizontal line segment, intersecting at (7, 16). 
E) a vertical line segment and a horizontal line segment, intersecting at (8, 7).

Question 11

On a certain small island, there are 100 units of labor and 200 units of capital.Two goods can be produced.Good A is produced with fixed coefficients, using 1 unit of labor and 3 units of capital per unit of output.Good B is produced with fixed coefficients, using 1 unit of labor and 1 unit of capital per unit of output.Let X a denote the quantity of good A and X b be the quantity of good B that is produced.The set of feasible output combinations for this economy is restricted by the fact that it cannot use more than 100 units of labor or 200 units of capital.
a.Write down two inequalities expressed in terms of X a and X b that must be satisfied at feasible output combinations.
b.Draw a graph showing the economy's production possibility set.Put numerical labels on your graph so that this graph is precisely described.

Accepted Answer

a.X a + X b 100, 3X a + X b 20

Question 12

Al and Bill are the only workers in a small factory which makes geegaws and doodads.Al can make 5 geegaws per hour or 15 doodads per hour.Bill can make 2 geegaws per hour or 12 doodads per hour.Assuming that neither of them finds one task more odious than the other,

Accepted Answer

A) Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads. 
B) Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads. 
C) Al has a comparative advantage in producing both geegaws and doodads. 
D) Bill has a comparative advantage in producing both geegaws and doodads. 
E) both have a comparative advantage in producing doodads. 
A) Al has a comparative advantage in producing geegaws and Bill has a comparative advantage in producing doodads. 
B) Bill has a comparative advantage in producing geegaws and Al has a comparative advantage in producing doodads. 
C) Al has a comparative advantage in producing both geegaws and doodads. 
D) Bill has a comparative advantage in producing both geegaws and doodads. 
E) both have a comparative advantage in producing doodads.

Question 13

Ernie and Burt both make pizzas for a living.Making a pizza consists of two tasks: making the crust and applying toppings.Ernie can make crusts at the rate of 30 crusts per hour.He can apply toppings at the rate of 15 toppings per hour.Burt can make crusts at the rate of 15 crusts per hour.He can apply toppings at the rate of 30 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?

Accepted Answer

A) 5 
B) 10 
C) 14 
D) 25 
E) 8 
A) 5 
B) 10 
C) 14 
D) 25 
E) 8

Question 14

Robinson Crusoe has exactly 10 hours per day to spend gathering coconuts or catching fish.He can catch 3 fish per hour or he can pick 6 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.

Accepted Answer

A) His income is $60 and the price of fish is $2. 
B) His income is $60 and the price of fish is $.33. 
C) His income is $90 and the price of fish is $3. 
D) His income is $30 and the price of fish is $3. 
E) His income is $45 and the price of fish is $.33. 
A) His income is $60 and the price of fish is $2. 
B) His income is $60 and the price of fish is $.33. 
C) His income is $90 and the price of fish is $3. 
D) His income is $30 and the price of fish is $3. 
E) His income is $45 and the price of fish is $.33.

Question 15

For each carload of ore removed from the Matchless Mine, 1 pound of lead and 1 ounce of silver is smelted.The cost of mining and processing 1 carload of ore is C(Q)= 700 + 2Q + 0.09Q2.The demand for silver (per ounce)is Ps = 40 - 0.30Qs and the demand for lead (per pound)is Pl = 5 - 0.02Ql.What should the owners of the Matchless Mine do to maximize profits (in the long run)?

Accepted Answer

A) Mine and process 52.44 carloads of ore, sell 52.44 ounces of silver, and sell 52.44 pounds of lead. 
B) Mine and process 66.67 carloads of ore, sell 66.67 ounces of silver, and sell 13.64 pounds of lead. 
C) Mine and process 125 carloads of ore, sell 66.67 ounces of silver, and sell 125 pounds of lead. 
D) Mine and process 125 carloads of ore, sell 48.72 ounces of silver, and sell 125 pounds of lead. 
E) Shut down the mine. 
A) Mine and process 52.44 carloads of ore, sell 52.44 ounces of silver, and sell 52.44 pounds of lead. 
B) Mine and process 66.67 carloads of ore, sell 66.67 ounces of silver, and sell 13.64 pounds of lead. 
C) Mine and process 125 carloads of ore, sell 66.67 ounces of silver, and sell 125 pounds of lead. 
D) Mine and process 125 carloads of ore, sell 48.72 ounces of silver, and sell 125 pounds of lead. 
E) Shut down the mine.

Exam 31: Production-Part A

When there is production, a competitive equilibrium is not Pareto optimal unless there are increasing returns to scale.

Al and Bill are the only workers in a small factory which makes geegaws and doodads.Al can make 5 geegaws per hour or 15 doodads per hour.Bill can make 2 geegaws per hour or 12 doodads per hour.Assuming that neither of them finds one task more odious than the other,

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

Asymmetric Information-Part B

Filters