Winter 2016 Economics 304 Name Quiz 6

Transcription

1 Winter 2016 Economics 304 Name Quiz 6 Instructions: Put all books and notes away. Circle the letter of the choice that best answers the question. If you need scratch paper, just use blank space on the quiz. You are allowed to use a calculator. All other electronic devices must be turned off and put away. G 1. In the golf club industry, the marginal product of labor and capital are given as MP L G and MP K. In the tennis racket industry, the marginal product of labor and capital are T T given as MPL and MP K. The price of labor and capital are W and R. An efficient allocation of labor and capital across the golf club and tennis racket industries requires the following condition: A) B) C) D) Use the following to answer question 2: Page 1

2 2. Based on the Edgeworth box, which statement is true? A) The economy shown has a total of 16 units of labor and 10 units of capital to be allocated to food production and to clothing production. B) An output combination of 40 units of clothing and 100 units of food is a point on the economy's production possibility frontier since the economy's labor and capital are fully employed in producing this combination of goods. C) The economy shown has a total of 8 units of labor and 5 units of capital to be allocated to food production and to clothing production. D) Input allocation A shows an efficient use of the economy's resources since it lies on both production isoquiants. Use the following to answer questions 3-4: Figure (Figure 14.8). Suppose the food industry is using 4 capital inputs and 4 labor inputs, while the clothing industry is using 1 capital input and 4 labor inputs. Which of the following input reallocations would be a Pareto improvement? A) The clothing industry gives 1 capital input to the food industry in exchange for 1 labor input. B) The food industry gives 2 capital inputs to the food industry in exchange for 2 labor inputs. C) The clothing industry gives 1 capital input to the food industry in exchange for 2 labor inputs. D) The food industry gives 1 capital input to the clothing industry in exchange for 1 labor input. Page 2

3 4. (Figure 14.8) Suppose the food industry is using 3 capital inputs and 5 labor inputs, while the clothing industry is using 2 capital inputs and 3 labor inputs. The economy's output of food is units and the output of clothing is units. A) greater than 100; greater than 40 B) less than 100; less than 40 C) greater than 100; less than 40 D) less than 100; greater than The MRTS in the cell phone industry is 5 and the MRTS in the tablet industry is 8. Which of the following resource reallocations will lead to a Pareto improvement? A) The cell phone industry should use less labor and less capital, and the tablet industry should use more labor and more capital. B) The cell phone industry should use more labor and less capital, and the tablet industry should use less labor and more capital. C) The cell phone industry should use less labor and more capital, and the tablet industry should use more labor and less capital. D) The cell phone industry should use more labor and more capital, and the tablet industry should use less labor and less capital. Use the following to answer question 6: Figure (Figure 14.10) Suppose that at Point G the marginal rate of transformation from pancakes to cereal is 3. What does this mean? A) The economy must give up producing 1 pancake to make 3 more bowls of cereal. B) Consumers prefer pancakes to cereal by a 3-to-1 margin. C) Consumers prefer cereal to pancakes by a 3-to-1 margin. D) The economy must give up producing 3 pancakes to make another bowl of cereal. Page 3

4 Use the following to answer questions 7-8: Figure (Figure 14.7) If the economy is at point B, the input mix is: A) not Pareto-efficient, so a movement to point C or point D would be Pareto inefficient. B) not Pareto-efficient, so a movement only to point D would be a Pareto improvement. C) not Pareto-efficient, so a movement to point C or point D would be a Pareto improvement. D) Pareto-efficient, so a movement to any other point would be Pareto inefficient. 8. (Figure 14.7) Which of the following statements is TRUE? A) At point B, 3 units of capital and 7 units of labor are used to produce drones. B) At point B, the labor and capital inputs are efficiently allocated across the economy. C) There are fewer jets being produced at point D than at point A. D) At point A, the economy is producing an equal number of jets and drones. Page 4

5 Use the following to answer question 9: Figure (Figure 14.9) Which of the following output combinations does NOT fall on the production contract curve? I. guns = 20, roses = 2,000 II. guns = 15, roses = 2,800 III. guns = 90, roses = 750 A) I and II B) I, II, and III C) I only D) III only 10. The marginal rate of transformation is A) the slope of the utility possibilities frontier. B) the slope of the slope of the production possibilities frontier. C) the slope of the production contract curve. D) the slope of the consumption contract curve. 11. In an economy with two industries, food and clothing, the price of labor is $100 and the price of capital is $80. Input efficiency requires that the marginal: A) product of labor is 100 in the food industry, and the marginal product of capital is 80 in the clothing industry. B) rate of technical substitution of labor for capital is 100 in the food industry and 80 in the clothing industry. C) product of labor equals the marginal product of capital in the food industry and in the clothing industry. D) rate of technical substitution of labor for capital is 1.25 in the food industry and in the clothing industry. Page 5

6 Use the following to answer question 12: Table 14.2 Marginal Product of Labor Boat Industry Marginal Product of Capital Marginal Product of Labor Tractor Industry Marginal Product of Capital Input Mix I Input Mix II Input Mix III Input Mix IV (Table 14.2) Which of the following input mixes provides an efficient allocation of labor and capital between the two industries? A) input mix III B) input mix IV C) input mix II D) input mix I Use the following to answer questions 13-14: Figure Page 6

7 13. (Figure 14.10) Suppose that the economy is operating at point G, and in the cereal industry, the marginal product of labor and capital are 10 and 4, respectively. What is the marginal rate of technical substitution of labor for capital in the pancake industry? A) 14 B) 40 C) 2.5 D) (Figure 14.10) Which of the following statements is TRUE? I. Points G, H, I, and J lie on the production contract curve. II. Points H and J represent an inefficient input allocation. III. At point G, allocating more labor and capital to the cereal industry will increase the output of cereal and pancakes. A) I only B) II only C) II and III D) I and III 15. On a small tropical island, two firms draw on the same supply of labor and capital. One of the firms produces fish and, at the current allocation of inputs, the marginal product of labor is 8 and the marginal product of capital is 5. The other firm produces coconuts, where the marginal product of labor is 64 and the marginal product of capital is 32. Which statement below is true? A) If 1.2 units of capital is transferred from coconut harvesting to fishing and 1 unit of labor is transferred from fishing to coconut harvesting, more of both coconuts and fish will be produced. B) Based on the information given, this economy is using its labor and capital in a Pareto efficient way. C) If 1.8 units of capital is transferred from coconut harvesting to fishing and 1 unit of labor is transferred from fishing to coconut harvesting, more of both coconuts and fish will be produced. D) Based on the information given, there is no way to tell whether or not the economy is using its labor and capital efficiently. Page 7

8 Answer Key 1. D 2. C 3. D 4. A 5. C 6. D 7. C 8. A 9. A 10. B 11. D 12. C 13. C 14. A 15. C Page 8