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                George Washington University - ECONOMICS 1011  THE GEORGE WASHINGTON UNIVERSITY Department of Economics   Economics 1011                                                                                              Prof

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George Washington University - ECONOMICS 1011 

THE GEORGE WASHINGTON UNIVERSITY

Department of Economics

 

Economics 1011                                                                                              Prof. Steve Suranovic

Section 14                                                                                                       Fall 2012

 

MIDTERM EXAM (WHITE) - Answers

 

 

(50 points total; 50 minutes total) Write the term or answer each question in the box provided on the right.  The number of points for each question is given in parentheses.

 

Questions	Answers
1. (1) Economic models consist of a set of assumptions that generate a set of implications.  What term describes this kind of reasoning?
2. (1) The monopoly model assumes this is the firm’s primary objective in the marketplace.
3. (1) To guarantee a unique trading outcome, the pure exchange model assumes both individuals achieve this objective.
4. (1) Name of the person most associated with the “invisible hand.” (full name required)
5.  (1) In the exchange model with production profit seeking people will specialize in the good in which
they have a comparative advantage.  Is this an assumption of the model or an implication of the model?
6.  (1) Demand curves are usually assumed to be
linear, that is, straight lines.  Is this assumption made more because it reflects reality or more because it simplifies the model?
7.  (1) In the exchange model with production each
person has a comparative advantage in a different good.  Is this an assumption of the model or an implication of the model?
8. (1) If Paul’s unit labor requirement for car washes is 15 minutes per car wash, what is Paul’s hourly car wash productivity?
9. (1) word used to describe a good whose cross price elasticity is positive.
10. (1) word used to describe a good whose demand
curve shifts left when there is a decrease in consumer income.
11.  (1) of increase, decrease or stay the same, this is
what happens to total revenue if the product’s price decreases when its marginal revenue is positive.

              

              

              

              

              

12.          (5)       Consider         the       following        production     schedule         for       pins.                               

              

Workers (L) # of workers	Output (Q) # of pins	Marginal Product of Labor  (MPL = ΔQ/ΔL)
0	0
1	200
2	375
3	425
4	550
5	650
6	725
7	775

              

1. (2)     Fill       in         the       blanks             above              for       the       marginal         product          of          labor               for       different         numbers         of       workers.           

              

              

2. (1)                 State   what    type     of         returns           to         scale    are      exhibited        by        this          production     schedule.        How    do        you      know?                         

              

              

3. (2)     With    this      production     schedule,        describe,          or        draw,               the       shape          of         the       average          total    cost     curve              assuming        no        fixed    costs,         and      indicate           the       term    used    to         describe         an        average          cost     curve            like      this.                                                     

              

(5)                           The     following        questions       all        pertain            to         the       principle     of         opportunity   cost.                            

              

A.  (1) Suppose Tomas quits his accounting job with an annual salary of $30,000 to open a food truck business in Washington DC.  Tomas estimates that his annual total revenue will be $200,000.  His fixed cost will be $20,000 and his variable labor and food costs will be $70,000.  What is Tomas’ annual opportunity cost of operating the food truck?
B.  (2) Suppose during the weekend Tomas works in his home woodshop.   Suppose Tomas’ productivity in wooden tables is one table per weekend while his productivity in wooden stools is 10 stools per weekend.   What is Tomas’ opportunity cost of stools?   Include units.
C.  (2) Suppose Tomas’ friend Bjorn also builds tables and stools.  Bjorn’s one month PPF is shown below.  What is Bjorn’s opportunity cost of stool production?  Include units.       # of Tables # of stools 100 80

              

              

              

              

              

              

              

              

              

              

              

              

              

              

1. 15. (10)                         Suppose         there               are      two      sisters,            Olga     and      Maria,                     who     can      allocate           their    daily    work               effort              towards      the       production     of         apples             and      oranges.                     The     joint            production     possibility       frontier           is         plotted            in         the       diagram.                 Using               info     from    the       graph,             answer           the       following    questions.      

              

 

1. (2)      Which             sister               has      an        absolute         advantage      in         the       production    of         oranges?                    Explain           why     using               productivity               comparisons.           

              

              

              

              

              

2. (1)      What               is         Olga’s              opportunity    cost     of         orange            production?           (include          units)             

              

              

              

              

3. (2)      Which             sister               has      a          comparative               advantage      in         orange           production?                           Explain           why     using               opportunity    cost     comparisons.           

              

              

              

              

4. (2)      If          each    sister               specialized     in         her      comparative               advantage      good,             how     many               apples             and      oranges          would             each    sister           produce?                    Mark               the       diagram          with     the       letter               S          to           indicate           where             on        the       joint    PPF     production     would             take     place.                                                   

              

5. (2)      Suppose         Olga     and      Maria’s           younger          sister               Irina   enters             the           workforce      and      can      produce          apples             and      oranges.                     Suppose           her      productivity               in         apples             is         15        apples             per      day      and    her      productivity               in         oranges          is         10        oranges          per      day.                Draw               the       three               person            joint    PPF     in         the       figure              above.                       

              

              

6. (1)      One     reason            total    output             of         goods              can      grow               is         if           new     workers          like      Irina    enter               the                   workforce.                 State    one    other               reasons          output             may     grow.