University of ottawa eco 2144c (microeconomic theory i) midterm exam

ECO 2144C (Microeconomic Theory I) Midterm Exam 2

MULTIPLE CHOICE. (50 points – 2 points per question)
Circle the letter of the choice that best completes the statement or answers the question. If you
need to change your answer, very clearly cross out your previous answer, and circle and put an arrow identifying the correct answer. If the distinction between your old and new answers is not clear, no points will be awarded.

1. Jeong’s uncompensated demand for pizza is given by Q = 30 – 2p. Jeong’s marginal willingness to pay function is

A) -2.
B) 30-2p. C) 30-2Q. D) 15-.5Q.

2. Sandy’s current consumer surplus for candy is $20. Candy is a normal good for her. When her income increases and the price of candy remains unchanged, her consumer surplus will

A) decrease. B) increase.
C) remain the same.
D) Not enough information.

3. Compensating variation for an increase in the price of a good is

A) the change in utility resulting from the increase in price.
B) the change in consumer surplus resulting from a price increase.
C) the maximum amount of money a consumer would pay to avoid the price increase.
D) the minimum amount of money a consumer would accept to voluntarily accept the price increase.

4. Compensation variation and equivalent variation will be closer to each other when

A) the budget share is greater. B) the income effect is greater.
C) the income elasticity is smaller. D) the income elasticity is greater.

5. A quota will reduce consumer welfare when

A) the quota is greater than the amount purchased without the quota. B) the quota is on a good with high income elasticity.
C) the quota is less than the amount purchased without the quota. D) Quotas always reduce consumer welfare.

6. If a person supplies more hours of labour in response to a wage increase, then

A) the income effect equals the substitution effect.
B) the substitution effect is greater than the income effect. C) the person is not maximizing utility.
D) the income effect is greater than the substitution effect.

7. A backward-bending labour supply curve could possibly imply which of the following cases?

A) Leisure is a normal good. B) Leisure is an inferior good.
C) Leisure is a normal good at low wages and inferior at high wages. D) None of the above.

8. If workers are in the backward-bending section of their labour supply curves, then an increase in the income tax rate will

A) decrease tax revenue and increase the number of hours worked. B) decrease tax revenue and decrease the number of hours worked. C) increase tax revenue and decrease the number of hours worked. D) increase tax revenue and increase the number of hours worked.

9. Homer’s Donut Shoppe has the production function, q = 10L + 20L2 – 5L3. The marginal product of labour is

A) MP = 10 + 20L – 5L2
B) MP = 10L
C) MP = 10 + 20L
D) MP = 10 + 40L – 15L2

10. Average productivity will fall as long as

A) it is less than marginal productivity. B) marginal productivity is falling.
C) the number of workers is increasing. D) it exceeds marginal productivity.

11. Suppose an analyst attempts to estimate a consumer’s willingness to pay for a policy that lowers the price of childcare. The willingness to pay should be measured as


A) BCA to BCB. B) BCafter to BCA.
C) BCafter to BCbefore. D) BCafter to BCB.

12. If marginal productivity is increasing, then total product is

A) increasing at a constant rate.
B) decreasing at an increasing rate. C) increasing at a decreasing rate. D) increasing at an increasing rate.

13. To say that isoquants are convex is to say that

A) capital and labour are perfect substitutes. B) there are constant returns to scale.
C) the marginal rate of technical substitution falls as labour increases.
D) labour, but not capital, is subject to the law of diminishing marginal returns.

14. One way to explain the convexity of isoquants is to say that

A) as labour increases and capital decreases, MP and MP both rise. B) as labour increases and capital decreases, MP and MP both fall.
C) as labour increases and capital decreases, MP falls while MP rises. D) as labour increases and capital decreases, MP rises while MP falls.

15. Isoquants that are downward-sloping straight lines imply that the inputs

A) must be used together in a certain proportion. B) are imperfect substitutes.
C) are perfect substitutes. D) cannot be used together.

16. Returns to scale refers to the change in output when

A) specialization improves.
B) labour increases holding all other inputs fixed. C) capital equipment is doubled.
D) all inputs increase proportionately.

17. Suppose the production of VCRs can be represented by the production function, = . . .
Which of the following statements is (are) TRUE?

A) Capital and labour can be substituted for one another.
B) The production function has decreasing returns to scale.
C) The marginal productivity of labour falls as labour increases in the short run. D) All of the above.

18. Suppose the production function for a certain device is q = L + K. If neutral technical change has occurred, which of the following could be the new production function?

A) q = 5L + K B) q = L + 5K C) q = 5(L + K)
D) All of the above are possible.

19. The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

A) an opportunity cost. B) no real cost.
C) an explicit cost.
D) an accounting cost.

20. Suppose the short-run production function is q = 10L. If the wage rate is $10 per unit of labour, then AVC equals

A) q.
B) 10/q. C) 1.
D) q/10.

21. In the short run, the point at which diminishing marginal returns to labour begin is the point at which the marginal cost curve

A) peaks.
B) is upward sloping.
C) is downward sloping. D) bottoms out.

22. A specific tax of $1 per unit of output will affect a firm’s

A) average total cost, average variable cost, average fixed cost, and marginal cost. B) average total cost, average variable cost, and marginal cost.
C) average total cost, average variable cost, and average fixed cost. D) marginal cost only.

2 B q = 6000

1 A q = 3,000

q = 1,000
0 L
1 2 3

23. The figure above shows the long-run expansion path. The long-run average cost curve will be

A) downward sloping. B) vertical.
C) upward sloping. D) horizontal.

24. The slope of the isocost line tells the firm how much

A) more expensive a unit of capital is relative to a unit of labour.
B) capital must be reduced to keep total cost constant when hiring one more unit of labour. C) the isocost curve will shift outward if the firm wishes to produce more.
D) capital must be increased to keep total cost constant when hiring one more unit of labour.

25. If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labour is $5, what is the rental rate for capital in dollars?

A) 10
B) 1
C) 0.5
D) 2

TRUE/FALSE. (5 points)
For the following, answer “True” or “False” and briefly explain why. Label and explain clearly
any diagrams.

26. (2 points) The length of the short-run is the same for all firms.
27. (3 points) The “Law of Diminishing Marginal Returns” could also be termed the “Law of
Increasing Marginal Costs”.

SHORT ANSWER. (45 points)
Write your answer in the space provided. Show all your work. Label and explain clearly any

28. (7 points) Suppose a person’s utility for leisure (N) and consumption (Y) is expressed U = YN
and this person has no non-labour income. How many hours per day will the person work?

29. (8 points) Consider the short-run production function, = 5 $ − %/3. At what level of L
does diminishing marginal returns begin? At what level of L does diminishing returns begin?

30. (15 points total) Ed’s utility function for bacon (B) and coffee (C) is U(B,C) = BC. Last week, the price of bacon was $5 per package and the price of coffee was $2.50 per cup. This week, the price of coffee rose to $3.00 per cup, but the price of bacon remained the same. Ed’s income is $120.

a. (5 points) Derive Ed’s uncompensated demand function for coffee.

b. (1 point) How much coffee did Ed consume last week?

c. (5 points) Calculate his change in consumers surplus resulting from the change in the price of coffee.
d. (2 points) Derive Ed’s uncompensated demand function for bacon.

e. (1 point) How much bacon did Ed consume last week?
f. (1 point) What was Ed’s utility from consuming bacon and coffee last week?

 31. (15 points total) Erica is starting a new restaurant in Ottawa. While she plans to do the cooking herself, she will need to employ workers and machinery to produce food. She estimates her production function as = 15 .$2 . Erica is able to accumulate $10,000 to finance the business. Workers cost $10 per hour and the rental price of capital is $50 per unit.

a. (8 points) If Erica wishes to produce the most output with the finances available, how much labour and capital should she employ?

b. (1 point) How much food does Erica produce using this bundle of labour and capital?

c. (6 points) Does this bundle of capital and labour also minimize the costs? Explain using a graph.



Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

We value our customers, and so ensure that our papers are 100 percent original. Our Team of professionals does not miss the mark; they ensure that step by step each paper is written uniquely. We never duplicate or work as we compare papers rest assured. We deliver our work a day before time to ensure that you don’t miss your deadlines. It is not only doing the work but delivering it at the right time. We capture the consequences of late remittances. .

Money-back guarantee

We value customer satisfaction here at and make sure that you get the best value for your Money. It happens that sometimes you can pay twice for your order or may want to cancel it, or you feel that it doesn’t meet your requirements; our money back guarantee will give you the opportunity to get back your money. We will also refund 100% of money paid double. In case your paper does not satisfy your requirements , we request that you notify us via writing within 2 days otherwise on the third day we will assume that you have been satisfied. Do all your correspondences through our email address

Read more

Zero-plagiarism guarantee

At, our professional writers know the consequence plagiarism does for our clients. We have updated software’s such as article checker and copyscape to check for originality of the custom papers before submission of the final paper to the you. Our guarantee to the customer is that we will write 100% original papers for them that are quality, timely and of low cost. We have experienced professional and competent PhD writers who will write quality custom papers for you..

Read more

Free-revision policy

. At, we are proud to provide top-quality Essay writing service to our esteemed customers. We are ready to take up that challenging academic assignment that is giving you sleepless nights and simplify it for you according to your desired requirements. We are willing to revise your paper if it does not meet your requirements. At, we do not compromise with quality; thus, we offer unlimited free revisions until the customer is satisfied with their custom paper. Our unlimited free revision services are provided under the following terms:.. .

Read more

Privacy policy knows that client’s information is an essential tool for our company. It means that whatever the client requests from our service is kept strictly confidential. It means that whoever writes for this company understands the terms and conditions hence you should not be worried because you will never see your work somewhere else...

Read more

Fair-cooperation guarantee

Rest assured that we will always be attentive to your needs and requirements. We belief in the phrase treat your neighbour as you would want them to treat you. We leave nothing to chance and always look forward to a good interaction with each other.. .

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages