APEC 3001 Spring 2013 Sample Mid-­‐Term Exam #2 (Answer key is at the beginning of Lecture 18-­‐Review for Exam 2) Name: _________________________________________________________________________ Part A. Fill in the blank with the correct answer. There is only one correct choice per question. 1. Curve A on the graph below shows ____ a. Average fixed cost b. Marginal cost c. Average total cost d. Average variable cost 2. Which of the following is a variable cost to a university? ____ a. The president’s salary b. The cost of chemicals used by students in chemistry experiments c. Maintenance of buildings and grounds d. Cost of maintaining the university’s public website. 3. Which of the following is not a condition for competitive equilibrium? ___ a. Marginal revenue is equal to the market price b. Products from different firms in the industry are differentiated c. Firms can easily enter and/or exit the industry (in the long run) d. Firms and consumers have perfect information 1 Part B. Please the following short-­‐answer questions. 4. For the production function Q= f(K,L) = K2 L0.2 a. What is the marginal product of labor (MPL)? b. What is the average product of capital (APK)? 5. Briefly explain the difference between production in the short run and production in the long run. 6. Briefly explain why economic profit is zero in long-­‐run competitive equilibrium. 2 Part C. Please solve the following problem. 7. A firm’s production function is Q=K.5 L, where K = units of capital per day and L = units of labor per day. The rental rate of capital (r) = $5/day, and the wage rate (w) =$2/day. a. (2 points) What is the firm’s expansion path? b. (2 points) What is the least-­‐cost input mix (combination of K and L) to produce Q=15? Remember that xaxb =xa+b and that (xa)1/a=x. c. (2 points) Graph the solution from b) on the following graph. The isocost line should be to scale, with all points and intercepts labeled. The isoquant can be approximate. Just make sure it has the conventional shape. K