Code 1

Time: 120 minutes

Part I: Multiple choice (40 points)

1, In the short run, if the price of the fixed factor is increased, profits will increase. This
is true or false?
2, If the law of diminishing marginal product did not hold, the world’s food supply could
be grown in a flowerpot. True or false?
3, Which of the following are true?
(a) AFC never increase with output.
(b) ATC are always greater than or equal to AVC.
(c) AC can never rise while MC are declining.
4, Some individuals can be made better off if we are at a Pareto efficient allocation. This
statement is true or false?

Part II: Calculating exercise (30 points)

5, What is the present value of $100 one year from now if the interest rate is 10%? What
is the present value if the interest rate is 5%?
6, A firm has a cost function given by c(y) = 10y2 + 1000. What is its supply curve? At
what output is average cost minimized?
100
7, If D(p) = and c(y) = y2 , what is the optimal level of output of the monopolist?
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Part III: Short answers (30 points)

8, Consider a cartel in which each firm has identical and constant marginal costs. If the
cartel maximizes total industry profits, what does this imply about the division of output
between the firms?
9, What happens to the budget line if the price of good 2 increases, but the price of good
1 and income remain constant? Illustrate it by graph?
10, If Robinson’s marginal rate of substitution between coconuts anf fish is -2 and the
marginal rate of transformation between two goods is -1, what should he do if he want to
increase his utility.