ECON 102 Quiz: ECON 102 UW Madison Quiz0Summer2018
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Q1. The following table shows the relationship between outside temperature (T) and number of hot drinks sold (Q).
Outside temperature (T) | Number of hot drinks sold(Q) |
0 0F | 1000 cups |
20 | 900 |
40 | 800 |
60 | 700 |
80 | 600 |
a. Graph and briefly explain the relationship. Put the number of hot drinks sold (Q) on the vertical axis and outside temperature (T) on the horizontal axis.
b. Compute the slope of the line? Y-intercept? Show your work.
c. Construct the equation that represents this line. Predict the number of hot drinks sold (Q) at 26 0F. Show your work.
Q2. Discuss the opportunity costs of the following cases, respectively.
a .Go to the movie theater and watch a movie instead of studying for a midterm exam.
b .Suppose that an economy’s PPF is a straight line, rather than a concave curve. What would this say about the nature of marginal opportunity cost as production is shifted from one good to the other?
Q3. Dreamland’s production possibilities schedule is as follows:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
POINT | Capital Goods | Consumption Goods |
A | 0 | 30 |
B | 2 | 27 |
C | 4 | 21 |
D | 6 | 12 |
E | 8 | 0 |
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
a. Draw the production possibilities frontier. Put Capital Goods on the horizontal axis and Consumption Goods on the vertical axis.
b. If this economy is at point C, what is the opportunity cost of one more capital good (i.e., marginal opportunity cost)?
c. Can Dreamland produce 6 capital goods and 21 consumption goods? Explain.
d. Suppose that Dreamland has two possible choices in the future: it devotes only 5% of its resources to producing capital goods over each of the next 10 years, whereas it devotes 20%. In which case is Dreamland likely to experience more rapid economic growth in the future? Explain your reasoning.
Please no cursive or typed out
1. (65 points total).
a) (5 points) Fill in the Table below.
Number of workers | Units of output | MPN |
0 | 0 | |
1 | 20 | |
2 | 38 | |
3 | 53 | |
4 | 66 | |
5 | 77 | |
6 | 86 | |
7 | 93 |
b. (10 points) Define the marginal product of labor and explain how it relates to the production function (with N on horizontal axis and Y on vertical axis). What shape does a production function typically take and why? Does this production function take the 'typical' shape?
c)(5 points) Assume that you sell your output to Europe for a US price = $10. The exchange rate is this time is $1.07 per Euro. What is the price of your product in Euros? Please round to 2 decimal places.
d) (5 points) You can hire all the workers you want at $80 per worker. Along with the US price = $10, calculate the number of workers that you will hire and the associated profit in REAL terms (as we did in class, we 'assume away' all other costs of production). Please give me the marginal REAL profit of each worker hired and then add them up and that is the total profit in real terms.
e)(5 points) Inflation data in the US is weaker than the Fed would like and thus, expectations change such that the Fed is less likely to raise interest rates. As a result, the new and updated exchange rate is $1.23 per Euro. What has happened to the value of the US dollar and what is the new Euro price of your product, assuming that your American price stays at $10?
f).(5 points) Given the change in conditions you decide to raise the price of your product in US dollar terms so that the Euro price stays the same as it was before the change in the exchange rate (part c above). What is the new US dollar price? Please show all work.
g) (10 points) What has happened to the marginal revenue product (MRPN) for each worker (has it gone up or down?) and why given the change in price? Be sure to define what the marginal revenue product is and what it means in 'laypersons' terms.
h) (10 points) Given that the US$ price of your product has changed, explain how and why you would change your behavior. Please provide the intuition beginning your answer with... at the same level of labor input I am no longer ......... (please be as specific as possible). Again, explain in REAL terms, not nominal terms.
i. (5 points) Calculate the new level of profits in REAL terms given the change in condition including the change in the exchange rate, the change in the US $ price of your product. and the change in your behavior.
j)(5 points) The Fed has had its eye on inflation for a long time and have been disappointed in that inflation has been too low. Is the change in the value the dollar vs the Euro a welcome development for the Fed? Why or why not? Assume that these conditions changed in a similar way for many US firms.