Tackle the Test: Free-Response Questions

  1. Question

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    Answer the following questions under the assumption that firms use only two inputs and seek to maximize profit.

    Rubric for FRQ 1 (5 points)

    1 point: No

    1 point: The input with the highest marginal product might be much more expensive than the input with the lowest marginal product, making the marginal product per dollar higher for the input with the lowest marginal product. When that is the case, costs would be lower if the firm employed more of the input with the lowest marginal product (but the highest marginal product per dollar) and less of the input with the highest marginal product (but the lowest marginal product per dollar.)

    1 point: The cost-minimization rule says that firms should adjust their combination of inputs to equalize the marginal product per dollar spent on each input.

    1 point: The marginal product of labor per dollar decreases and the marginal product of capital per dollar increases.

    1 point: Each factor has diminishing marginal returns. So when more labor is hired, the marginal product of labor (and thus the marginal product of labor per dollar) decreases. Likewise, when less capital is rented, the marginal product of capital (and thus the marginal product of capital per dollar) increases because the units of capital that are given up had a lower marginal product than those that remain.

  2. Question

    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Ejro70RgjCQu9itaCCFUwSfh4Sqf+53E2uQ9MqsGrxWo6DET/OW4sAx5ckEyPrcNDbiJW3ce2d2yBU/w2Q176TzLufbSfYrhr2uSnXl33Fjd17fOe+Z82bUVfRsr8AJSXnVJw4dXhOeolu0CXBvEaAK94+OrP9atZEX0rEXBOkLItWtFfWyG5v55XeuiQEv3wwY+YsFdYquoVGHGUUuMyml/3UAh+OhOAPdPMvv9C+9gPJFskjdUV8UZqnHgb/Qr77sPcnnPDRnkLDwELA7WBnpqf7VIUlkQThS53l3/aTCSHZ84Ji+tZ9rLgs8DML+1yPdI3kdCzYDPZQ==
    Refer to the table below. Assume that the wage is $10 per day and the price of pencils is $1.