University of the Philippines

SCHOOL OF ECONOMICS
Economics 11: Markets and the State
1st Semester, AY 2016-2017
Problem Set #3
Ang, Gloria, Guido, Rodillas

Prof. Solita C. Monsod

Instructions:
1. Write your name AND section on all yellow pad papers that you will use.
2. Answer all questions completely.
3. Due date is on September 20, before the end of the 10AM class.
1. A consumers equilibrium demand choice for goods 1 and 2 is characterized by:
(a) M U1 = M U2
(b) M U1 /Q1 = M U2 /Q2
(c) M U1 /P1 = M U2 /P2
(d) P1 = P2
(e) none of the above
2. From the figure below a shift in the budget line from AB to AC represents:

(a) an increase in the price of good 1, decrease in price of good 2

(b) an increase in the price of good 1, no change in price of good 2
(c) a decrease in the price of good 1, no change in price of good 2
(d) a decrease in the price of good 1, decrease in price of good 2
(e) a decrease in the price of good 1, increase in price of good 2
3. The price of good X is Php1.50 and that of good Y, Php1. A particular consumer who
evaluates the marginal utility of Y to be 30 units, and is in equilibrium with respect to
purchases of X and Y , must consider the marginal utility of X to be:
(a) 15 units
(b) 20 units
(c) 30 units
(d) 45 units
(e) none of the above
4. In the figure below, the decline in consumer surplus resulting from an increase in the price
of BMW from Php5 to Php10 is given by the area:

(a) F GH
(b) CEH
(c) F GDC
(d) DEG
(e) none of the above
5. Pedro has Php2000 pesos available per month to spend on clothes and burgers. Currently,
he is spending all his money; the prices of these commodities, the quantities he now buys,
and his evaluation of the utility provided by these quantities are as follows:

Clothes
Burgers

Price
Php100
Php50

Quantity bought
12
16

Total utility
1000
1500

Marginal utility
400
150

For maximum satisfaction, this consumer should (assuming she can buy fractions of units
of clothes and burgers):
(a) buy less clothes, more burgers.
(b) buy same quantity of clothes, more burgers.
(c) buy more clothes, less burgers.
(d) buy more clothes, same quantity of burgers.
(e) do nothing, being already at best possible position.
6. The production function:
(a) describes the relationship between outputs and costs in a production process.
(b) describes the relationship between inputs and costs in a production process.
(c) indicates the best level of output to produce.
(d) describes the relationship between inputs and output in a production process.
(e) relates marginal products to factor prices.

Use the figure above to answer questions 7 to 9.

7. Suppose that production is defined by the function recorded in figure above, the marginal
product of the 4th unit of labor, given 20 units of land, is equal to:
(a) 15.5
(b) 17.5
(c) 19.0
(d) 1.5
(e) none of the above
8. Suppose that production is defined by the function recorded in figure above, given 6 units
of labor, the marginal product of increasing land from 10 units to 15 units is equal to:
(a) 15.
(b) 12.
(c) 3.
(d) 2.4.
(e) none of the above.
9. Suppose that production were represented by the production function displayed in figure
above, one would conclude that:
(a) land displayed diminishing returns.
(b) labor displayed diminishing returns.
(c) production displayed constant returns to scale.
(d) all of the above were true.
(e) none of the above were true.
10. Consider a manufacturing firm which hires workers. Which of the following would be
considered a short run decision?
(a) The firm would like to hire ten more workers for a weekend shift.
(b) The firm is considering an investment in additional computers.
(c) The firm would like to build its own facility.
(d) The firm might purchase new computer software that would require some new computer
hardware as well as extensive training for workers.
(e) All of the above decisions could be made in the short run.

11. For the law of diminishing returns to hold, the missing blank in this table must be:

(a) 4.
(b) 2.
(c) more than 4.
(d) less than 4.
(e) 0.
Use the following figure to answer numbers 13 and 14.

12. Given the cost curves shown in figure above, the marginal cost of the 3rd unit of output is:
(a) Php6.00.
(b) Php10.00.
(c) Php16.00.
(d) Php25.00.
(e) none of the above.
13. Given the cost curves shown in figure above, the average variable cost of 3 units of output
is:
(a) Php3.00.
(b) Php8.00.
(c) Php16.33.
(d) Php25.00.
(e) none of the above.
14. If 25 units of iPhones are produced at a fixed cost of Php50 and a total cost of Php550,
then the average total cost of producing an iPhone is:
(a) Php15.
(b) Php20.

(c) Php25.
(d) Php30.
(e) none of the above.
15. A firm operates two factories, one in the east (where labor is expensive relative to capital)
and another in the west (where capital is expensive relative to labor). In the figure below,
the eastern plant will most likely minimize costs by combining labor and capital in the
amounts indicated by which of the following points?

(a) A
(b) B
(c) C
(d) D
(e) E

16. From the table above, calculate the TC, VC, FC, AC, AVC, and MC. Furthermore, graph
the AC and MC curves. (Hint: See Table 7-5 on page 132 of Samuelson).