Dr. Shabbir-Section Specific

ECONOMICS 1
SECOND MIDTERM
Fall, 1997


Part 111(12 minutes/4 minutes each question)

State True/False and explain. Draw graphs to illustrate your answers.

(1)	Let MPK and MPL denote the marginal physical product of capital
and labor,
respectively, and PK and PL. denote the price of capital and labor
services, respectively.

Given   MPk/pk  >  MP/Pk    the project maximizing firm should increase
its use of capital and reduce its use of labor.

(2)       For a natural monopoly, setting price equal to marginal cost
will result in losses.
(3)       A profit maximising monopsonist will set wage rate equal to
marginal revenue product in order to determine the optimal level of labor
hiring.