1. the marginal productivity of labor increases with the quantity of capital

2. the substitution effect is greater than the income effect

3. the marginal productivity of capital declines with the quantity of capital

4. the level of output associated with any quantity of capital declines with the quantity of labor employed

5. None of the above

C

41. Investment will bring $160 in a year time in current prices. Bank interest rate is 15%. Inflation rate is 10%. Producer should undertake the investment if its price is not bigger then:

1. $150

2. $145

3. $130

4. Producer should not invest with such a high interest rate;

5. Not enough information

A

42. A supply of capital goods:

A) In the short-run is absolutely elastic for an industry and absolutely inelastic for a small firm;

B) In the short-run is absolutely inelastic for an industry and absolutely elastic for a small firm;

C) In the long-run it is less elastic for any firm then in the short-run because its quantity is decreasing due to depreciation;

D) Doesn’t change from short to long –run.

E) B) and C) are both correct

B

43.A decrease in the supply of capital goods of an industry is done by:

1. converting the existing capital goods for other purposes;

2. selling capital goods abroad;

3. letting capital goods to depreciate

4. it is impossible to decrease supply of capital goods of an industry

5. more than one answer is correct.

C

44. A firm has a production function of the following form Q = K + 2L Where Q is output, K is the capital input and L is the labor input per time period. The wage rate and the rental rate on capital is £1 per unit. The cost-minimizing output

A) is achieved by producing at any point along the isoquant

B) is achieved by using labor input only.

C) is achieved by using the capital input only.

D) is achieved by using both inputs.

E) none of the above.

B

45. Efficiency is defined as:

1. not being able to produce more of one good without giving up another while all means of production are fully employed;

2. not being able to produce more of one good without giving up another while unemployment is equally distributed among all means of production;

3. not being able to produce more of one good without giving up another while at least one mean of production is fully employed;

4. not being able to produce more of one good without giving up another.

A

46. Which of the following statements is true?

A) Social cost = private cost – external cost of pollution

B) Social cost = private cost + external cost of pollution

C) Social cost = cost of pollution

D) Social cost + cost of pollution = private cost

E) Social cost + private cost = Supply

B

47. Output of a good is economically efficient if

1. marginal social benefit equals the marginal social cost;

2. marginal social benefit equals the marginal private cost;

3. marginal social cost equals the marginal private cost;

4. marginal private benefit equals the marginal private cost;

5. None of the above

A

48. Raising taxes and increasing welfare payments to poor individuals: