Intermediate Microeconomic Analysis (Econ 173)
Drake University, Fall 2006
William M. Boal
MIDTERM EXAMINATION #3 ANSWER KEY
VERSION A
I. MULTIPLE CHOICE
(1)c. (2)d. (3)b. (4)b. (5)c. (6)c. (7)c. (8)d. (9)b. (10)d.
(11)c. (12)d. (13)b. (14)e. (15)d. (16)b. (17)c. (18)h. (19)f. (20)a.
(21)c. (22)e. (23)d. (24)d. (25)b. (26)d. (27)a. (28)f. (29)c. (30)c.
(31)e. (32)d.
II. PROBLEMS
(1) a. 1800 = 5 x1 x2 .
b. MRSP = MP2/MP1 = x1 / x2 .
c. x1*=24, x2*=15 .
d. TC(1800) = $240.
(2) a. Set PD = PS and solve to get Q*=60 and P*=5. b. 40
c. $7 d. $4 e. $100 f. $50 g. $120
h. $30.
III. CRITICAL THINKING
(1) False. The profit-maximizing output level depends on the market price. If the
market price is greater than minimum average cost, the profit-maximizing output
level occurs where price equals marginal cost (q*). If the market price is less than
minimum average cost, the profit-maximizing output level is zero. Only if the
market price exactly equals minimum average cost will the corresponding output
(qES) level maximize profit. (Full credit requires graph—see below.)
