Q1.

In the following diagram you are given two technologies, A and B, which can produce
100 metres of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B
uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocosts,
NM, GF and JH. The wage cost and the price of coal are denoted by w and p, respectively.
Which of the following statements is correct?

A. Isocost JH corresponds to the case where the w = $20 and p = $10.

B. Isocost NM is the only one of the three isocosts depicted which corresponds to the case
where w = $20 and p = $10.
C. When w = $20 and p = $10, the cost of using technology A is $60.
D. The cost of using technology B is the same for both isocost JH and isocost GF.

Q2. In the following diagram you are given two technologies, A and B, which can produce
100 metres of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B
uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocosts,
NM, GF and JH. The wage cost and the price of coal are denoted by wand p, respectively.
In case 1, the wage cost and the price of coal are (w, p) = (20, 10), while in case 2, (w, p) =
(10, 20). Which of the following statements is correct?
a. Technology B would be chosen in both cases 1 and 2.
b. Technology A would be chosen in case 1 while technology B would be chosen in case 2.
c. Technology B would be chosen in case 1 while technology A would be chosen in case 2.
d. Technology B would be cheaper under case 1 than under case 2.

3. In the following diagram you are given two technologies, A and B, which can produce
100 metres of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B
uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocosts,
NM, GF and JH. The wage cost and the price of coal are denoted by wand p, respectively.
In period 1, the wage cost and the price of coal are (w, p) = (10, 20) and the firm is
employing technology B. In period 2, the wage cost and the price of coal change to (w, p) =
(20, 10). The price of the cloth is 2 per metre in both periods. Which of the following
statements is correct?
A. In period 1, the firm’s profit per 100 metres of cloth is $100.
b. If the firm employs technology B in both periods, then the profit level would be the same in
both periods.
C. The economic rent of switching to technology A in period 2 is $60.
d. There is a positive economic rent in switching from technology B to A in period 2, as A is the
more energy-intensive technology.

Q4. In the following diagram you are given two technologies, A and B, which can produce
100 metres of cloth. Technology A uses 1 worker and 4 tonnes of coal, while technology B
uses 4 workers and 2 tonnes of coal. The diagram also depicts three examples of isocosts,
NM, GF and JH. The wage cost and the price of coal are denoted by wand p, respectively.
Your firm competes with many other firms in this cloth market. In period 1, the wage cost
and the price of coal are (w, p) = (10, 20) and the price of the cloth is 2 per metre. All firms
employ technology B in period 1. In period 2, the wage cost and the price of coal change to
(w, p) = (20, 10). Which of the following statements is correct?
 A. If your firm is the only firm switching to technology A in period 2, then your innovation
rent is $140 per 100 metres of cloth.
b. If all firms are able to switch to technology A then they will all enjoy positive innovation
rents, both in the short run and long run.
c. If a few firms are unable to switch to technology A from B then these firms will go bankrupt.
d. The first firm to adopt technology A in period 2 is called the initiator.

5. The following graph shows wages relative to the cost of capital in England and France
from 1580 to 1830. Based on this information, which of the following statements is correct?
a. In the early 1800s, the nominal wage level was 50-70% higher in England than in France.
b. The rise in the relative wage level in England is solely attributed to the rise in the absolute
wage level.
c. The rise in relative wage level in England would have encouraged innovations in more
labour-intensive technologies.
d. On a graph with the number of workers on the horizontal axis and the amount of capital on
the vertical axis, the graph for England represents a steepening of the isocost lines.

6. Which of the following statements is correct?

a. Factors of production are the factories in which the goods are produced.
b. A production function describes the amount of output that will result for different
combinations of inputs.
c. Average product of labour is the average quality of the goods produced by the workers.
d. Diminishing average product of labour refers to the diminishing quality of goods produced.
 7. The following table describes the production function of cloth. Based on this
information, which of the following statements is correct?

a. The production function exhibits diminishing average product of labour at all levels of labour
input.
b. The average product of labour when the number of workers is 400 is 10 metres.
c. When 300 workers are employed, the first 200 workers produce 12.5m each while the next
100 workers produce 11m each.
d. As the number of workers is increased from 100 to 500, the average product of labour falls by
20%.

8. The following diagram depicts a production function for grain. Which of the following
statements are correct?

a. The production function exhibits constant average product of labour for the first 800 workers.
b. The production function exhibits constant average product of labour between 800 and 1600
workers.
c. The production function exhibits constant average product of labour when the number of
workers is more than 1600.
d. There is an upper limit to how much grain can be produced.

9. According to Malthus, which of the following are the causes of diminishing average
product of labour?
a. More labour is devoted to a fixed quantity of land.
b. The new land brought into cultivation is of inferior quality.
c. Coordination problems due to a larger labour force.
d. Environmental effects of over-cultivation (e.g. increased carbon emissions).

10. Which of the following statements regarding the Malthusian model are correct when
there is a positive one-off technological shock (such as an improved seed)?
a. There is an immediate and permanent rise in the average product of labour.
b. The population initially rises but then falls to the pre-technological shock level.
c. Income initially rises but then falls to the subsistence level in equilibrium.
d. Malthus’ Law states that an increase in productivity will result in both increased population
and wages in the long run.