1. If the price of oil decreases by 20% and the price elasticity of demand is -0.5, what is the change in demand for oil? A) increases by 40% B) decreases by 40% C) increases by 10% D) decreases by 10% 2. Joe owns a small coffee shop, and his production function is q = 2K0.5 L0.7 where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=16 machines, what is his short-run production function? A) q = 8L B) q = 4L0.7 C) q = 8L0.7 D) q = 2K0.5 3. An L-shaped indifference curve A) is impossible. B) would indicate that the individual could switch from one bundle to another costlessly. C) would indicate that the individual can easily substitute one good for another. D) would indicate that the individual wants to consume the two goods in a fixed ratio. E) would indicate that the individual wants to buy only one of the two goods. 4. Increasing returns to scale in production means A) more than 10% as much of all inputs are