True-False Questions (10 best counts, 1 points each = 10 points total) T F 1. Marginal product is increasing as the firm uses more and more of a factor of production. T F 2. Poor choices arising from decision biases prove that rational, analytic thinking is always superior to intuition. T F 3. Well-behaved isoquants are convex and downward sloping. F 4 Narrow bracketing leads to a better choice than broad bracketing since there are less alternatives to consider. T F 5. Too many options in a choice situation can lead to no choice at all. T F 6. On a perfectly competitive market, Pareto efficiency will be accomplished. T F 7. The law of small numbers means that people are more likely to be mistaken if they cannot repeat the same decision many times. T F According to behavioral economics, people have unlimited mental resources to make rational choices, but they still have decision biases because of ignorance. F 9 The fact that many smokers are not fully willing to accept the risks of smoking might be also explained by choice-supportive bias. F 10. Monotonic transformation of a utility function still represents the same set of preferences. r F 11. Economies of scale mainly arise because of spreading fixed costs across more units produced. T F 12. Elasticity does not change along a linear demand curve. Multiple Choice Questions (5 best counts, 2 points each = 10 points total) 1. Suppose you operate your business on a market where demand is inelastic. Then the way to increase your revenues is a. to increase prices C. to exit the market b. to cut prices d. to employ less people2. If you were willing to buy a phone for $300, and willing to sell the very same phone for $300 (assuming you already had it), then you would behave a. rationally in an economic sense C. as a loss averse person b. in an uninformed way d. like a victim of bracketing 3. The collection of all feasible input-output combinations with a given technology is called a. the production function C. the production set b. the isoquant d. the profit-maximizing set 4. Cathy thinks that tea and coffee are perfect substitutes and drinking a cup of tea gives her exactly the same satisfaction as drinking a cup of coffee. If the market price of tea is less than that of coffee, then her optimal consumption bundle includes a. only coffee C. an equal amount of both goods b. only tea d. slightly less coffee than tea 5. Which of the following is NOT true of the ratio of two inputs' marginal products? 1. It is equal to the slope of the C. It is equal to the marginal rate of isoquant. substitution. b. It is equal to the technical rate d. It measures the relative of substitution. substitutability of factors of production for a given technology. 6. In case of a normal good, higher ........ leads to ......... optimal consumption. a. income - lower C. price - lower b. income - higher d. price - higherTechnical Problem (12 points total) 1. Draw a graph with some isoquant lines and write down the corresponding production function for the following technologies: a. Camera tripods are made using legs and a head to which the camera can be mounted as inputs. One head combined with three legs makes up one tripod. (6 points) b. In a factory, toys are manufactured using either human labor or robots, or both, and the two inputs are perfect substitutes. In the production process, 10 hours of human work can always be substituted by 1 hour of robot operation (and vice versa). We also know that if only 10 human hours are employed (that is, zero robot hours), then one toy can be produced. (6 points)Conceptual Short Answer Questions (10 points total) 1. Explain the meaning of sunk-cost fallacy! (4 points) Please name a concrete example where the sunk-cost fallacy might be a factor in decision making! (2 points) 2. Jack and Jill are negotiating a deal in which Jack would sell a concert ticket to Jill. The minimum selling price at which Jack is willing to get rid of the ticket is $20, while Jill is willing to pay $25 at most. After some discussion, Jill finally buys the ticket from Jack for $25. Do you think it is a Pareto efficient outcome? Why?/Why not? (4 points)