Econ 371
Sample Exam 2 Answers

1 d
2 c
3 b
4 b
5 d
6 12
7 4
8 1
9 a
10 c
11 b
12 c
13 either a or c
14 d
15 a
16 a
17 b

18. 

Who should the proprietor hire?  Use the hiring rule: MRP = W.

     a)   If the product price is $0.29 then:

              daughter only:  MRP = (14 units)(.29) = $4.06

              son only:     MRP = (12 units)(.29) = $3.48

          Since the daughter will be paid $4 and the son will be paid $3.50, it is more profitable to hire the daughter.

     b)   If the product price rises to $0.34 then

              daughter only:  MRP = (14 units)(.34) = $4.76

              son only:     MRP = (12 units)(.34) = $4.08

          If the proprietor had to hire only one child, it would still be the daughter since she would generate the most profits.

          If the proprietor would hire the son in addition to the daughter the MRP for the son would have to be recalculated as

              adding the son:    MRP = (10 units)(.34) = $3.40

          Note that since the daughter has already been hired, the MP of the son is only 10 units (24 - 14 units).  Thus, it still is not profitable to hire the son.