S. Klepper, Economics 73-100
Preparation for Exam II
Material Covered on Exam II
Basis of demand curves, separate demand curves for different income levels
Elasticities of demand
Nature of production in the short run
Nature of costs and their significance for supply
Economic definition of cost, significance for supply
Suggestions for Studying for Exam II
Understand experiments and class applications
Do past exam questions
Attend Monday, November 5 and Tuesday, November 6 review sessions
Prototypical Experiment Question
 3. Consider the fourth experiment conducted in class concerning production. Suppose that an innovation were developed which reduced the total amount of labor required to produce each level of output by the same percentage. Assume that the price of labor remained at $1 per unit in rounds 1-3 and $10 per unit in rounds 4-6 and that it continued to cost $20 to play each round of the experiment regardless of the level of output produced in the round.
Which of the following correctly describe the effects of the innovation on the costs and profit-maximizing choices of producers, where all comparisons pertain to the situation after the innovation versus before the innovation? Mark true for correct statements and false for incorrect ones.
_____16. If the innovation reduced the amount of labor required to produce each level of output by 20% and the price of output in each round were the same as before the innovation, then in some rounds producers would have supplied a greater level of output than before the innovation.
_____17. No matter how much the innovation lowered the amount of labor required to produce each level of output, if the price of output in each round were the same as before the innovation then it would not have been profitable to produce a positive level of output in rounds 1 and 4.
_____19. If the innovation not only lowered the amount of labor required to produce each level of output by the same percentage but the price of output fell by this same percentage in each round of the experiment, then producers would have supplied the same level of output in each round as before the innovation.