Question 1

If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will

Accepted Answer

A) not be able to minimize costs. 
B) find the lowest isocost line touching the relevant isoquant. 
C) find the highest isocost line touching the relevant isoquant. 
D) choose not to produce any output. 
A) not be able to minimize costs. 
B) find the lowest isocost line touching the relevant isoquant. 
C) find the highest isocost line touching the relevant isoquant. 
D) choose not to produce any output.

Question 2

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

Accepted Answer

A) peaks. 
B) bottoms out. 
C) is upward sloping. 
D) is downward sloping. 
A) peaks. 
B) bottoms out. 
C) is upward sloping. 
D) is downward sloping.

Question 3

Fixed costs

Accepted Answer

A) are always sunk. 
B) are avoidable. 
C) are sometimes sunk. 
D) sunk in the short run, but not in the long run. 
A) are always sunk. 
B) are avoidable. 
C) are sometimes sunk. 
D) sunk in the short run, but not in the long run.

Question 4

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

Accepted Answer

A) MC = AVC 
B) MC = AC 
C) MC > AFC 
D) All of the above. 
A) MC = AVC 
B) MC = AC 
C) MC > AFC 
D) All of the above.

Question 5

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Accepted Answer

A) a $5 million penalty charged to each cigarette maker 
B) a $1 per pack tax on cigarettes 
C) a $3 per hour wage increase 
D) an increase in the demand for cigarettes 
A) a $5 million penalty charged to each cigarette maker 
B) a $1 per pack tax on cigarettes 
C) a $3 per hour wage increase 
D) an increase in the demand for cigarettes

Question 6

Suppose the cost of producing two goods, x and y, can be represented as C = ax + by + cxy. If there are economies of scope, then which of the following must be TRUE?

Accepted Answer

A) c > 0 B) a + b = -c C) c = 0 D) c < 0 A) c > 0 B) a + b = -c C) c = 0 D) c < 0

Question 7

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely

Accepted Answer

A) economies of scale. 
B) economies of scope. 
C) constant returns to scale. 
D) increasing returns to scale. 
A) economies of scale. 
B) economies of scope. 
C) constant returns to scale. 
D) increasing returns to scale.

Question 8

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

Accepted Answer

A) There are constant returns to scale. 
B) There are increasing returns to scale. 
C) There are decreasing returns to scale. 
D) Nothing. 
A) There are constant returns to scale. 
B) There are increasing returns to scale. 
C) There are decreasing returns to scale. 
D) Nothing.

Question 9

Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L. That is, the isoquants are straight lines with a slope of -1. Derive the long-run total cost function TC = C(q)when the wage rate is w and the rental rate on capital is r.

Accepted Answer

The firm will always hire the

Question 10

If the cost of labor decreases, the isocost line will

Accepted Answer

A) stay the same. 
B) shift outward in parallel fashion. 
C) rotate outward around the point where only capital is employed in production. 
D) shift inward in parallel fashion. 
A) stay the same. 
B) shift outward in parallel fashion. 
C) rotate outward around the point where only capital is employed in production. 
D) shift inward in parallel fashion.

Question 11

One problem with measuring a durable good's cost is

Accepted Answer

A) how to account for depreciation of the good. 
B) how to handle the cost if the value changes over time. 
C) that the good may break before the end of its estimated useful life. 
D) when to decide to throw it away for a newer model even if the cost has not been accounted for. 
A) how to account for depreciation of the good. 
B) how to handle the cost if the value changes over time. 
C) that the good may break before the end of its estimated useful life. 
D) when to decide to throw it away for a newer model even if the cost has not been accounted for.

Question 12

A cost function has economies of scale if

Accepted Answer

A) average fixed costs fall as production increases. 
B) total costs fall as production increases. 
C) the average total cost falls as production increases. 
D) it is less expensive to produce goods jointly rather than separately. 
A) average fixed costs fall as production increases. 
B) total costs fall as production increases. 
C) the average total cost falls as production increases. 
D) it is less expensive to produce goods jointly rather than separately.

Question 13

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the opportunity cost is

Accepted Answer

A) $0. 
B) $31,250. 
C) $125,000. 
D) $93,750. 
A) $0. 
B) $31,250. 
C) $125,000. 
D) $93,750.

Question 14

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

Accepted Answer

A firm can have constant returns to scal

Question 15

If producing more output increases average cost then

Accepted Answer

A) there are diseconomies of scale. 
B) there are economies of scope. 
C) there are diseconomies of scope. 
D) there are no economies of scale. 
A) there are diseconomies of scale. 
B) there are economies of scope. 
C) there are diseconomies of scope. 
D) there are no economies of scale.

Question 16

A firm's cost curve is determined by

Accepted Answer

A) congressional laws. 
B) whether the firm hires engineers or not. 
C) natural laws. 
D) the firm's production function. 
A) congressional laws. 
B) whether the firm hires engineers or not. 
C) natural laws. 
D) the firm's production function.

Question 17

A consumer purchases a book by driving across town to a bookstore, standing in line for five minutes to pay the cashier, and then pays $5. The same book is purchased by another consumer who spends 2 minutes placing the order over the Internet for $10. The book necessarily cost the first consumer less.

Accepted Answer

A) True 
 B)False

Question 18

If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output

Accepted Answer

A) AC is upward sloping. 
B) MC exceeds AVC. 
C) AFC is constant. 
D) None of the above. 
A) AC is upward sloping. 
B) MC exceeds AVC. 
C) AFC is constant. 
D) None of the above.

Question 19

Economies of scope exist between book publishing and magazine publishing if

Accepted Answer

A) the cost of publishing a magazine is lower for book publishers than for other firms. 
B) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. 
C) the cost of publishing a book falls over time as the publisher acquires more experience. 
D) the cost of a publishing a book is not subject to diminishing marginal returns. 
A) the cost of publishing a magazine is lower for book publishers than for other firms. 
B) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. 
C) the cost of publishing a book falls over time as the publisher acquires more experience. 
D) the cost of a publishing a book is not subject to diminishing marginal returns.

Question 20

Four years after graduating from college you must decide if you want to go on as an accountant (your college major)or if you want to make a career change and become a singer. The cost of your education will matter for your decision.

Accepted Answer

A) True 
 B)False

If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

Fixed costs

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Suppose the cost of producing two goods, x and y, can be represented as C = ax + by + cxy. If there are economies of scope, then which of the following must be TRUE?

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L. That is, the isoquants are straight lines with a slope of -1. Derive the long-run total cost function TC = C(q)when the wage rate is w and the rental rate on capital is r.

If the cost of labor decreases, the isocost line will

One problem with measuring a durable good's cost is

A cost function has economies of scale if

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the opportunity cost is

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

If producing more output increases average cost then

A firm's cost curve is determined by

If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output

Economies of scope exist between book publishing and magazine publishing if

Four years after graduating from college you must decide if you want to go on as an accountant (your college major)or if you want to make a career change and become a singer. The cost of your education will matter for your decision.

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters

Exam 6: Costs

If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

Fixed costs

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Suppose the cost of producing two goods, x and y, can be represented as C = ax + by + cxy. If there are economies of scope, then which of the following must be TRUE?

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L. That is, the isoquants are straight lines with a slope of -1. Derive the long-run total cost function TC = C(q)when the wage rate is w and the rental rate on capital is r.

If the cost of labor decreases, the isocost line will

One problem with measuring a durable good's cost is

A cost function has economies of scale if

If a firm buys a specialized metal stamping machine that will last 4 years for $125,000 and cannot resell it, the opportunity cost is

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

If producing more output increases average cost then

A firm's cost curve is determined by

If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output

Economies of scope exist between book publishing and magazine publishing if

Four years after graduating from college you must decide if you want to go on as an accountant (your college major)or if you want to make a career change and become a singer. The cost of your education will matter for your decision.

Introduction

Supply and Demand

Empirical Methods for Demand Analysis

Consumer Choice

Production

Firm Organization and Market Structure

Competitive Firms and Markets

Monopoly

Pricing With Market Power

Oligopoly and Monopolistic Competition

Game Theory and Business Strategy

Strategies Over Time

Managerial Decision-Making Under Uncertainty

Asymmetric Information

Government and Business

Global Business

Filters