Question 1

If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital?

Accepted Answer

A) $0.5 
B) $1 
C) $2 
D) $10 
A) $0.5 
B) $1 
C) $2 
D) $10

Question 2

Average fixed cost (AFC)

Accepted Answer

A) rises as output rises. 
B) rises as output falls. 
C) falls as output falls. 
D) is always fixed across all output ranges for the given production function. 
A) rises as output rises. 
B) rises as output falls. 
C) falls as output falls. 
D) is always fixed across all output ranges for the given production function.

Question 3

Isoquant lines represent ________, whereas isocost lines represent ________.

Accepted Answer

A) technical efficiency; economic efficiency 
B) economic efficiency; technical efficiency 
C) economic efficiency; marginal costs 
D) input trade-offs; economic trade-offs 
A) technical efficiency; economic efficiency 
B) economic efficiency; technical efficiency 
C) economic efficiency; marginal costs 
D) input trade-offs; economic trade-offs

Question 4

Why do many people choose NOT to read the manuals included with their new computer?

Accepted Answer

A) They perceive that learning by doing decreases costs faster than learning by reading. 
B) They perceive that learning by doing is more enjoyable than learning by reading. 
C) They perceive that learning by reading is not sophisticated. 
D) They believe that the manuals are not accurate. 
A) They perceive that learning by doing decreases costs faster than learning by reading. 
B) They perceive that learning by doing is more enjoyable than learning by reading. 
C) They perceive that learning by reading is not sophisticated. 
D) They believe that the manuals are not accurate.

Question 5

A change in relative factor prices will always result in

Accepted Answer

A) a change in the slope of the isoquants. 
B) a tangency between the new isocost line and a new isoquant. 
C) a rotation of the isocost lines. 
D) All of the above. 
A) a change in the slope of the isoquants. 
B) a tangency between the new isocost line and a new isoquant. 
C) a rotation of the isocost lines. 
D) All of the above.

Question 6

Manisha could work for another firm making $10,000 per month, but she decides to open her own gourmet cheese store and pay herself $2,000 per month. In her first month of operations, she spends $6,000 on cheese, $1,000 on other items, and $2,500 on rent. She had a great opening month and brought in revenues of $14,500. What are Manisha's economic profits?

Accepted Answer

A) $3,000 
B) $4,000 
C) -$5,000 
D) -$6,000 
A) $3,000 
B) $4,000 
C) -$5,000 
D) -$6,000

Question 7

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in

Accepted Answer

A) fewer shovels being purchased to produce the same number of trenches. 
B) more workers being hired to produce the same number of trenches. 
C) the firm wishing to produce more trenches. 
D) no change in the firm's input mix. 
A) fewer shovels being purchased to produce the same number of trenches. 
B) more workers being hired to produce the same number of trenches. 
C) the firm wishing to produce more trenches. 
D) no change in the firm's input mix.

Question 8

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

Accepted Answer

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

Question 9

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T-shirt is

Accepted Answer

A) 2. 
B) 10. 
C) 12. 
D) 60. 
A) 2. 
B) 10. 
C) 12. 
D) 60.

Question 10

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

Accepted Answer

A) the monthly mortgage payment the firm must pay. 
B) the price the firm paid divided by twelve. 
C) zero. 
D) the rent the firm could earn if it rented the building to another firm. 
A) the monthly mortgage payment the firm must pay. 
B) the price the firm paid divided by twelve. 
C) zero. 
D) the rent the firm could earn if it rented the building to another firm.

Question 11

Which of the following is NOT an explicit cost?

Accepted Answer

A) $200 to hire 2 gardeners for landscaping work 
B) $1500 to buy bricks for the driveway of your house 
C) $25 for lunch to serve to your workers 
D) the $100 in interest you lost by using your CD funds to pay for a new pizza oven 
A) $200 to hire 2 gardeners for landscaping work 
B) $1500 to buy bricks for the driveway of your house 
C) $25 for lunch to serve to your workers 
D) the $100 in interest you lost by using your CD funds to pay for a new pizza oven

Question 12

An old friend takes you out to dinner and pays for your meal. Which of the following best represents your opportunity cost?

Accepted Answer

A) Going to the beach. 
B) Attending a concert. 
C) Studying for your next microeconomics exam. 
D) Unable to determine with the information given. 
A) Going to the beach. 
B) Attending a concert. 
C) Studying for your next microeconomics exam. 
D) Unable to determine with the information given.

Question 13

Variable costs are

Accepted Answer

A) a production expense that does not vary with output. 
B) a production expense that changes with the quantity of output produced. 
C) equal to total cost divided by the units of output produced. 
D) the amount by which a firm's cost changes if the firm produces one more unit of output. 
A) a production expense that does not vary with output. 
B) a production expense that changes with the quantity of output produced. 
C) equal to total cost divided by the units of output produced. 
D) the amount by which a firm's cost changes if the firm produces one more unit of output.

Question 14

A firm's marginal cost can always be thought of as the change in total cost if

Accepted Answer

A) the firm produces one more unit of output. 
B) the firm buys one more unit of capital. 
C) the firm's average cost increases by $1. 
D) the firm moves to the next highest isoquant. 
A) the firm produces one more unit of output. 
B) the firm buys one more unit of capital. 
C) the firm's average cost increases by $1. 
D) the firm moves to the next highest isoquant.

Question 15

Which of the following is NOT true?

Accepted Answer

A) Rental costs for a building are sunk in the short run and fixed in the long run. 
B) Rental costs for a building are avoidable in the long run. 
C) Variable costs, such as ingredients for a pizza, are avoidable in the long run and the short run. 
D) Rental costs for a building are fixed in the short run and sunk in the long run. 
A) Rental costs for a building are sunk in the short run and fixed in the long run. 
B) Rental costs for a building are avoidable in the long run. 
C) Variable costs, such as ingredients for a pizza, are avoidable in the long run and the short run. 
D) Rental costs for a building are fixed in the short run and sunk in the long run.

Question 16

When the isocost line is tangent to the isoquant, then

Accepted Answer

A) MRTS = -w/r. 
B) the firm is producing that level of output at minimum cost. 
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor. 
D) All of the above. 
A) MRTS = -w/r. 
B) the firm is producing that level of output at minimum cost. 
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor. 
D) All of the above.

Question 17

If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

Accepted Answer

A) AFC is falling. 
B) AVC is rising. 
C) MC > AVC. 
D) All of the above. 
A) AFC is falling. 
B) AVC is rising. 
C) MC > AVC. 
D) All of the above.

If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital?

Average fixed cost (AFC)

Isoquant lines represent , whereas isocost lines represent .

Why do many people choose NOT to read the manuals included with their new computer?

A change in relative factor prices will always result in

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in

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

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T-shirt is

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

Which of the following is NOT an explicit cost?

An old friend takes you out to dinner and pays for your meal. Which of the following best represents your opportunity cost?

Variable costs are

A firm's marginal cost can always be thought of as the change in total cost if

Which of the following is NOT true?

When the isocost line is tangent to the isoquant, then

If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

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 marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital?

Average fixed cost (AFC)

Isoquant lines represent ________, whereas isocost lines represent ________.

Why do many people choose NOT to read the manuals included with their new computer?

A change in relative factor prices will always result in

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in

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

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. The marginal cost of the 5th T-shirt is

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

Which of the following is NOT an explicit cost?

An old friend takes you out to dinner and pays for your meal. Which of the following best represents your opportunity cost?

Variable costs are

A firm's marginal cost can always be thought of as the change in total cost if

Which of the following is NOT true?

When the isocost line is tangent to the isoquant, then

If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

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

Isoquant lines represent , whereas isocost lines represent .