Question 1

The slope of the isoquant tells the firm how much

Accepted Answer

A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor. 
A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor.

Question 2

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.

Question 3

Why might a police officer NOT pull over someone speeding two miles over the speed limit?

Accepted Answer

A) The explicit costs of stopping the driver over are too high. 
B) The opportunity costs of stopping the driver are too high. 
C) The opportunity costs of stopping he driver are too low. 
D) The explicit costs of stopping the driver are too low. 
A) The explicit costs of stopping the driver over are too high. 
B) The opportunity costs of stopping the driver are too high. 
C) The opportunity costs of stopping he driver are too low. 
D) The explicit costs of stopping the driver are too low.

Question 4

Which of the following will cause the marginal 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 $1 million advertising campaign by the American Cancer Society 
D) All of the above. 
A) a $5 million penalty charged to each cigarette maker 
B) a $1 per pack tax on cigarettes 
C) a $1 million advertising campaign by the American Cancer Society 
D) All of the above.

Question 5

Marginal cost is

Accepted Answer

A) positive or zero. 
B) negative or zero. 
C) positive or negative but not zero. 
D) positive, negative, or zero. 
A) positive or zero. 
B) negative or zero. 
C) positive or negative but not zero. 
D) positive, negative, or zero.

Question 6

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 7

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

Accepted Answer

A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale. 
A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale.

Question 8

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.

Question 9

A sunk cost is

Accepted Answer

A) the cost for drilling certain types of wells, such as a well for water. 
B) a past cost that cannot be recovered. 
C) a cost that is highly relevant for decision-making. 
D) an opportunity cost. 
A) the cost for drilling certain types of wells, such as a well for water. 
B) a past cost that cannot be recovered. 
C) a cost that is highly relevant for decision-making. 
D) an opportunity cost.

Question 10

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 11

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 12

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

Accepted Answer

A) True 
 B)False

Question 13

A specific tax of $1 per unit of output will affect a firm's

Accepted Answer

A) average total cost, average variable cost, average fixed cost, and marginal cost. 
B) average total cost, average variable cost, and average fixed cost. 
C) average total cost, average variable cost, and marginal cost. 
D)  marginal cost only. 
A) average total cost, average variable cost, average fixed cost, and marginal cost. 
B) average total cost, average variable cost, and average fixed cost. 
C) average total cost, average variable cost, and marginal cost. 
D)  marginal cost only.

Question 14

When a firm produces one unit, the variable cost is $3. When the firm produces two units, the variable cost is $6. What is the marginal cost associated with two units of production?

Accepted Answer

A) $2 
B) $0.5 
C) $6 
D) $3 
A) $2 
B) $0.5 
C) $6 
D) $3

Question 15

If average cost is positive

Accepted Answer

A) marginal cost equals average cost. 
B) marginal cost exceeds average cost. 
C) marginal cost is less average cost. 
D) Not enough information is given. 
A) marginal cost equals average cost. 
B) marginal cost exceeds average cost. 
C) marginal cost is less average cost. 
D) Not enough information is given.

Question 16

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

Accepted Answer

A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change. 
A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change.

Question 17

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 18

Average variable cost (AVC)

Accepted Answer

A) always increases with increased output. 
B) always decreases with increased output. 
C) are always flat. 
D) may either increase, decrease, or remain flat with increased output. 
A) always increases with increased output. 
B) always decreases with increased output. 
C) are always flat. 
D) may either increase, decrease, or remain flat with increased output.

Question 19

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 20

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

The slope of the isoquant tells the firm how much

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?

Why might a police officer NOT pull over someone speeding two miles over the speed limit?

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

Marginal cost is

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

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

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?

A sunk cost is

When the isocost line is tangent to the isoquant, then

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?

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

A specific tax of $1 per unit of output will affect a firm's

When a firm produces one unit, the variable cost is $3. When the firm produces two units, the variable cost is $6. What is the marginal cost associated with two units of production?

If average cost is positive

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

Variable costs are

Average variable cost (AVC)

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?

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

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

The slope of the isoquant tells the firm how much

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?

Why might a police officer NOT pull over someone speeding two miles over the speed limit?

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

Marginal cost is

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

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

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?

A sunk cost is

When the isocost line is tangent to the isoquant, then

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?

"If the wage rate paid to one form of labor is twice the cost of another form of labor, the first type of labor must be twice as productive." Comment.

A specific tax of $1 per unit of output will affect a firm's

When a firm produces one unit, the variable cost is $3. When the firm produces two units, the variable cost is $6. What is the marginal cost associated with two units of production?

If average cost is positive

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

Variable costs are

Average variable cost (AVC)

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?

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

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