Question 1

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 2

In the short run,the point at which average cost is minimized,the line from the origin to the point on the

Accepted Answer

A)  total cost curve is tangent to the curve. 
B)  total cost curve has the largest slope. 
C)  total variable cost curve has the largest slope. 
D)  total variable cost curve has the smallest slope. 
A)  total cost curve is tangent to the curve. 
B)  total cost curve has the largest slope. 
C)  total variable cost curve has the largest slope. 
D)  total variable cost curve has the smallest slope.

Question 3

Alison lives in a small town where she plans to hire workers to help her make candy.Her production function for candy is
q = 4LK.⁵
She begins producing with K=4.The cost of capital is $50/unit.The wage depends on the amount of workers she employs.Specifically,w(L)= 10 + 2L.
a.Does Alison's production function exhibit diminishing marginal return to labor? Explain.
b.Derive Alison's short-run cost function.
c.What is the shape of Alison's Marginal Cost.
d.Does the relationship w/MP = MC hold? Show this explicitly.

Accepted Answer

a.No,MP = 8,so it is constant.
b.Plug in

Question 4

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 5

Ed's construction company has the following short-run cost function: q³ - 10q² + 36q.
a.What level of output will minimize the average cost? What is the AC at this point?
b.Does the production process indicate diminishing returns? How can you tell?

Accepted Answer

a.When dAC/dq=0 or equivalently AC=MC,th

Question 6

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 7

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 8

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 9

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)  All of the above. 
A)  AC is upward sloping. 
B)  MC exceeds AVC. 
C)  AFC is constant. 
D)  All of the above.

Question 10

A production possibilities frontier that is a bowed-inward line implies

Accepted Answer

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

Question 11

For the following, please answer "True" or "False" and explain why.
-Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Sarah earns $40,000 per year working for a large corporation.She is thinking of quitting this job to work full time in her own business.She will invest her savings of $50,000 (which currently has an annual 10% rate of return)into the business.Her annual opportunity cost of this new business is

Accepted Answer

A)  $0. 
B)  $40,000. 
C)  $45,000. 
D)  $90,000. 
A)  $0. 
B)  $40,000. 
C)  $45,000. 
D)  $90,000.

Question 14

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be true?

Accepted Answer

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

Question 15

Carmela's pasta factory employs workers and pasta machines according to the following production function
f(L,K)= L.⁵K.⁵
The hourly cost of capital is $10 and the hourly cost of workers is $40.
a.Write out the Lagrangian for the cost-minimization problem.
b.Derive the optimal capital to labor ratio.Describe the long-run output expansion path.
c.Suppose Carmela wishes to produce 1000 units of pasta.How much labor and capital should she employ? How much will it cost to produce?
d.An order arrives doubling the amount of pasta Carmela needs to produce.Assuming she is unable to purchase more capital,how much will it cost to meet the new production level?
e.In the long-run,Carmela will be able to employ more capital as well as labor.If Carmela continues to produce 2000 units of output,how much will it cost in the long run?
f.In words,explain why the cost in the long run is different than in the short run.

Accepted Answer

a.The Lagrangian is:
L = 40L + 10K + λ[q

Question 16

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

Accepted Answer

A)  2. 
B)  12. 
C)  52. 
D)  60. 
A)  2. 
B)  12. 
C)  52. 
D)  60.

Question 17

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 18

For the following, please answer "True" or "False" and explain why.
-An accountant may amortize the expense of a durable good by dividing the total amount spent on the good by the number of years the good is expected to last.An economist may amortize the expense of a durable and never fully account for the total expense.

Accepted Answer

A) True 
 B)False

Question 19

After 2 years of operation,the workers in XYZ Co.become more adept because of their repeating work.As a result,the average cost of production is lowered due to

Accepted Answer

A)  economies of scale. 
B)  increasing returns to scale. 
C)  increasing marginal returns. 
D)  learning by doing. 
A)  economies of scale. 
B)  increasing returns to scale. 
C)  increasing marginal returns. 
D)  learning by doing.

Question 20

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If MPK = 10,MPL = 5,then this firm

Accepted Answer

A)  is minimizing its cost at current output level. 
B)  should use more capital and less labor to raise output at current cost. 
C)  should use less capital and more labor to raise output at current cost. 
D)  None of above. 
A)  is minimizing its cost at current output level. 
B)  should use more capital and less labor to raise output at current cost. 
C)  should use less capital and more labor to raise output at current cost. 
D)  None of above.

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

In the short run,the point at which average cost is minimized,the line from the origin to the point on the

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

Ed's construction company has the following short-run cost function: q³ - 10q² + 36q. a.What level of output will minimize the average cost? What is the AC at this point? b.Does the production process indicate diminishing returns? How can you tell?

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?

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

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

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

A production possibilities frontier that is a bowed-inward line implies

For the following, please answer "True" or "False" and explain why. -Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

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

Sarah earns $40,000 per year working for a large corporation.She is thinking of quitting this job to work full time in her own business.She will invest her savings of $50,000 (which currently has an annual 10% rate of return)into the business.Her annual opportunity cost of this new business is

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be true?

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

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

After 2 years of operation,the workers in XYZ Co.become more adept because of their repeating work.As a result,the average cost of production is lowered due to

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If MPK = 10,MPL = 5,then this firm

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 7: Costs

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

In the short run,the point at which average cost is minimized,the line from the origin to the point on the

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

Ed's construction company has the following short-run cost function: q³ - 10q² + 36q. a.What level of output will minimize the average cost? What is the AC at this point? b.Does the production process indicate diminishing returns? How can you tell?

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?

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

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

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

A production possibilities frontier that is a bowed-inward line implies

For the following, please answer "True" or "False" and explain why. -Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

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

Sarah earns $40,000 per year working for a large corporation.She is thinking of quitting this job to work full time in her own business.She will invest her savings of $50,000 (which currently has an annual 10% rate of return)into the business.Her annual opportunity cost of this new business is

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be true?

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

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

After 2 years of operation,the workers in XYZ Co.become more adept because of their repeating work.As a result,the average cost of production is lowered due to

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If MPK = 10,MPL = 5,then this firm

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, externalities, rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters