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 in dollars?

Accepted Answer

A) .5 
B)  1 
C)  2 
D)  10 
A) .5 
B)  1 
C)  2 
D)  10

Question 2

For the following, please answer "True" or "False" and explain why.
-After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

Accepted Answer

A) True 
 B)False

Question 3

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

Accepted Answer

A)  $2 
B)  $1.5 
C)  $1 
D)  $0.5 
A)  $2 
B)  $1.5 
C)  $1 
D)  $0.5

Question 4

The slope of the isocost line tells the firm how much

Accepted Answer

A)  capital must be reduced to keep total cost constant when hiring one more unit of labor. 
B)  capital must be increased to keep total cost constant when hiring one more unit of labor. 
C)  more expensive a unit of capital costs relative a unit of labor. 
D)  the isocost curve will shift outward if the firm wishes to produce more. 
A)  capital must be reduced to keep total cost constant when hiring one more unit of labor. 
B)  capital must be increased to keep total cost constant when hiring one more unit of labor. 
C)  more expensive a unit of capital costs relative a unit of labor. 
D)  the isocost curve will shift outward if the firm wishes to produce more.

Question 5

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AFC equals

Accepted Answer

A)  0. 
B)  1. 
C)  10/q. 
D)  It cannot be determined from the information provided. 
A)  0. 
B)  1. 
C)  10/q. 
D)  It cannot be determined from the information provided.

Question 6

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

Accepted Answer

A)  The short-run average cost curve must be upward sloping within that range of output. 
B)  The long-run average cost curve must be upward sloping within that range of output. 
C)  Long-run average cost must equal short-run average cost. 
D)  All of the above. 
A)  The short-run average cost curve must be upward sloping within that range of output. 
B)  The long-run average cost curve must be upward sloping within that range of output. 
C)  Long-run average cost must equal short-run average cost. 
D)  All of the above.

Question 7

In the long run,fixed costs are

Accepted Answer

A)  sunk. 
B)  avoidable. 
C)  larger than in the short run. 
D)  not included in production decisions. 
A)  sunk. 
B)  avoidable. 
C)  larger than in the short run. 
D)  not included in production decisions.

Question 8

When the isocost line is tangent to the isoquant,then

Accepted Answer

A)  MPL = MPK. 
B)  the firm is producing that level of output at minimum cost. 
C)  the firm has achieved the right economies of scale. 
D)  All of the above. 
A)  MPL = MPK. 
B)  the firm is producing that level of output at minimum cost. 
C)  the firm has achieved the right economies of scale. 
D)  All of the above.

Question 9

A production possibilities frontier that is a downward-sloping straight line implies

Accepted Answer

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

Question 10

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 11

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average cost if 2000 widgets are produced?

Accepted Answer

A)  $2 
B)  $1.5 
C)  $1 
D)  $0.5 
A)  $2 
B)  $1.5 
C)  $1 
D)  $0.5

Question 12

When diminishing marginal returns set in,

Accepted Answer

A)  average product is increasing. 
B)  average variable cost is decreasing. 
C)  average cost is decreasing. 
D)  None of above. 
A)  average product is increasing. 
B)  average variable cost is decreasing. 
C)  average cost is decreasing. 
D)  None of above.

Question 13

Determine the output expansion path (equation)for a cobb-douglas production function f(L,K)= 10LᵃK¹⁻ᵃ.How does the shape of the output expansion path change as "a" changes?

Accepted Answer

Using the MRTS = w/r:
aK/(1 -

Question 14

Sam and Erica are starting a new restaurant in Portland,Oregon.While Sam plans to do the cooking himself,he will need to employ workers and machinery to produce food.He estimates his production function as:
q = 15L.²⁵K
Sam is able to accumulate $10,000 to finance the business.Workers cost $10 and capital costs $50.
a.If Sam wishes to produce the most output with the finances available,how much labor and capital should Sam employ? Use a Lagrangian to solve this problem.
b.Does this bundle of capital and labor also minimize the costs? Explain using a graph.

Accepted Answer

a.The Lagrangian is
L = 15L.²⁵K + λ[1000

Question 15

Which of the following does NOT represent a possible shape of the long-run average cost curve?

Accepted Answer

A)  downward-sloping 
B)  upward sloping 
C)  U-shaped 
D)  vertical 
A)  downward-sloping 
B)  upward sloping 
C)  U-shaped 
D)  vertical

Question 16

A firm built an inventory of 16-bit chips for $50,000 last year.However,the introduction of 32-bit chips lowers the market price for 16-bit chips and the inventory can only be sold for $40,000 now.What is the sunk cost?

Accepted Answer

A)  $50,000 
B)  $40,000 
C)  $10,000 
D)  $90,000 
A)  $50,000 
B)  $40,000 
C)  $10,000 
D)  $90,000

Question 17

Learning by doing will result in

Accepted Answer

A)  an upward-sloping long-run average cost curve. 
B)  a larger long-run marginal cost than long-run average cost. 
C)  a rotation in the isocost curves. 
D)  lower long-run costs than short-run costs. 
A)  an upward-sloping long-run average cost curve. 
B)  a larger long-run marginal cost than long-run average cost. 
C)  a rotation in the isocost curves. 
D)  lower long-run costs than short-run costs.

Question 18

Economic costs of an input include

Accepted Answer

A)  only implicit costs. 
B)  only explicit costs. 
C)  both implicit and explicit costs. 
D)  whatever management wishes to report to the shareholders. 
A)  only implicit costs. 
B)  only explicit costs. 
C)  both implicit and explicit costs. 
D)  whatever management wishes to report to the shareholders.

Question 19

Which of the following will cause the average 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 an hour wage increase paid to all cigarette production workers 
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 an hour wage increase paid to all cigarette production workers 
D)  All of the above

Question 20

Explain the difference between fixed costs in the short run and fixed costs in the long run.

Accepted Answer

In the short run fix

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 in dollars?

For the following, please answer "True" or "False" and explain why. -After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

The slope of the isocost line tells the firm how much

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AFC equals

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

In the long run,fixed costs are

When the isocost line is tangent to the isoquant,then

A production possibilities frontier that is a downward-sloping straight line implies

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

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average cost if 2000 widgets are produced?

When diminishing marginal returns set in,

Determine the output expansion path (equation)for a cobb-douglas production function f(L,K)= 10LᵃK¹⁻ᵃ.How does the shape of the output expansion path change as "a" changes?

Which of the following does NOT represent a possible shape of the long-run average cost curve?

A firm built an inventory of 16-bit chips for $50,000 last year.However,the introduction of 32-bit chips lowers the market price for 16-bit chips and the inventory can only be sold for $40,000 now.What is the sunk cost?

Learning by doing will result in

Economic costs of an input include

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

Explain the difference between fixed costs in the short run and fixed costs in the long run.

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

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 in dollars?

For the following, please answer "True" or "False" and explain why. -After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

The slope of the isocost line tells the firm how much

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AFC equals

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

In the long run,fixed costs are

When the isocost line is tangent to the isoquant,then

A production possibilities frontier that is a downward-sloping straight line implies

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

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average cost if 2000 widgets are produced?

When diminishing marginal returns set in,

Determine the output expansion path (equation)for a cobb-douglas production function f(L,K)= 10LᵃK¹⁻ᵃ.How does the shape of the output expansion path change as "a" changes?

Which of the following does NOT represent a possible shape of the long-run average cost curve?

A firm built an inventory of 16-bit chips for $50,000 last year.However,the introduction of 32-bit chips lowers the market price for 16-bit chips and the inventory can only be sold for $40,000 now.What is the sunk cost?

Learning by doing will result in

Economic costs of an input include

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

Explain the difference between fixed costs in the short run and fixed costs in the long run.

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