Question 1

Assuming that w and r are both positive,if the long-run expansion path is horizontal,then

Accepted Answer

A)  MPK = 0. 
B)  MRTS is a function of capital only. 
C)  w = r. 
D)  All of the above. 
A)  MPK = 0. 
B)  MRTS is a function of capital only. 
C)  w = r. 
D)  All of the above.

Question 2

Suppose a firm acts to minimize the cost of producing 500 units of output and determines this cost to be $25,000.Then,if the firm acts to maximize output for a total cost of $25,000,the maximum output attainable is

Accepted Answer

A)  500. 
B)  less than 500. 
C)  more than 500. 
D)  unknown. 
A)  500. 
B)  less than 500. 
C)  more than 500. 
D)  unknown.

Question 3

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

Accepted Answer

A)  the opportunity cost of this endeavor. 
B)  a sunk cost. 
C)  an expense. 
D)  a variable cost. 
A)  the opportunity cost of this endeavor. 
B)  a sunk cost. 
C)  an expense. 
D)  a variable cost.

Question 4

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 5

For the following, please answer "True" or "False" and explain why.
-If increasing returns to scale are present,the long-run average cost increases as more output is produced.

Accepted Answer

A) True 
 B)False

Question 6

Suppose Ralph hires workers at his supermarket at a wage of $12/hour.Ralph currently has 10 checkstands (i.e.,capital)with a rental rate of $10/hour.Production of customers served (i.e.,output)is determined by the hourly production function
f(L,K)= 0.5L³/⁴ᴷ²
For the questions that follow,the number of checkstands is fixed.Show your work clearly.
a.If Ralph wants to serve 400 customers per hour,how many workers must he employ? How much will it cost to serve 400 customers per hour?
b.Derive Ralph's short-run cost function with the 10 checkstands.
c.Derive the equations for the MC,AC,AVC,and AFC.

Accepted Answer

a.0.5L³/⁴(10)² = 400 L³/⁴ = 80 L=16
0.5L

Question 7

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

Accepted Answer

A)  $2 
B)  $1 
C)  $0.5 
D)  $0.2 
A)  $2 
B)  $1 
C)  $0.5 
D)  $0.2

Question 8

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If the isoquants are convex,and the firm does not change its input mix in the long run,we can conclude that

Accepted Answer

A)  MPK = 3 ∗ MPL. 
B)  the firm will not hire any capital. 
C)  the firm will hire 3 times as much labor as capital. 
D)  the firm will hire 3 times as much capital as labor. 
A)  MPK = 3 ∗ MPL. 
B)  the firm will not hire any capital. 
C)  the firm will hire 3 times as much labor as capital. 
D)  the firm will hire 3 times as much capital as labor.

Question 9

-The above figure shows the long-run expansion path.The long-run average cost curve will be

Accepted Answer

A)  horizontal. 
B)  downward sloping. 
C)  upward sloping. 
D)  vertical. 
A)  horizontal. 
B)  downward sloping. 
C)  upward sloping. 
D)  vertical.

Question 10

Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point.

Accepted Answer

At low quantities,the average cost curve

Question 11

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

Accepted Answer

A)  fewer shovels being purchased. 
B)  more workers being hired. 
C)  a decrease in the firm's output. 
D)  no change in the firm's output. 
A)  fewer shovels being purchased. 
B)  more workers being hired. 
C)  a decrease in the firm's output. 
D)  no change in the firm's output.

Question 12

If the wage increases the isocost line will

Accepted Answer

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

Question 13

To dig a trench,each worker needs a shovel.Workers can use only one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.Graphically determine the number of shovels and workers used by a firm to dig two trenches when:
a.w = 10 and r = 10
b.w = 10 and r = 5

Accepted Answer

@#IMG-DLM& See the above figure.Because

Question 14

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 15

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm will experience

Accepted Answer

A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  decreasing returns to scale. 
D)  The returns to scale cannot be determined from the information provided. 
A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  decreasing returns to scale. 
D)  The returns to scale cannot be determined from the information provided.

Question 16

In the short run,the expansion path is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  diagonal. 
D)  indeterminate. 
A)  horizontal. 
B)  vertical. 
C)  diagonal. 
D)  indeterminate.

Question 17

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 18

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

Accepted Answer

A)  $0. 
B)  $1 million. 
C)  some amount greater than $0 but less than $1 million. 
D)  equal to the cost of the factory that was planned to be built there. 
A)  $0. 
B)  $1 million. 
C)  some amount greater than $0 but less than $1 million. 
D)  equal to the cost of the factory that was planned to be built there.

Question 19

Joey notices that by employing an additional hairdresser,he will be able to increase the number of haircuts in his salon by 15 haircuts per day.The daily salary he will need to pay the hairdresser is $200.How much is the cost for an additional haircut? Describe the general relationship between the marginal product and marginal cost curves.

Accepted Answer

Since employing an additional hairdresse

Question 20

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm's cost function is

Accepted Answer

A)  TC = (w/r) ∗ q. 
B)  TC = (w + r)/q. 
C)  TC = (w + r). 
D)  TC = (w + r) ∗ q. 
A)  TC = (w/r) ∗ q. 
B)  TC = (w + r)/q. 
C)  TC = (w + r). 
D)  TC = (w + r) ∗ q.

Assuming that w and r are both positive,if the long-run expansion path is horizontal,then

Suppose a firm acts to minimize the cost of producing 500 units of output and determines this cost to be $25,000.Then,if the firm acts to maximize output for a total cost of $25,000,the maximum output attainable is

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

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

For the following, please answer "True" or "False" and explain why. -If increasing returns to scale are present,the long-run average cost increases as more output is produced.

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If the isoquants are convex,and the firm does not change its input mix in the long run,we can conclude that

-The above figure shows the long-run expansion path.The long-run average cost curve will be

Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point.

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

If the wage increases the isocost line will

To dig a trench,each worker needs a shovel.Workers can use only one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.Graphically determine the number of shovels and workers used by a firm to dig two trenches when: a.w = 10 and r = 10 b.w = 10 and r = 5

Economies of scope exist between book publishing and magazine publishing if

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm will experience

In the short run,the expansion path is

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?

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm's cost function is

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

Assuming that w and r are both positive,if the long-run expansion path is horizontal,then

Suppose a firm acts to minimize the cost of producing 500 units of output and determines this cost to be $25,000.Then,if the firm acts to maximize output for a total cost of $25,000,the maximum output attainable is

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

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

For the following, please answer "True" or "False" and explain why. -If increasing returns to scale are present,the long-run average cost increases as more output is produced.

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

At the XYZ Co.,a unit of capital costs three times as much as a unit of labor.If the isoquants are convex,and the firm does not change its input mix in the long run,we can conclude that

-The above figure shows the long-run expansion path.The long-run average cost curve will be

Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point.

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

If the wage increases the isocost line will

To dig a trench,each worker needs a shovel.Workers can use only one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.Graphically determine the number of shovels and workers used by a firm to dig two trenches when: a.w = 10 and r = 10 b.w = 10 and r = 5

Economies of scope exist between book publishing and magazine publishing if

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm will experience

In the short run,the expansion path is

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?

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

Suppose that each worker must use only one shovel to dig a trench,and shovels are useless by themselves.In the long run,the firm's cost function is

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