Question 1

Suppose MPL = 0.5 ∗ (q/L)and MPK = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

Accepted Answer

A)  all of the time. 
B)  only when w = r. 
C)  only when w = 0.5 ∗ r. 
D)  at no point in time. 
A)  all of the time. 
B)  only when w = r. 
C)  only when w = 0.5 ∗ r. 
D)  at no point in time. B

Question 2

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. C

Question 3

A firm produces output according to the production function,q = L4/3K1/2 and faces input prices equal to w = $20 and r = $80.What is the minimum cost of producing 1140 units of output?

Accepted Answer

A)  Cost = $780. 
B)  Cost = $694 
C)  Cost = $2,071. 
D)  Not enough information is given to answer this problem. 
A)  Cost = $780. 
B)  Cost = $694 
C)  Cost = $2,071. 
D)  Not enough information is given to answer this problem. B

Question 4

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 5

In the long run,the expansion path is

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  diagonal. 
D)  Not enough information. 
A)  horizontal. 
B)  vertical. 
C)  diagonal. 
D)  Not enough information.

Question 6

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 7

The high cost of advertising during the Super Bowl will

Accepted Answer

A)  not affect the efficient level of output because advertising is a sunk cost. 
B)  will affect the efficient level of output because profits will fall significantly. 
C)  not affect the efficient level of output because advertising is a fixed cost. 
D)  Not enough information given. 
A)  not affect the efficient level of output because advertising is a sunk cost. 
B)  will affect the efficient level of output because profits will fall significantly. 
C)  not affect the efficient level of output because advertising is a fixed cost. 
D)  Not enough information given.

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

When buying a piece of equipment,it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.

Accepted Answer

A) True 
 B)False

Question 10

A local non-profit group prints a weekly newsletter.Professional typists earn $10 per hour and can type 2 pages per hour.Unpaid volunteers can type only 1 page per hour.Measuring hours of professional typist services on the vertical axis and hours of unpaid volunteer typist services on the horizontal axis,draw the relevant isoquant and isocost curves if the newsletter is 10 pages long.What input mix is chosen by the non-profit group if they wish to minimize the cost of the newsletter? If the group will reimburse volunteers for expenses (lunch,driving),how much must the reimbursement be for your answer to change?

Accepted Answer

@#IMG-DLM& See the above figure.The isoquant is a

Question 11

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 12

A windfall profit tax imposed on oil companies would shift the firms'

Accepted Answer

A)  marginal tax rate. 
B)  marginal cost curve. 
C)  average cost curve. 
D)  production function. 
A)  marginal tax rate. 
B)  marginal cost curve. 
C)  average cost curve. 
D)  production function.

Question 13

A U.S.firm currently produces 200 units of output according to the production function q = L0.5K0.5 and faces input prices equal to wU.S. = rU.S = $11.Should the U.S.firm move their company abroad where they will face input prices equal to wabroad = $6.50 and rabroad = $15.00?

Accepted Answer

A)  Yes, because the total costs will fall from $3,859 to $2,810. 
B)  No, because the total costs will increase from $2,810 to $3,859. 
C)  No, because the firm has decreasing returns to scale. 
D)  Not enough information is given to answer this problem. 
A)  Yes, because the total costs will fall from $3,859 to $2,810. 
B)  No, because the total costs will increase from $2,810 to $3,859. 
C)  No, because the firm has decreasing returns to scale. 
D)  Not enough information is given to answer this problem.

Question 14

If a production function is represented as q = LaKb,the long-run average cost curve will be horizontal as long as

Accepted Answer

A)  a + b = 0. 
B)  a + b = 1. 
C)  q > 0. 
D)  L = K. 
A)  a + b = 0. 
B)  a + b = 1. 
C)  q > 0. 
D)  L = K.

Question 15

-At Albert's Pretzel Company,MPL = 1/L,and MPK = 1/K.The isoquant for 100 pounds of pretzels daily is shown in the above figure.Albert minimizes the cost of producing 100 pounds of pretzels daily by hiring 5 units of labor and 10 units of capital when w = 50 and r = 25.When r rises to 100,what is the minimum cost of producing 100 pounds of pretzels daily in the short run? in the long run?

Accepted Answer

In the short run,the input mix cannot ch

Question 16

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.

Question 17

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 18

Assume baseball player salaries are fully determined before the season starts.From the point of view of the baseball team owner,player salaries during the course of the season are then

Accepted Answer

A)  variable costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  average costs. 
A)  variable costs. 
B)  marginal costs. 
C)  fixed costs. 
D)  average costs.

Question 19

Assume Congress decides that Social Security taxes must increase in order to fund the system.This would

Accepted Answer

A)  shift up the marginal cost curve for any firms that hire labor. 
B)  guarantee a decrease in profits. 
C)  shift up the average fixed cost curve for any firms that hire labor. 
D)  guarantee an increase in tax revenues. 
A)  shift up the marginal cost curve for any firms that hire labor. 
B)  guarantee a decrease in profits. 
C)  shift up the average fixed cost curve for any firms that hire labor. 
D)  guarantee an increase in tax revenues.

Question 20

If Option A costs $40 and yields 20 units of output and Option B costs $50 and yields 30 units of output,

Accepted Answer

A)  Option B and Option A are equally economically efficient. 
B)  Option B is economically efficient relative to Option A. 
C)  Option A is economically efficient relative to Option B. 
D)  It is not possible to determine which option is more economically efficient. 
A)  Option B and Option A are equally economically efficient. 
B)  Option B is economically efficient relative to Option A. 
C)  Option A is economically efficient relative to Option B. 
D)  It is not possible to determine which option is more economically efficient.

Suppose MP_L = 0.5 ∗ (q/L)and MP_K = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

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

A firm produces output according to the production function,q = L^4/3K^1/2 and faces input prices equal to w = $20 and r = $80.What is the minimum cost of producing 1140 units of output?

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

In the long run,the expansion path is

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

The high cost of advertising during the Super Bowl will

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

When buying a piece of equipment,it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.

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 windfall profit tax imposed on oil companies would shift the firms'

A U.S.firm currently produces 200 units of output according to the production function q = L^0.5K^0.5 and faces input prices equal to w^U.S. = r^U.S = $11.Should the U.S.firm move their company abroad where they will face input prices equal to w^abroad = $6.50 and r^abroad = $15.00?

If a production function is represented as q = L^aK^b,the long-run average cost curve will be horizontal as long as

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

The slope of the isocost line tells the firm how much

Assume baseball player salaries are fully determined before the season starts.From the point of view of the baseball team owner,player salaries during the course of the season are then

Assume Congress decides that Social Security taxes must increase in order to fund the system.This would

If Option A costs $40 and yields 20 units of output and Option B costs $50 and yields 30 units of output,

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 7: Costs

Suppose MPL = 0.5 ∗ (q/L)and MPK = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

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

A firm produces output according to the production function,q = L4/3K1/2 and faces input prices equal to w = $20 and r = $80.What is the minimum cost of producing 1140 units of output?

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

In the long run,the expansion path is

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

The high cost of advertising during the Super Bowl will

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

When buying a piece of equipment,it is always best for the firm to pay cash instead of borrowing the funds since this renders the equipment less costly.

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 windfall profit tax imposed on oil companies would shift the firms'

A U.S.firm currently produces 200 units of output according to the production function q = L0.5K0.5 and faces input prices equal to wU.S. = rU.S = $11.Should the U.S.firm move their company abroad where they will face input prices equal to wabroad = $6.50 and rabroad = $15.00?

If a production function is represented as q = LaKb,the long-run average cost curve will be horizontal as long as

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

The slope of the isocost line tells the firm how much

Assume baseball player salaries are fully determined before the season starts.From the point of view of the baseball team owner,player salaries during the course of the season are then

Assume Congress decides that Social Security taxes must increase in order to fund the system.This would

If Option A costs $40 and yields 20 units of output and Option B costs $50 and yields 30 units of output,

Introduction

Supply and Demand

Applying the Supply and Demand Model

Consumer Choice

Applying Consumer Theory

Firms and Production

Competitive Firms and Markets

Applying the Competitive Model

General Equilibrium and Economic Welfare

Monopoly

Pricing and Advertising

Oligopoly and Monopolistic Competition

Game Theory

Factor Markets

Interest Rates, Investments, and Capital Markets

Uncertainty

Externalities, Open-Access, and Public Goods

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose MP_L = 0.5 ∗ (q/L)and MP_K = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

A firm produces output according to the production function,q = L^4/3K^1/2 and faces input prices equal to w = $20 and r = $80.What is the minimum cost of producing 1140 units of output?

A U.S.firm currently produces 200 units of output according to the production function q = L^0.5K^0.5 and faces input prices equal to w^U.S. = r^U.S = $11.Should the U.S.firm move their company abroad where they will face input prices equal to w^abroad = $6.50 and r^abroad = $15.00?

If a production function is represented as q = L^aK^b,the long-run average cost curve will be horizontal as long as