Question 1

The cost function c(w1, w2, y) expresses the cost per unit of output of producing y units of output if equal amounts of both factors are used.

Accepted Answer

A) True 
 B)False  False

Question 2

Joe's Bar and Grill uses two inputs, beer and pretzels. When the price of beer was $10 a case and the price of pretzels was $20 a case, Joe used 1 case of beer and 2 cases of pretzels a day. When the price of beer was $20 a case and the price of pretzels was $10 a case, Joe used 2 cases of beer and 1 case of pretzels a day. Joe produced the same output in each of these circumstances.

Accepted Answer

A)  Joe has a constant returns to scale production function. 
B)  Joe has a cost function that exhibits increasing returns. 
C)  Joe is not minimizing costs. 
D)  Joe's behavior is consistent with profit maximization. 
E)  Joe's production function exhibits diminishing marginal product. 
A)  Joe has a constant returns to scale production function. 
B)  Joe has a cost function that exhibits increasing returns. 
C)  Joe is not minimizing costs. 
D)  Joe's behavior is consistent with profit maximization. 
E)  Joe's production function exhibits diminishing marginal product. C

Question 3

Roberta runs a dress factory. She produces 50 dresses per day, using labor and electricity. She uses a combination of labor and electricity that produces 50 dresses per day in the cheapest possible way. She can hire as much labor as she wants at a cost of 20 cents per minute. She can use as much electricity as she wants at a cost of 10 cents per minute. Her production isoquants are smooth curves without kinks and she uses positive amounts of both inputs.

Accepted Answer

A)  The marginal product of a kilowatt-hour of electricity is twice the marginal product of a minute of labor. 
B)  The marginal product of a minute of labor is twice the marginal product of a kilowatt-hour of electricity. 
C)  The marginal product of a minute of labor is equal to the marginal product of a kilowatt-hour of electricity. 
D)  There is not enough information to determine the ratio of marginal products. We'd have to know the production function to know this. 
E)  The marginal product of a minute of labor plus the marginal product of a kilowatt-hour of labor must equal. 
A)  The marginal product of a kilowatt-hour of electricity is twice the marginal product of a minute of labor. 
B)  The marginal product of a minute of labor is twice the marginal product of a kilowatt-hour of electricity. 
C)  The marginal product of a minute of labor is equal to the marginal product of a kilowatt-hour of electricity. 
D)  There is not enough information to determine the ratio of marginal products. We'd have to know the production function to know this. 
E)  The marginal product of a minute of labor plus the marginal product of a kilowatt-hour of labor must equal. B

Question 4

A new metal alloy is discovered that uses copper and zinc in fixed proportions where each unit of the alloy requires 4 units of zinc and 2 units of copper. If no other inputs are required, if the price of zinc is $2 per unit, and the price of copper is $5 per unit and if total output is 4,000 units, what is the average cost per unit of output?

Accepted Answer

A)  $.50 
B)  $2 
C)  $18 
D)  $20 
E)  $25 
A)  $.50 
B)  $2 
C)  $18 
D)  $20 
E)  $25

Question 5

Suppose that the production function is f (x1, x2) =(min{x1, 2x2}).5.

Accepted Answer

A)  There are constant returns to scale. 
B)  The cost function is a min function. 
C)  If the price of x1 is more than twice the price of x2, only x2 is used in production. 
D)  A cost-minimizing firm producing 5 units of output will use 25 units of x1 and some x2. 
E)  The cost function is a linear function of output. 
A)  There are constant returns to scale. 
B)  The cost function is a min function. 
C)  If the price of x1 is more than twice the price of x2, only x2 is used in production. 
D)  A cost-minimizing firm producing 5 units of output will use 25 units of x1 and some x2. 
E)  The cost function is a linear function of output.

Question 6

The production function is f (L, M) = 4   , where L is the number of units of labor and M is the number of machines. If the amounts of both factors can be varied and if the cost of labor is $64 per unit and the cost of using machines is $1 per machine, then the total cost of producing 20 units of output is

Accepted Answer

A)  $80. 
B)  $650. 
C)  $20. 
D)  $320. 
E)  $40. 
A)  $80. 
B)  $650. 
C)  $20. 
D)  $320. 
E)  $40.

Question 7

If output is produced according to Q = 4LK, the price of K is $10, and the price of L is $5, then the cost minimizing combination of K and L capable of producing 2 units of output is

Accepted Answer

A)  L = 0.35 and K = 0.35. 
B)  L = 1 and K = 0.50. 
C)  L = 0.50 and K = 1. 
D)  L = 1 and K = 1. 
E)  L = 1 and K = 0.50 
A)  L = 0.35 and K = 0.35. 
B)  L = 1 and K = 0.50. 
C)  L = 0.50 and K = 1. 
D)  L = 1 and K = 1. 
E)  L = 1 and K = 0.50

Question 8

An orange grower has discovered a process for producing oranges that requires two inputs. The production function is Q = min{2x1, x2}, where x1 andx2 are the amounts of inputs 1 and 2 that he uses. The prices of these two inputs are w1 = $5 and w2 = $2,respectively. The minimum cost of producing 140 units is therefore

Accepted Answer

A)  $980. 
B)  $630. 
C)  $1,400. 
D)  $280. 
E)  $700. 
A)  $980. 
B)  $630. 
C)  $1,400. 
D)  $280. 
E)  $700.

Question 9

If output is produced according to Q = 4L + 6K, the price of K is $24, and the price of L is $20, then the cost-minimizing combination of K and L capable of producing 72 units of output is

Accepted Answer

A)  L = 9 and K = 6. 
B)  L = 20 and K = 24. 
C)  L = 18 and K = 12. 
D)  L = 0 and K = 12. 
E)  L = 18 and K = 0. 
A)  L = 9 and K = 6. 
B)  L = 20 and K = 24. 
C)  L = 18 and K = 12. 
D)  L = 0 and K = 12. 
E)  L = 18 and K = 0.

Question 10

A firm has the production function Q = KL, where K is the amount of capital and L is the amount of labor it uses as inputs. The cost per unit of capital is a rental fee r and the cost per unit of labor is a wage w. The conditional labor demand function L(Q, w, r) is

Accepted Answer

A)  Qwr. 
B)  the square root of Qw/r. 
C)  Qw/r. 
D)  the square root of Qw/r 
E)  Qw/r 
A)  Qwr. 
B)  the square root of Qw/r. 
C)  Qw/r. 
D)  the square root of Qw/r 
E)  Qw/r

Question 11

The Chrysler Belvedere Truck Plant is attempting to minimize production costs. Over one month, 3,200 fenders are needed on the production line, which runs continuously. If it costs $400 to set up the stamping press to produce fenders and $1 per month to store produced fenders, how many times should the stamping press be run per month?

Accepted Answer

A)  Once 
B)  Twice 
C)  3 times 
D)  4 times 
E)  5 times 
A)  Once 
B)  Twice 
C)  3 times 
D)  4 times 
E)  5 times

Question 12

A competitive firm with output y has a production function y =   , where x1 and x2 are inputs used in production. The firm produces the output minimizing cost. With input prices w1 and w2, which of the following is true?

Accepted Answer

A)  The firm has L-shaped isoquants. 
B)  The firm must use the cheaper input. 
C)  The firm must use only input x1 if w1 2. 
D)  The technology has increasing returns to scale. 
E)  More than one of the above is true. 
A)  The firm has L-shaped isoquants. 
B)  The firm must use the cheaper input. 
C)  The firm must use only input x1 if w1 2. 
D)  The technology has increasing returns to scale. 
E)  More than one of the above is true.

Question 13

Two firms, Wickedly Efficient Widgets (WEW) and Wildly Nepotistic Widgets (WNW), both produce widgets, using the same production function   , where K is the amount of labor used and L is the amount of capital used. Each company can hire labor at $1 per unit of labor and capital at $1 per unit. Each company produces 10 widgets per week. WEW chooses its input combinations to produce in the cheapest way possible. Although it produces the same output per week as WEW, WNW is required by its dotty CEO to use twice as much labor as WEW. How much higher are WNW's total costs per week than WEW's?

Accepted Answer

A)  $5 
B)  $10 
C)  $15 
D)  $2.50 
E)  $2 
A)  $5 
B)  $10 
C)  $15 
D)  $2.50 
E)  $2

Question 14

In the short run, a firm which has production function f (L, M) = 4   must use 4 machines. If the cost of labor is $4 per unit and the cost of machines is $10 per unit, the short-run total cost of producing 72 units of output is

Accepted Answer

A)  $504. 
B)  $288. 
C)  $720. 
D)  $728. 
E)  $364. 
A)  $504. 
B)  $288. 
C)  $720. 
D)  $728. 
E)  $364.

Question 15

A lobbyist in our nation's capitol must buy 250 votes in the House of Representatives and Senate to win passage of a bill to add Millard Fillmore's face to Mount Rushmore. Votes in Congress can be purchased according to the following process: V =   , where C is the number of dollars contributed to campaign funds and M is the number of three-martini lunches. If three-martini lunches cost $64 each, what is the smallest expenditure the lobbyist could make to ensure Mr. Fillmore's proper place in history?

Accepted Answer

A)  $80,000 
B)  $390,625 
C)  $25,000,064 
D)  $325,000 
E)  $25,000,000 
A)  $80,000 
B)  $390,625 
C)  $25,000,064 
D)  $325,000 
E)  $25,000,000

Question 16

Using existing plant and equipment, Priceless Moments Figurines can be manufactured using plastic, clay, or any combination of these materials. A figurine can be manufactured by F = 4P + 2C, where P is pounds of plastic and C is pounds of clay. Plastic costs $2 per pound and clay costs $5 per pound. What would be the lowest cost of producing 40,000 figurines?

Accepted Answer

A)  $20,000 
B)  $100,000 
C)  $60,000 
D)  $10,000 
E)  $40,000 
A)  $20,000 
B)  $100,000 
C)  $60,000 
D)  $10,000 
E)  $40,000

Question 17

The production function is f (L, M) = 5   , where L is the number of units of labor and M is the number of machines. If the amounts of both factors can be varied and if the cost of labor is $9 per unit and the cost of using machines is $64 per machine, then the total cost of producing 12 units of output is

Accepted Answer

A)  $438. 
B)  $108. 
C)  $576. 
D)  $115.20. 
E)  $57.60. 
A)  $438. 
B)  $108. 
C)  $576. 
D)  $115.20. 
E)  $57.60.

Question 18

If it costs $20 to set up and later clean a bagel press and bagels cost $1 per week per bagel to store, how many times should the bagel press be run each week to produce 1,000 bagels a week to be sold continuously?

Accepted Answer

A)  Once 
B)  Twice 
C)  3 times 
D)  4 times 
E)  5 times 
A)  Once 
B)  Twice 
C)  3 times 
D)  4 times 
E)  5 times

Question 19

Vincent Smudge, an avant-garde New York artist,creates "living sculpture" by smearing paint slowly all over himself. S hours of "living sculpture" can be created by S = min{L,   }, where L is hours of labor by Mr. Smudge and T is tubes of water-soluble paint.Since Mr. Smudge is a highly renowned artist, his labor costs $200 per hour, while paint costs $40 per tube.Using a $10,000 grant from the National Endowment for the Arts, how many hours of "living sculpture" can Mr. Smudge create?

Accepted Answer

A)  1,666.67 
B)  48.08 
C)  41.67 
D)  25 
E)  8,333.33 
A)  1,666.67 
B)  48.08 
C)  41.67 
D)  25 
E)  8,333.33

Question 20

If the production function is given by f (x1, x2, x3, x4) =min{x1, x2} + min{x3, x4} and the prices of inputs (x1,x2, x3, x4) are (2, 1, 5, 3), the minimum cost of producing 1 unit of output is closest to

Accepted Answer

A)  $1. 
B)  $3. 
C)  $4. 
D)  $8. 
E)  $11. 
A)  $1. 
B)  $3. 
C)  $4. 
D)  $8. 
E)  $11.

Exam 19: Cost Minimization

The cost function c(w1, w2, y) expresses the cost per unit of output of producing y units of output if equal amounts of both factors are used.

Suppose that the production function is f (x1, x2) =(min{x1, 2x2}).5.

If output is produced according to Q = 4LK, the price of K is $10, and the price of L is $5, then the cost minimizing combination of K and L capable of producing 2 units of output is

If output is produced according to Q = 4L + 6K, the price of K is $24, and the price of L is $20, then the cost-minimizing combination of K and L capable of producing 72 units of output is

A firm has the production function Q = KL, where K is the amount of capital and L is the amount of labor it uses as inputs. The cost per unit of capital is a rental fee r and the cost per unit of labor is a wage w. The conditional labor demand function L(Q, w, r) is

A competitive firm with output y has a production function y = , where x1 and x2 are inputs used in production. The firm produces the output minimizing cost. With input prices w1 and w2, which of the following is true?

In the short run, a firm which has production function f (L, M) = 4 must use 4 machines. If the cost of labor is $4 per unit and the cost of machines is $10 per unit, the short-run total cost of producing 72 units of output is

If it costs $20 to set up and later clean a bagel press and bagels cost $1 per week per bagel to store, how many times should the bagel press be run each week to produce 1,000 bagels a week to be sold continuously?

If the production function is given by f (x1, x2, x3, x4) =min{x1, x2} + min{x3, x4} and the prices of inputs (x1,x2, x3, x4) are (2, 1, 5, 3), the minimum cost of producing 1 unit of output is closest to

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

Market Demand

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

Externalities

A: Externalities

Information Technology

A: Information Technology

Public Goods

A: Public Goods

Asymmetric Information

A: Asymmetric Information