Question 1

If there are increasing returns to scale, then average costs are a decreasing function of output.

Accepted Answer

A) True 
 B)False

Question 2

As head of the planning commission of Eastern Motors, your job is to determine where to locate a new plant. The only inputs used in your cars are steel and labor and the production function is Cobb-Douglas where f (S, L) = S.5L.5, where S is tons of steel and L is units of labor. You can locate your plant either in country A or country B. In country A, steel costs $7 a ton and labor costs $7 per unit. In country B, steel costs $8 per ton and labor costs $6 per unit. In which country should the company locate its new plant so as to minimize costs per unit of output?

Accepted Answer

A)  Country A. 
B)  Country B. 
C)  It doesn't matter, because the two locations are equally costly. 
D)  Country A if output is greater than 14, and country B otherwise. 
E)  There is not enough information to enable us to tell. 
A)  Country A. 
B)  Country B. 
C)  It doesn't matter, because the two locations are equally costly. 
D)  Country A if output is greater than 14, and country B otherwise. 
E)  There is not enough information to enable us to tell.

Question 3

The conditional factor demand function for factor 1 is a function x1(w1, w2, y) that tells the ratio of price to output for an optimal factor choice of the firm.

Accepted Answer

A) True 
 B)False

Question 4

A firm has fixed costs of $4,000. Its short-run production function is y = 4   , where x is the amount of variable factor it uses. The price of the variable factor is $4,000 per unit. Where y is the amount of output, the short-run total cost function is

Accepted Answer

A)  + 4,000. 
B)  8,000y. 
C)  4,000 + 4,000y. 
D)  4,000 + 250y2. 
E)  4,000 + 0.25y2. 
A)  + 4,000. 
B)  8,000y. 
C)  4,000 + 4,000y. 
D)  4,000 + 250y2. 
E)  4,000 + 0.25y2.

Question 5

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 $25 each, what is the smallest expenditure the lobbyist could make to ensure Mr. Fillmore's proper place in history?

Accepted Answer

A)  $1,000,000 
B)  $25,000,025 
C)  $130,000 
D)  $50,000 
E)  $25,000,000 
A)  $1,000,000 
B)  $25,000,025 
C)  $130,000 
D)  $50,000 
E)  $25,000,000

Question 6

If there are increasing returns to scale, then costs per unit of output decrease as you move downward and to the right along an isocost line.

Accepted Answer

A) True 
 B)False

Question 7

The production function for good y is y = max{10x1,4x2}, where x1 and x2 are the amounts of factors 1 and 2. Find the cost function for good y.

Accepted Answer

The cost f

Question 8

A politician facing reelection can win votes according to the following process: V = 500S0.20M0.60, where S is hours of making campaign speeches and M is the number of flyers mailed. Making speeches costs $10 per hour, mailing flyers costs $.50 per flyer, and $2,000 are available to spend on the campaign. Assuming the politician wants to maximize votes, how should the budget be allocated between speeches and mailing flyers?

Accepted Answer

A)  No speeches should be given; 4,000 flyers should be mailed. 
B)  100 hours of speeches should be given; 2,000 flyers should be mailed out. 
C)  50 hours of speeches should be given; 3,000 flyers should be mailed out. 
D)  500 hours of speeches should be given; 1,500 flyers should be mailed out. 
E)  200 hours speeches should be given; no flyers should be mailed out. 
A)  No speeches should be given; 4,000 flyers should be mailed. 
B)  100 hours of speeches should be given; 2,000 flyers should be mailed out. 
C)  50 hours of speeches should be given; 3,000 flyers should be mailed out. 
D)  500 hours of speeches should be given; 1,500 flyers should be mailed out. 
E)  200 hours speeches should be given; no flyers should be mailed out.

Question 9

Rocco's Pasta Bar makes manicotti according to an old family recipe which states M = min{   , 5P}, where M, C, and P are pounds of manicotti, cheese, and pasta respectively. If cheese costs $3 per pound and pasta costs $4 per pound, how much would it cost to produce 20 pounds of manicotti in the cheapest way possible?

Accepted Answer

A)  $64 
B)  $48 
C)  $16 
D)  $33.33 
E)  $20 
A)  $64 
B)  $48 
C)  $16 
D)  $33.33 
E)  $20

Question 10

If the production function for tuna casseroles is min{x1,x2 2}, where x1 is the amount of factor 1 and x2 is the amount of factor x2, find the cost function for tuna casseroles.

Accepted Answer

a. @#IMG-DLM& .
b. m

Question 11

Al's production function for deer is f (x1, x2) =   , where x1 is the amount of plastic and x2 is the amount of wood used. If the cost of plastic is $6 per unit and the cost of wood is $1 per unit, then the cost of producing 7 deer is

Accepted Answer

A)  $147. 
B)  $49. 
C)  $7. 
D)  $91. 
E)  $21. 
A)  $147. 
B)  $49. 
C)  $7. 
D)  $91. 
E)  $21.

Question 12

Lars runs a cookie factory. His cookies are made with sugar, peanut oil, and soybean oil. The number of boxes of cookies that he produces is f (su, po, so) =min{su, po + 2so}, where su is the number of bags of sugar, po the number of canisters of peanut oil, and so the number of canisters of soybean oil that he uses. The price of a bag of sugar is $5. The price of a canister of peanut oil is $9. The price of a canister of soybean oil is $19. If Lars makes 254 boxes of cookies in the

Accepted Answer

A)  127 
B)  0 
C)  84.67 
D)  169.33 
E)  42.33 
A)  127 
B)  0 
C)  84.67 
D)  169.33 
E)  42.33

Question 13

A politician facing reelection can win votes according to the following process: V = 500S0.20M0.60, where S is hours of making campaign speeches and M is the number of flyers mailed. Making speeches costs $10 per hour, mailing flyers costs $.50 per flyer, and $8,000 are available to spend on the campaign. Assuming the politician wants to maximize votes, how should the budget be allocated between speeches and mailing flyers?

Accepted Answer

A)  No speeches should be given; 16,000 flyers should be mailed. 
B)  400 hours of speeches should be given; 8,000 flyers should be mailed out. 
C)  200 hours of speeches should be given; 12,000 flyers should be mailed out. 
D)  2,000 hours of speeches should be given; 6,000 flyers should be mailed out. 
E)  800 hours speeches should be given; no flyers should be mailed out. 
A)  No speeches should be given; 16,000 flyers should be mailed. 
B)  400 hours of speeches should be given; 8,000 flyers should be mailed out. 
C)  200 hours of speeches should be given; 12,000 flyers should be mailed out. 
D)  2,000 hours of speeches should be given; 6,000 flyers should be mailed out. 
E)  800 hours speeches should be given; no flyers should be mailed out.

Question 14

The editors at Snoozeweek, a news magazine, constantly alter the proportion of celebrity photographs and mundane news stories so as to maximize the number of copies sold. A statistical consultant has estimated sales to be S = 1,000C 0.60N 0.60, where C is the number of celebrity photographs and N is column inches of news stories. If the editors only have $8,000 to spend on each edition with celebrity photos costing $200 each and news stories costing $10 per column inch, what should the editors do

Accepted Answer

A)  Purchase 23 celebrity photos and 340 column inches of news stories. 
B)  Purchase 20 celebrity photos and 400 column inches of news stories. 
C)  Purchase 25 celebrity photos and 300 column inches of news stories. 
D)  Purchase 16 celebrity photos and 480 column inches of news stories. 
E)  Purchase 15 celebrity photos and 500 column inches of news stories. 
A)  Purchase 23 celebrity photos and 340 column inches of news stories. 
B)  Purchase 20 celebrity photos and 400 column inches of news stories. 
C)  Purchase 25 celebrity photos and 300 column inches of news stories. 
D)  Purchase 16 celebrity photos and 480 column inches of news stories. 
E)  Purchase 15 celebrity photos and 500 column inches of news stories.

Question 15

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 $9 per unit. Each company produces 90 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)  $270 
B)  $67.50 
C)  $275 
D)  $135 
E)  $132 
A)  $270 
B)  $67.50 
C)  $275 
D)  $135 
E)  $132

Question 16

A firm with the production function f (x1, x2, x3, x4) =min{x1, x2, x3, x4} faces input prices w1 = $1, w2 = $2,w3 = $2, w4 = $5 for factors 1, 2, 3, and 4. The firm must use at least 17 units of factor 2. The lowest cost at which it can produce 100 units of output is

Accepted Answer

A)  $1,000. 
B)  $400. 
C)  $317. 
D)  $615. 
E)  $300. 
A)  $1,000. 
B)  $400. 
C)  $317. 
D)  $615. 
E)  $300.

Question 17

A competitive firm has the three-factor production function f (x, y, z) =   . The factor prices used to be wx = $1, wy = $2, and wz = $3. Suppose that the price of factor y doubled while the other two prices stayed the same. Then the cost of production

Accepted Answer

A)  increased by more than 10% but less than 50%. 
B)  increased by 50%. 
C)  doubled. 
D)  stayed the same. 
E)  increased by more than 50% but did not double. 
A)  increased by more than 10% but less than 50%. 
B)  increased by 50%. 
C)  doubled. 
D)  stayed the same. 
E)  increased by more than 50% but did not double.

Exam 19: Cost Minimization

If there are increasing returns to scale, then average costs are a decreasing function of output.

The conditional factor demand function for factor 1 is a function x1(w1, w2, y) that tells the ratio of price to output for an optimal factor choice of the firm.

A firm has fixed costs of $4,000. Its short-run production function is y = 4 , where x is the amount of variable factor it uses. The price of the variable factor is $4,000 per unit. Where y is the amount of output, the short-run total cost function is

If there are increasing returns to scale, then costs per unit of output decrease as you move downward and to the right along an isocost line.

The production function for good y is y = max{10x1,4x2}, where x1 and x2 are the amounts of factors 1 and 2. Find the cost function for good y.

If the production function for tuna casseroles is min{x1,x2 2}, where x1 is the amount of factor 1 and x2 is the amount of factor x2, find the cost function for tuna casseroles.

Al's production function for deer is f (x1, x2) = , where x1 is the amount of plastic and x2 is the amount of wood used. If the cost of plastic is $6 per unit and the cost of wood is $1 per unit, then the cost of producing 7 deer is

A firm with the production function f (x1, x2, x3, x4) =min{x1, x2, x3, x4} faces input prices w1 = $1, w2 = $2,w3 = $2, w4 = $5 for factors 1, 2, 3, and 4. The firm must use at least 17 units of factor 2. The lowest cost at which it can produce 100 units of output is

A competitive firm has the three-factor production function f (x, y, z) = . The factor prices used to be wx = $1, wy = $2, and wz = $3. Suppose that the price of factor y doubled while the other two prices stayed the same. Then the cost of production

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