Question 1

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 2

Your company makes copper pipes.Over the years,you have collected a large inventory of raw copper.The production process involves melting the copper and shaping it into pipes.You also have a large stockpile of pennies.Suppose the price of copper rises so much that the copper in the penny becomes worth more than one cent.Should you melt down your pennies?

Accepted Answer

This problem appeared as a puzzle in the

Question 3

To dig a trench,each worker needs a shovel.Workers can only use one shovel at a time.Workers without shovels do nothing,and shovels cannot operate on their own.What kind of production technology is this? Graphically (with isocost and isoquant lines)determine the optimal number of shovels and workers used by a firm to dig two trenches when w = r = 10.What will be the (long-run)total cost of the two trenches? What will happen if the rental rate drops to $5 while the wage remains at $10? Add the relevant lines to your graph and compute the new optimal quantity of inputs and total cost.

Accepted Answer

This is the fixed-proportion production

Question 4

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 5

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 6

Variable costs are

Accepted Answer

A) a production expense that does not vary with output. 
B) a production expense that changes with the quantity of output produced. 
C) equal to total cost divided by the units of output produced. 
D) the amount by which a firm's cost changes if the firm produces one more unit of output. 
A) a production expense that does not vary with output. 
B) a production expense that changes with the quantity of output produced. 
C) equal to total cost divided by the units of output produced. 
D) the amount by which a firm's cost changes if the firm produces one more unit of output.

Question 7

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 8

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

Accepted Answer

A firm can have constant returns to scal

Question 9

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 10

-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 11

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 12

A firm can minimize cost by

Accepted Answer

A) picking the bundle of inputs where the lowest isocost line touches the isoquant. 
B) picking the bundle of inputs where the isoquant is tangent to the isocost line. 
C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input. 
D) All of the above. 
A) picking the bundle of inputs where the lowest isocost line touches the isoquant. 
B) picking the bundle of inputs where the isoquant is tangent to the isocost line. 
C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input. 
D) All of the above.

Question 13

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 14

You have two career options.You can work for someone else for $50,000 a year,or,you can run your own business,with an annual revenue of $100,000,and explicit costs of $40,000 annually.Explain which career option a profit-maximizer would select and why.

Accepted Answer

In the absence of other implic

Question 15

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) $1.50 
C) $1 
D) $0.50 
A) $2 
B) $1.50 
C) $1 
D) $0.50

Question 16

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 17

What is the last dollar rule for cost-minimization? Provide a brief explanation (in words)as well as the corresponding mathematical equality.If the firm is producing at a point where the isocost line is steeper than the isoquant,what does the last dollar rule imply (i.e. ,where is the last dollar most productive,L or K)and how should the firm alter its capital and labor in the long run?

Accepted Answer

The last dollar a firm spends on capital

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

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

Accepted Answer

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

Question 20

Economists proclaim that competitive firms make zero economic profit in the long run.This shows how

Accepted Answer

A) detached economists are from the real world. 
B) unrealistic economic theory is. 
C) firms cover all their cost,both monetary and non-monetary. 
D) firms cover only monetary cost when economic profits are zero. 
A) detached economists are from the real world. 
B) unrealistic economic theory is. 
C) firms cover all their cost,both monetary and non-monetary. 
D) firms cover only monetary cost when economic profits are zero.

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

Learning by doing will result in

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?

Variable costs are

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.

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

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?

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

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

A firm can minimize cost by

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

You have two career options.You can work for someone else for $50,000 a year,or,you can run your own business,with an annual revenue of $100,000,and explicit costs of $40,000 annually.Explain which career option a profit-maximizer would select and why.

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?

If the wage increases,the isocost line will

Economic costs of an input include

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

Economists proclaim that competitive firms make zero economic profit in the long run.This shows how

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

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

Learning by doing will result in

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?

Variable costs are

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.

Explain how a firm can have constant returns to scale in production and economies of scale in cost.

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?

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

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

A firm can minimize cost by

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

You have two career options.You can work for someone else for $50,000 a year,or,you can run your own business,with an annual revenue of $100,000,and explicit costs of $40,000 annually.Explain which career option a profit-maximizer would select and why.

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?

If the wage increases,the isocost line will

Economic costs of an input include

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

Economists proclaim that competitive firms make zero economic profit in the long run.This shows how

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