Question 1

If an isocost line crosses the isoquant twice,a cost minimizing firm will

Accepted Answer

A) use a different isocost line to select the bundle of inputs. 
B) use the input bundle associated with the intersection on the higher point of the isoquant. 
C) use the input bundle associated with the intersection on the lower point of the isoquant. 
D) Both B and C. 
A) use a different isocost line to select the bundle of inputs. 
B) use the input bundle associated with the intersection on the higher point of the isoquant. 
C) use the input bundle associated with the intersection on the lower point of the isoquant. 
D) Both B and C.

Question 2

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

Accepted Answer

A) fewer shovels being purchased to produce the same number of trenches. 
B) more workers being hired to produce the same number of trenches. 
C) the firm wishing to produce more trenches. 
D) no change in the firm's input mix. 
A) fewer shovels being purchased to produce the same number of trenches. 
B) more workers being hired to produce the same number of trenches. 
C) the firm wishing to produce more trenches. 
D) no change in the firm's input mix.

Question 3

The total cost of producing one unit is $50.The total cost of producing two units is $75.At a production level of two units,the cost function exhibits

Accepted Answer

A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale. 
A) economies of scale. 
B) rising average costs. 
C) increasing marginal costs. 
D) constant returns to scale.

Question 4

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

Accepted Answer

A) The short-run average cost curve must be upward sloping within that range of output. 
B) The long-run average cost curve must be upward sloping within that range of output. 
C) Long-run average cost must equal short-run average cost. 
D) All of the above. 
A) The short-run average cost curve must be upward sloping within that range of output. 
B) The long-run average cost curve must be upward sloping within that range of output. 
C) Long-run average cost must equal short-run average cost. 
D) All of the above.

Question 5

A firm pays $5 for each unit of capital.Labor costs $5 per hour for the first 10 hours and $10 per hour for every hour thereafter.Draw the isocost curves for total costs of $50 and $100.

Accepted Answer

The answer of A firm pays $5 for each unit...

Question 6

A paper company dumps nondegradable waste into a river that flows by the firm's plant.The firm estimates its production function to be:
Q = 6KP,
where Q = annual paper production measured in pounds,K = machine hours of capital,and P = gallons of polluted water dumped into the river per year.The firm currently faces no environmental regulation in dumping waste into the river.Without regulation,it costs the firm $7.50 per gallon dumped.The firm estimates a $30 per hour rental rate on capital.The firm produces 600 million pounds of paper per year.For this problem,consider the long-run production of output.
a.Determine the firm's optimal ratio of wastewater to capital.
b.Given the firm's output of 600 million lbs,how much capital and wastewater should the firm employ?
c.How much will it cost the firm to produce the 600 million lbs of paper?
d.The state environmental protection agency plans to impose a $7.50 fee for each gallon that is dumped (this is in addition to the current cost of $7.50).Assuming that the firm intends to maintain its same output level,how much capital and wastewater should the firm employ?
e.How much will the firm pay in fees? What happens to the firm's cost as a result of the fee?

Accepted Answer

a.MRTS = K/P
w/r = 7.5/30 = 1/4
At the o

Question 7

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

Accepted Answer

A) an explicit cost. 
B) an accounting cost. 
C) no real cost. 
D) an opportunity cost. 
A) an explicit cost. 
B) an accounting cost. 
C) no real cost. 
D) an opportunity cost.

Question 8

Consider a general cost function C(q),with Average Cost=C(q)/q.Prove using calculus that the quantity which minimizes the Average Cost function is also at the point where the Marginal Cost equals the Average Cost.To do this,first derive the necessary condition for the AC to be at a minimum.

Accepted Answer

Consider a cost function C(q).Then AC(q)

Question 9

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 10

Ed's construction company has the following short-run cost function: q3 - 10q2 + 36q.
a.What level of output will minimize the average cost? What is the AC at this point?
b.Does the production process indicate diminishing returns? How can you tell?

Accepted Answer

a.When dAC/dq=0 or equivalently AC=MC,th

Question 11

If the marginal 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 rising. 
B) AVC is rising. 
C) MC > AVC. 
D) MPL is falling. 
A) AFC is rising. 
B) AVC is rising. 
C) MC > AVC. 
D) MPL is falling.

Question 12

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 opportunity cost of the inventory of 16-bit chips?

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 13

When the isocost line is tangent to the isoquant,then

Accepted Answer

A) MPL = MPK. 
B) the firm is producing that level of output at minimum cost. 
C) the firm has achieved the right economies of scale. 
D) All of the above. 
A) MPL = MPK. 
B) the firm is producing that level of output at minimum cost. 
C) the firm has achieved the right economies of scale. 
D) All of the above.

Question 14

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month.Joey's dad is thinking of increasing the rent to $400 per month.As a result Joey's marginal cost of cutting grass will

Accepted Answer

A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change. 
A) increase by $100 divided by the amount of grass cut. 
B) increase by $100. 
C) decrease by $100. 
D) not change.

Question 15

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 16

In the short run,the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

Accepted Answer

A) peaks. 
B) bottoms out. 
C) is flat. 
D) is downward sloping. 
A) peaks. 
B) bottoms out. 
C) is flat. 
D) is downward sloping.

Question 17

If the marginal rate of technical substitution for a cost minimizing firm is 10,and the wage rate for labor is $5,what is the rental rate for capital in dollars?

Accepted Answer

A) .5 
B) 1 
C) 2 
D) 10 
A) .5 
B) 1 
C) 2 
D) 10

Question 18

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.

Question 19

The long run average cost curve may initially slope downward due to

Accepted Answer

A) decreasing average fixed costs. 
B) increasing marginal returns. 
C) economies of scale. 
D) All of the above. 
A) decreasing average fixed costs. 
B) increasing marginal returns. 
C) economies of scale. 
D) All of the above.

Question 20

If a particular production process is subject to diminishing marginal returns to labor at every level of output,then at every level of output

Accepted Answer

A) AC is upward sloping. 
B) MC exceeds AVC. 
C) AFC is constant. 
D) All of the above. 
A) AC is upward sloping. 
B) MC exceeds AVC. 
C) AFC is constant. 
D) All of the above.

If an isocost line crosses the isoquant twice,a cost minimizing firm will

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

The total cost of producing one unit is $50.The total cost of producing two units is $75.At a production level of two units,the cost function exhibits

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

A firm pays $5 for each unit of capital.Labor costs $5 per hour for the first 10 hours and $10 per hour for every hour thereafter.Draw the isocost curves for total costs of $50 and $100.

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

Consider a general cost function C(q),with Average Cost=C(q)/q.Prove using calculus that the quantity which minimizes the Average Cost function is also at the point where the Marginal Cost equals the Average Cost.To do this,first derive the necessary condition for the AC to be at a minimum.

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

Ed's construction company has the following short-run cost function: q³ - 10q² + 36q. a.What level of output will minimize the average cost? What is the AC at this point? b.Does the production process indicate diminishing returns? How can you tell?

If the marginal cost of producing a good is increasing as a firm produces more of the good,then which of the following must be TRUE?

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 opportunity cost of the inventory of 16-bit chips?

When the isocost line is tangent to the isoquant,then

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month.Joey's dad is thinking of increasing the rent to $400 per month.As a result Joey's marginal cost of cutting grass will

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

In the short run,the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

If the marginal rate of technical substitution for a cost minimizing firm is 10,and the wage rate for labor is $5,what is the rental rate for capital in dollars?

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

The long run average cost curve may initially slope downward due to

If a particular production process is subject to diminishing marginal returns to labor at every level of output,then at every level of output

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

If an isocost line crosses the isoquant twice,a cost minimizing firm will

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

The total cost of producing one unit is $50.The total cost of producing two units is $75.At a production level of two units,the cost function exhibits

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

A firm pays $5 for each unit of capital.Labor costs $5 per hour for the first 10 hours and $10 per hour for every hour thereafter.Draw the isocost curves for total costs of $50 and $100.

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

Consider a general cost function C(q),with Average Cost=C(q)/q.Prove using calculus that the quantity which minimizes the Average Cost function is also at the point where the Marginal Cost equals the Average Cost.To do this,first derive the necessary condition for the AC to be at a minimum.

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

Ed's construction company has the following short-run cost function: q3 - 10q2 + 36q. a.What level of output will minimize the average cost? What is the AC at this point? b.Does the production process indicate diminishing returns? How can you tell?

If the marginal cost of producing a good is increasing as a firm produces more of the good,then which of the following must be TRUE?

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 opportunity cost of the inventory of 16-bit chips?

When the isocost line is tangent to the isoquant,then

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month.Joey's dad is thinking of increasing the rent to $400 per month.As a result Joey's marginal cost of cutting grass will

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

In the short run,the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

If the marginal rate of technical substitution for a cost minimizing firm is 10,and the wage rate for labor is $5,what is the rental rate for capital in dollars?

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

The long run average cost curve may initially slope downward due to

If a particular production process is subject to diminishing marginal returns to labor at every level of output,then at every level of output

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

Ed's construction company has the following short-run cost function: q³ - 10q² + 36q. a.What level of output will minimize the average cost? What is the AC at this point? b.Does the production process indicate diminishing returns? How can you tell?