Question 1

Short-run average cost exceeds long-run average cost only when there are economies of scale.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will cause the marginal 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 million advertising campaign by the American Cancer Society 
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 million advertising campaign by the American Cancer Society 
D) All of the above

Question 3

A change in relative factor prices will always result in

Accepted Answer

A) a change in the slope of the isoquants. 
B) a tangency between the new isocost line and a new isoquant. 
C) a rotation of the isocost lines. 
D) All of the above. 
A) a change in the slope of the isoquants. 
B) a tangency between the new isocost line and a new isoquant. 
C) a rotation of the isocost lines. 
D) All of the above.

Question 4

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

Accepted Answer

A) $2 
B) $1 
C) $0.50 
D) $0.20 
A) $2 
B) $1 
C) $0.50 
D) $0.20

Question 5

If increasing returns to scale are present,the long-run average cost increases as more output is produced.

Accepted Answer

A) True 
 B)False

Question 6

When the isocost line is tangent to the isoquant,then

Accepted Answer

A) MRTS = w/r. 
B) the firm is producing that level of output at minimum cost. 
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor. 
D) All of the above. 
A) MRTS = w/r. 
B) the firm is producing that level of output at minimum cost. 
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor. 
D) All of the above.

Question 7

A firm observes that in order to minimize the average cost,it must produce 25,000 units of output.Suppose the government imposes a specific tax on the output of the firm.Will the output level required to minimize the average cost increase,decrease,stay the same or is it uncertain? Can you tell how much the minimum average cost will change by? Explain.

Accepted Answer

The specific tax results in a parallel v

Question 8

Suppose a firm can only vary the quantity of labor hired in the short run.An increase in the cost of capital will

Accepted Answer

A) increase the firm's marginal cost. 
B) decrease the firm's marginal cost. 
C) have no effect on the firm's marginal cost. 
D) More information is needed to answer the question. 
A) increase the firm's marginal cost. 
B) decrease the firm's marginal cost. 
C) have no effect on the firm's marginal cost. 
D) More information is needed to answer the question.

Question 9

Economies of scope exist between book publishing and magazine publishing if

Accepted Answer

A) the cost of publishing a magazine is lower for book publishers than for other firms. 
B) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. 
C) the cost of publishing a book falls over time as the publisher acquires more experience. 
D) the cost of a publishing a book is not subject to diminishing marginal returns. 
A) the cost of publishing a magazine is lower for book publishers than for other firms. 
B) the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. 
C) the cost of publishing a book falls over time as the publisher acquires more experience. 
D) the cost of a publishing a book is not subject to diminishing marginal returns.

Question 10

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 11

Suppose firm has a constant marginal product of labor - one additional worker adds four units of output given any initial quantity of workers.What do the average variable and marginal costs look like for this firm? Provide a graph of the MC and AVC.

Accepted Answer

MC = w/MP

Question 12

Fixed 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 13

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be TRUE?

Accepted Answer

A) a = b 
B) a + b = -c 
C) c = 0 
D) a = -b 
A) a = b 
B) a + b = -c 
C) c = 0 
D) a = -b

Question 14

If the wage rate paid to one form of labor is twice the cost of another form of labor,the first type of labor must be twice as productive.

Accepted Answer

A) True 
 B)False

Question 15

The slope of the isoquant tells the firm how much

Accepted Answer

A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor. 
A) output increases when labor increases by one unit. 
B) output increases when capital and labor are doubled. 
C) capital must decrease to keep output constant when labor increases by one unit. 
D) a unit of capital costs relative to the cost of labor.

Question 16

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

Accepted Answer

A) the opportunity cost of this endeavor. 
B) a sunk cost. 
C) an expense. 
D) a variable cost. 
A) the opportunity cost of this endeavor. 
B) a sunk cost. 
C) an expense. 
D) a variable cost.

Question 17

Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

Accepted Answer

A) True 
 B)False

Question 18

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q.The average cost of the 5th T-shirt is

Accepted Answer

A) 2. 
B) 12. 
C) 52. 
D) 60. 
A) 2. 
B) 12. 
C) 52. 
D) 60.

Question 19

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 20

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If there are diseconomies of scope,then which of the following must be TRUE?

Accepted Answer

A) a = b B) a + b = -c C) c > 0 D) c < 0 A) a = b B) a + b = -c C) c > 0 D) c < 0

Short-run average cost exceeds long-run average cost only when there are economies of scale.

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

A change in relative factor prices will always result in

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

If increasing returns to scale are present,the long-run average cost increases as more output is produced.

When the isocost line is tangent to the isoquant,then

Suppose a firm can only vary the quantity of labor hired in the short run.An increase in the cost of capital will

Economies of scope exist between book publishing and magazine publishing if

The slope of the isocost line tells the firm how much

Suppose firm has a constant marginal product of labor - one additional worker adds four units of output given any initial quantity of workers.What do the average variable and marginal costs look like for this firm? Provide a graph of the MC and AVC.

Fixed costs are

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be TRUE?

If the wage rate paid to one form of labor is twice the cost of another form of labor,the first type of labor must be twice as productive.

The slope of the isoquant tells the firm how much

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q.The average cost of the 5th T-shirt is

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

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If there are diseconomies of scope,then which of the following must be TRUE?

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

Short-run average cost exceeds long-run average cost only when there are economies of scale.

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

A change in relative factor prices will always result in

When a firm produces 1000 widgets with total cost of $2000 and fixed cost of $1000,what is the average variable cost?

If increasing returns to scale are present,the long-run average cost increases as more output is produced.

When the isocost line is tangent to the isoquant,then

Suppose a firm can only vary the quantity of labor hired in the short run.An increase in the cost of capital will

Economies of scope exist between book publishing and magazine publishing if

The slope of the isocost line tells the firm how much

Suppose firm has a constant marginal product of labor - one additional worker adds four units of output given any initial quantity of workers.What do the average variable and marginal costs look like for this firm? Provide a graph of the MC and AVC.

Fixed costs are

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If the measure of economies of scope,SC,is zero,then which of the following must be TRUE?

If the wage rate paid to one form of labor is twice the cost of another form of labor,the first type of labor must be twice as productive.

The slope of the isoquant tells the firm how much

Johnny has worked as a CPA for five years and wants to open his own public accounting practice.The cost of his college degree in accounting represents

Economies of scale and Increasing Returns to Scale are the same thing looked at from either the production or cost perspective.

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q.The average cost of the 5th T-shirt is

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

Suppose the cost of producing two goods,x and y,can be represented as C = ax + by + cxy.If there are diseconomies of scope,then which of the following must be TRUE?

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