Exam 8: The Cost of Production

A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets.Labor costs $10 per unit and capital $5 per unit.For the quantities of inputs employed,MP_L = 2 and MP_K = 5.In this situation,the firm:

Identify the correct statement.

Consider a firm that uses labor and capital as the only inputs.Suppose labor is on the horizontal axis and capital is on the vertical axis.Further,the expansion path has shifted down and average cost curves have shifted up.Which of following provides the most likely explanation for what has happened?

Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he finishes building it.After spending six months and $300,000 in acquiring the land and constructing the house,market conditions change and the builder fails to find a buyer willing to pay his asking price of $360,000.The builder further realizes that by investing $300,000 in a bank deposit he would have been able to earn $4,500 as interest.Which of the following is the economically efficient way for the builder to view his investment?

The minimum efficient scale is:

In the figure given below,curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm. -Refer to Figure 8-1.Which of the following is true at the output level BT?

Average fixed cost [AFC] is the:

Explain why the long-run average cost curve is usually U-shaped although all inputs are variable in the long run?

Which of the following is true of learning by doing?

Which of the following statements about marginal cost is correct?

Some firms can attain lower production costs through their cumulative production experience.The average cost curve of such firms shift downward with each successive bulk increase in total production.The situation described above refers to:

Suppose a firm is using two inputs,labor and capital.What will happen if the price of labor falls?

For the total variable cost (TVC)curve below,draw a total cost curve and a positive total fixed cost (TFC)curve.Then derive the associated marginal cost (MC),average total cost (ATC),average variable (AVC),and average fixed cost (AFC)curves.Explain the appropriate relationships among the curves.

Ben decides to expand his ice cream store so he can begin selling sub sandwiches.He spends $20,000 in preparing his new sandwich shop.His marginal cost of selling sub sandwiches is $3 and he estimates that he can sell 10,000 subs for $6 each.He soon learns of a nearby store that is now selling identical subs for $3.50 each.Ben should:

In the short-run,diminishing marginal returns are associated with:

In the figure given below,curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm. -In Figure 8-1,R identifies the point:

Which of the following is correct?

The monetary cost of the space a restaurant rents to produce meals can be categorized as a:

Jane Doe has her own law practice.She pays $1,500 in rent for her offices per month.She also pays $4,000 a month in salaries to secretaries and staff,utility bills worth $500 a month,and miscellaneous bills worth $1,000 a month.She recently received an offer to work for a legal firm for $8,000 a month,but she declined that in order to run her own practice.Which of the following most completely describes the cost Jane incurs per month to run her own practice?

In the figure given below,curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm. -In Figure 8-1,which of the following distances represent the total cost of producing BT units of output?