Question 1

Once diminishing returns have set in,each additional unit of output:

Accepted Answer

A) requires less of the variable input than the previous unit. 
B) requires less cost outlay than the previous unit. 
C) requires more of the fixed input than the previous unit. 
D) requires more cost outlay than the previous unit. 
A) requires less of the variable input than the previous unit. 
B) requires less cost outlay than the previous unit. 
C) requires more of the fixed input than the previous unit. 
D) requires more cost outlay than the previous unit.

Question 2

Which of the following is true?

Accepted Answer

A) When average cost is decreasing,total cost must also be decreasing. 
B) When average cost is decreasing,average product of labor must be decreasing. 
C) When average cost is decreasing,marginal cost must be less than average cost. 
D) When average cost is decreasing,output must be decreasing. 
A) When average cost is decreasing,total cost must also be decreasing. 
B) When average cost is decreasing,average product of labor must be decreasing. 
C) When average cost is decreasing,marginal cost must be less than average cost. 
D) When average cost is decreasing,output must be decreasing.

Question 3

Which of the following is true?

Accepted Answer

A) Diseconomies of scale imply increasing returns to scale. 
B) Increasing returns to scale implies diseconomies of scale. 
C) Increasing returns to scale implies economies of scale. 
D) Economies of scale imply increasing returns to scale. 
A) Diseconomies of scale imply increasing returns to scale. 
B) Increasing returns to scale implies diseconomies of scale. 
C) Increasing returns to scale implies economies of scale. 
D) Economies of scale imply increasing returns to scale.

Question 4

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

Accepted Answer

A) The firm's average cost curve will shift upward. 
B) The firm's marginal cost curve will shift downward. 
C) To produce the same level of output,the firm would need more capital. 
D) The firm's total cost of production will increase. 
A) The firm's average cost curve will shift upward. 
B) The firm's marginal cost curve will shift downward. 
C) To produce the same level of output,the firm would need more capital. 
D) The firm's total cost of production will increase.

Question 5

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 10,000 units are produced?

Accepted Answer

A) $0.20 
B) $2.00 
C) $5.00 
D) $1.00 
A) $0.20 
B) $2.00 
C) $5.00 
D) $1.00

Question 6

Which of the following is true of the expansion path?

Accepted Answer

A) It always slopes upward. 
B) It slopes upward as long as input prices are constant. 
C) It slopes upward as long as the firm uses more of both inputs as output increases. 
D) It is always linear,but not necessarily upward-sloping. 
A) It always slopes upward. 
B) It slopes upward as long as input prices are constant. 
C) It slopes upward as long as the firm uses more of both inputs as output increases. 
D) It is always linear,but not necessarily upward-sloping.

Question 7

Use the following figure to answer the question : figure 8-1: shows the curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm.
 
-Which of the following is true at the output level BT?

Accepted Answer

A) The firm's fixed cost is RT. 
B) The firm's average variable cost is RT/BT. 
C) The firm's marginal cost is RT/RB. 
D) The firm's variable cost is AB 
A) The firm's fixed cost is RT. 
B) The firm's average variable cost is RT/BT. 
C) The firm's marginal cost is RT/RB. 
D) The firm's variable cost is AB

Question 8

Suppose you quit your job as an accountant earning an annual salary of $50,000 to buy foreclosed homes,fix them up,and then resell them.You have $200,000 of your own money to invest in this,half of which you use to purchase three homes for a combined $500,000 (borrowing the remaining $400,000),and spend the remaining $100,000 of your money on materials.Over the course of one year you fix up all three homes and resell them for a total of $700,000.Assume that your loan to purchase the homes is payable in one lump sum at the end of one year.If you can borrow and lend money at a 6% annual rate of interest,what was your total cost of renovating these three homes?

Accepted Answer

A) $572,000 
B) $600,000 
C) $624,000 
D) $686,000 
A) $572,000 
B) $600,000 
C) $624,000 
D) $686,000

Question 9

Which of the following statements about the relationship between marginal cost and average cost is correct?

Accepted Answer

A) When MC is falling,AC is rising. 
B) AC equals MC at MC's lowest point. 
C) When MC exceeds AC,AC must be rising. 
D) When AC exceeds MC,MC must be rising. 
A) When MC is falling,AC is rising. 
B) AC equals MC at MC's lowest point. 
C) When MC exceeds AC,AC must be rising. 
D) When AC exceeds MC,MC must be rising.

Question 10

Suppose labor is on the horizontal axis and capital on the vertical axis.If the total cost is defined by the equation TC = $400 + $15L + $10K,the slope of the isocost curve is:

Accepted Answer

A) -0.667 
B) -1.5 
C) -8 
D) -40 
A) -0.667 
B) -1.5 
C) -8 
D) -40

Question 11

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is average fixed cost?

Accepted Answer

A) $1 
B) $5 
C) $10 
D) $1,000 
A) $1 
B) $5 
C) $10 
D) $1,000

Question 12

At 20 units of output,the slope of a firm's average cost curve is recorded as +1.5.Calculate the firm's average cost at this output level if its marginal cost is $300.

Accepted Answer

A) $270 
B) $300 
C) $230 
D) $200 
A) $270 
B) $300 
C) $230 
D) $200

Question 13

When output expands from the fourth to the fifth unit,the total variable cost of production rises from $400 to $500,while the total fixed cost remains constant at $100.Compute the marginal cost of producing the fifth unit.

Accepted Answer

A) $50 
B) $200 
C) $400 
D) $100 
A) $50 
B) $200 
C) $400 
D) $100

Question 14

Use the following figure to answer the question : figure 8-1: shows the 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?

Accepted Answer

A) SR 
B) ST 
C) RT 
D) AB 
A) SR 
B) ST 
C) RT 
D) AB

Question 15

Using an isoquant and isocost curves,with labor on the horizontal axis and capital on the vertical axis,
a)show a firm's efficient combination of capital and labor needed to produce 100 television sets per day.(You may use abstract quantities such as K1 and L1 or actual numbers. )
b)Is this the least cost means of producing this level of output? Explain.
c)Next,using a dashed line,on the same graph draw the change that would occur in the long run if the cost of labor were to rise relative to the cost of capital and the firm's output were to remain fixed at 100 television sets per day.
d)Now,suppose that before the price change took effect,labor in this industry had succeeded in protecting against job loss by forbidding firms from getting rid of labor and substituting it with capital.Draw the new isocost curve assuming the company still wishes to produce 100 television sets each day.
e)Is labor made better off in the long run as a result of this labor saving campaign? Explain.

Accepted Answer

a) @#IMG-DLM&_TB1826_00 At isocost₁ and Q=100,the

Question 16

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:

Accepted Answer

A) quit selling subs since his average total cost of selling subs is greater than the $3.50 price he would now have to charge. 
B) sell subs for $3.50 each,considering the $20,000 to be a sunk cost and ignoring it. 
C) sell subs as long the price he receives exceeds his average fixed costs of selling subs. 
D) lower his price to $5 to cover his average total cost of selling subs. 
A) quit selling subs since his average total cost of selling subs is greater than the $3.50 price he would now have to charge. 
B) sell subs for $3.50 each,considering the $20,000 to be a sunk cost and ignoring it. 
C) sell subs as long the price he receives exceeds his average fixed costs of selling subs. 
D) lower his price to $5 to cover his average total cost of selling subs.

Question 17

The minimum efficient scale is:

Accepted Answer

A) the level of output at which average cost per unit is smallest. 
B) the scale of operations at which marginal cost is minimized. 
C) the scale of operations at which average fixed cost per unit is minimized. 
D) the level of output at which total cost is minimized. 
A) the level of output at which average cost per unit is smallest. 
B) the scale of operations at which marginal cost is minimized. 
C) the scale of operations at which average fixed cost per unit is minimized. 
D) the level of output at which total cost is minimized.

Question 18

If total cost rises as the level of output produced increases,then:

Accepted Answer

A) marginal cost must be rising. 
B) marginal cost must be constant. 
C) marginal cost must be falling. 
D) marginal cost must be positive. 
A) marginal cost must be rising. 
B) marginal cost must be constant. 
C) marginal cost must be falling. 
D) marginal cost must be positive.

Question 19

Economic analysis suggests that if the marginal cost of pollution abatement differs for two firms,the least cost pollution abatement strategy would require:

Accepted Answer

A) that both firms are limited to the same total pollution. 
B) that the firms engage in different levels of pollution abatement but incur the same marginal cost of abatement. 
C) that the firms engage in different levels of pollution abatement as long as they incur different marginal costs. 
D) that the firms engage in different levels of pollution abatement but incur the same opportunity cost. 
A) that both firms are limited to the same total pollution. 
B) that the firms engage in different levels of pollution abatement but incur the same marginal cost of abatement. 
C) that the firms engage in different levels of pollution abatement as long as they incur different marginal costs. 
D) that the firms engage in different levels of pollution abatement but incur the same opportunity cost.

Question 20

For the cubic total cost function TC = a + bQ + cQ2 + dQ3,where a = 0,b = 25,c = -10,and d = 1,the firm's average variable cost is minimized at an output of:

Accepted Answer

A) ten. 
B) five. 
C) two. 
D) one. 
A) ten. 
B) five. 
C) two. 
D) one.

Once diminishing returns have set in,each additional unit of output:

Which of the following is true?

Which of the following is true?

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

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 10,000 units are produced?

Which of the following is true of the expansion path?

Use the following figure to answer the question : figure 8-1: shows the curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm. -Which of the following is true at the output level BT?

Which of the following statements about the relationship between marginal cost and average cost is correct?

Suppose labor is on the horizontal axis and capital on the vertical axis.If the total cost is defined by the equation TC = $400 + $15L + $10K,the slope of the isocost curve is:

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is average fixed cost?

At 20 units of output,the slope of a firm's average cost curve is recorded as +1.5.Calculate the firm's average cost at this output level if its marginal cost is $300.

When output expands from the fourth to the fifth unit,the total variable cost of production rises from $400 to $500,while the total fixed cost remains constant at $100.Compute the marginal cost of producing the fifth unit.

Use the following figure to answer the question : figure 8-1: shows the 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?

The minimum efficient scale is:

If total cost rises as the level of output produced increases,then:

Economic analysis suggests that if the marginal cost of pollution abatement differs for two firms,the least cost pollution abatement strategy would require:

For the cubic total cost function TC = a + bQ + cQ² + dQ³,where a = 0,b = 25,c = -10,and d = 1,the firm's average variable cost is minimized at an output of:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

Exam 8: The Cost of Production

Once diminishing returns have set in,each additional unit of output:

Which of the following is true?

Which of the following is true?

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

If fixed costs are $10,000 and variable costs are constant at $1.00 per unit over the relevant range of output,what will the average total cost be when 10,000 units are produced?

Which of the following is true of the expansion path?

Use the following figure to answer the question : figure 8-1: shows the curves F,C,and G denote the total cost,the total variable cost,and the total fixed cost of a firm. -Which of the following is true at the output level BT?

Which of the following statements about the relationship between marginal cost and average cost is correct?

Suppose labor is on the horizontal axis and capital on the vertical axis.If the total cost is defined by the equation TC = $400 + $15L + $10K,the slope of the isocost curve is:

If total fixed costs are $1,000,variable costs are constant at $5.00 per unit over the relevant range of output and average total cost is $6,what is average fixed cost?

At 20 units of output,the slope of a firm's average cost curve is recorded as +1.5.Calculate the firm's average cost at this output level if its marginal cost is $300.

When output expands from the fourth to the fifth unit,the total variable cost of production rises from $400 to $500,while the total fixed cost remains constant at $100.Compute the marginal cost of producing the fifth unit.

Use the following figure to answer the question : figure 8-1: shows the 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?

The minimum efficient scale is:

If total cost rises as the level of output produced increases,then:

Economic analysis suggests that if the marginal cost of pollution abatement differs for two firms,the least cost pollution abatement strategy would require:

For the cubic total cost function TC = a + bQ + cQ2 + dQ3,where a = 0,b = 25,c = -10,and d = 1,the firm's average variable cost is minimized at an output of:

An Introduction to Microeconomics

Supply and Demand

The Theory of Consumer Choice

Individual and Market Demand

Using Consumer Choice Theory

Exchange, Efficiency, and Prices

Production

Profit Maximization in Perfectly Competitive Markets

Using the Competitive Model

Monopoly

Product Pricing With Monopoly Power

Monopolistic Competition and Oligopoly

Game Theory and the Economics of Information

Using Noncompetitive Market Models

Employment and Pricing of Inputs

Wages, Rent, Interest, and Profit

Using Input Market Analysis

General Equilibrium Analysis and Economic Efficiency

Public Goods and Externalities

Filters

For the cubic total cost function TC = a + bQ + cQ² + dQ³,where a = 0,b = 25,c = -10,and d = 1,the firm's average variable cost is minimized at an output of: