Question 1

A firm uses labor as an input in production.In the short-run,its average cost will reach a minimum where:

Accepted Answer

A) average product of labor reaches a maximum. 
B) marginal product of labor reaches a maximum. 
C) marginal cost begins to increase. 
D) marginal cost equals average cost. 
A) average product of labor reaches a maximum. 
B) marginal product of labor reaches a maximum. 
C) marginal cost begins to increase. 
D) marginal cost equals average cost.

Question 2

Identify the example of sunk cost from the following.

Accepted Answer

A) A higher wage demanded by the labor union 
B) Failure to meet the annual sales target 
C) The lumber used to produce office furniture 
D) Raw materials damaged by fire in the warehouse 
A) A higher wage demanded by the labor union 
B) Failure to meet the annual sales target 
C) The lumber used to produce office furniture 
D) Raw materials damaged by fire in the warehouse

Question 3

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 total variable cost?

Accepted Answer

A) $100 
B) $1,000 
C) $5,000 
D) $6,000 
A) $100 
B) $1,000 
C) $5,000 
D) $6,000

Question 4

If the marginal cost curve intersects the average variable cost curve at 1,000 units per day,the rate of output at which average total cost is minimized is _____.

Accepted Answer

A) 1,000 units 
B) more than 1,000 units 
C) less than 500 units 
D) 500 units 
A) 1,000 units 
B) more than 1,000 units 
C) less than 500 units 
D) 500 units

Question 5

Consider two firms A and B.Firm A notices that its total costs have declined by 10 percent each time its cumulative output has doubled.Firm B notices that its average cost of production declined by 10 percent after it increased production by 5 percent and hired 50 more workers to work with its existing unused equipments.Explain graphically whether the experiences of these two firms will have similar implications on the long run average cost of production.

Accepted Answer

Improvements in productivity resulting f

Question 6

Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour.If the
Marginal product of labor is 60 and the marginal product of capital 10,the profit maximizing firm should:

Accepted Answer

A) hire more labor and less capital. 
B) utilize more capital and less labor. 
C) maintain its current input mix of capital and labor. 
D) employ more of both capital and labor. 
A) hire more labor and less capital. 
B) utilize more capital and less labor. 
C) maintain its current input mix of capital and labor. 
D) employ more of both capital and labor.

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.
 
-In Figure 8-1,R identifies the point:

Accepted Answer

A) of inflection. 
B) where AVC reaches a minimum. 
C) where MC reaches a minimum. 
D) where diminishing marginal returns set in. 
A) of inflection. 
B) where AVC reaches a minimum. 
C) where MC reaches a minimum. 
D) where diminishing marginal returns set in.

Question 8

Which of the following is correct?

Accepted Answer

A) Total Fixed Cost = Total Cost + Total Variable Cost 
B) Total Cost = Total Variable Cost + Marginal Cost 
C) Average Fixed Cost = Average Total Cost - Average Variable Cost 
D) Average Total Cost = Marginal Cost + Average Fixed Cost 
A) Total Fixed Cost = Total Cost + Total Variable Cost 
B) Total Cost = Total Variable Cost + Marginal Cost 
C) Average Fixed Cost = Average Total Cost - Average Variable Cost 
D) Average Total Cost = Marginal Cost + Average Fixed Cost

Question 9

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:

Accepted Answer

A) economies of scale. 
B) economies of scope. 
C) learning by doing. 
D) the familiarity index. 
A) economies of scale. 
B) economies of scope. 
C) learning by doing. 
D) the familiarity index.

Question 10

Answer the following:
a)Consider a firm which produces baseball bats using wood and workers.On a graph with capital (wood)on the vertical axis and labor (workers)on the horizontal axis,draw an isoquant and isocost line such that the firm is minimizing the total cost of producing Q1 baseball bats.Let this initial point be profit-maximizing.
b)Suppose forest fires cause the price of wood to rise.Trace the effects of this change on the firm's optimal combination of inputs.Will they now produce more or less than Q1 bats? Why?

Accepted Answer

a)Let the price of wood be r and the pri

Question 11

Suppose a firm that uses labor and capital as the only inputs in production is currently on the long-run expansion path.The marginal product of labor and capital at this least cost combination are 60 units and 80 units respectively and the wage rate of labor is $6.Calculate the rental cost of capital borne by the firm.

Accepted Answer

A) $10 
B) $8 
C) $5 
D) $12 
A) $10 
B) $8 
C) $5 
D) $12

Question 12

The possibility of learning by doing ensures:

Accepted Answer

A) equal profits for all firms in an industry. 
B) uniform price for a product. 
C) lower production costs to a pioneering firm. 
D) lower production costs to a market entrant. 
A) equal profits for all firms in an industry. 
B) uniform price for a product. 
C) lower production costs to a pioneering firm. 
D) lower production costs to a market entrant.

Question 13

Which of the following can be classified as an implicit cost of production?

Accepted Answer

A) The cost of raw materials 
B) Rent forgone on the office building 
C) Interest paid on debt 
D) Salary paid to workers 
A) The cost of raw materials 
B) Rent forgone on the office building 
C) Interest paid on debt 
D) Salary paid to workers

Question 14

Increasing returns to scale imply that:

Accepted Answer

A) average costs are constant. 
B) average costs are falling. 
C) average costs are increasing. 
D) average costs are negative. 
A) average costs are constant. 
B) average costs are falling. 
C) average costs are increasing. 
D) average costs are negative.

Question 15

Which of the following is guaranteed by increasing returns to scale in production experienced in the long run?

Accepted Answer

A) Negative marginal costs 
B) Zero average costs 
C) Declining average costs 
D) Rising marginal costs 
A) Negative marginal costs 
B) Zero average costs 
C) Declining average costs 
D) Rising marginal costs

Question 16

The rule of cost minimization indicates that a firm should:

Accepted Answer

A) employ inputs so as to maximize output. 
B) employ inputs such that the marginal product per dollar spent is equal for all inputs. 
C) minimize total costs. 
D) minimize marginal costs. 
A) employ inputs so as to maximize output. 
B) employ inputs such that the marginal product per dollar spent is equal for all inputs. 
C) minimize total costs. 
D) minimize marginal costs.

Question 17

Total fixed cost is the same regardless of:

Accepted Answer

A) how many new machines a firm purchases. 
B) how many facilities a firm shuts down. 
C) how much new capital a firm rents. 
D) how much output the firm produces. 
A) how many new machines a firm purchases. 
B) how many facilities a firm shuts down. 
C) how much new capital a firm rents. 
D) how much output the firm produces.

Question 18

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?

Accepted Answer

A) $15,000 
B) $7,000 
C) $5,500 
D) $6,000 
A) $15,000 
B) $7,000 
C) $5,500 
D) $6,000

Question 19

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what is marginal cost when 1 unit of output is produced?

Accepted Answer

A) $0 
B) $0.50 
C) $1 
D) $2 
A) $0 
B) $0.50 
C) $1 
D) $2

Question 20

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?

Accepted Answer

A) The $300,000 is a sunk cost and should be ignored when negotiating a price for the home. 
B) The $300,000 is the builder's opportunity cost and he should not accept any offer below that. 
C) He should advertise more heavily in an attempt to sell the home for at least $300,000. 
D) He should raise the price even further to better reflect the additional opportunity costs of his time and capital expenditures. 
A) The $300,000 is a sunk cost and should be ignored when negotiating a price for the home. 
B) The $300,000 is the builder's opportunity cost and he should not accept any offer below that. 
C) He should advertise more heavily in an attempt to sell the home for at least $300,000. 
D) He should raise the price even further to better reflect the additional opportunity costs of his time and capital expenditures.

A firm uses labor as an input in production.In the short-run,its average cost will reach a minimum where:

Identify the example of sunk cost from the following.

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 total variable cost?

If the marginal cost curve intersects the average variable cost curve at 1,000 units per day,the rate of output at which average total cost is minimized is _____.

Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour.If the Marginal product of labor is 60 and the marginal product of capital 10,the profit maximizing firm should:

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,R identifies the point:

Which of the following 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:

The possibility of learning by doing ensures:

Which of the following can be classified as an implicit cost of production?

Increasing returns to scale imply that:

Which of the following is guaranteed by increasing returns to scale in production experienced in the long run?

The rule of cost minimization indicates that a firm should:

Total fixed cost is the same regardless of:

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what is marginal cost when 1 unit of output is produced?

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

A firm uses labor as an input in production.In the short-run,its average cost will reach a minimum where:

Identify the example of sunk cost from the following.

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 total variable cost?

If the marginal cost curve intersects the average variable cost curve at 1,000 units per day,the rate of output at which average total cost is minimized is _____.

Suppose the wage rate is $15 per hour and the rental rate of capital is $10 per hour.If the Marginal product of labor is 60 and the marginal product of capital 10,the profit maximizing firm should:

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,R identifies the point:

Which of the following 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:

The possibility of learning by doing ensures:

Which of the following can be classified as an implicit cost of production?

Increasing returns to scale imply that:

Which of the following is guaranteed by increasing returns to scale in production experienced in the long run?

The rule of cost minimization indicates that a firm should:

Total fixed cost is the same regardless of:

If there are no fixed costs and variable costs are constant at $1.00 per unit over the relevant range of output,what is marginal cost when 1 unit of output is produced?

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