Question 1

When marginal cost curve is below an average cost curve, average cost is:

Accepted Answer

A)  increasing with output. 
B)  declining with output. 
C)  not varying with output. 
D)  None of the statements is correct. 
A)  increasing with output. 
B)  declining with output. 
C)  not varying with output. 
D)  None of the statements is correct.

Question 2

It is profitable to hire labor so long as the:

Accepted Answer

A)  MPL is greater than wage. 
B)  MPL is less than wage. 
C)  VMPL is less than wage. 
D)  VMPL is greater than wage. 
A)  MPL is greater than wage. 
B)  MPL is less than wage. 
C)  VMPL is less than wage. 
D)  VMPL is greater than wage.

Question 3

An accountant for a car rental company was recently asked to report the firm's costs of producing various levels of output. The accountant knows that the most recent estimate available of the firm's cost function is   where costs are measured in thousands of dollars and output is measured in thousands of hours rented.
a. What is the average fixed cost of producing 2 units of output?
b. What is the average variable cost of producing 2 units of output?
c. What is the average total cost of producing 2 units of output?
d. What is the marginal cost of producing 2 units of output?
e. What is the relation between the answers to (a), (b), and (c) above? Is this a general property of average cost curves?

Accepted Answer

a. AFC(2) = 100/2 = $50
b. AVC

Question 4

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

Accepted Answer

A)  3 
B)  4 
C)  7 
D)  45 
A)  3 
B)  4 
C)  7 
D)  45

Question 5

Costs that change as output changes are:

Accepted Answer

A)  variable costs. 
B)  fixed costs. 
C)  sunk costs. 
D)  None of the statements is correct. 
A)  variable costs. 
B)  fixed costs. 
C)  sunk costs. 
D)  None of the statements is correct.

Question 6

The manager of a national retailing outlet recently hired an economist to estimate the firm's production function. Based on the economist's report, the manager now knows that the firm's production function is given by   and that capital is fixed at 1 unit.
a. Calculate the average product of labor when 9 units of labor are utilized.
b. Calculate the marginal product of labor when 9 units of labor are utilized.
c. Suppose the firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100 per unit. Determine the profit-maximizing levels of labor and output.
d. What is the maximum price of capital at which the firm will still make nonnegative profits?

Accepted Answer

a. Q = (1)^1/2(9)^1/2 = 3. The average product o

Question 7

The production function in the table below exhibits decreasing marginal returns to capital over what output range?

Accepted Answer

A)  Between 0 and 1,524 
B)  Between 0 and 2,991 
C)  Between 2,391 and 3,048 
D)  Between 3,016 and 2,945 
A)  Between 0 and 1,524 
B)  Between 0 and 2,991 
C)  Between 2,391 and 3,048 
D)  Between 3,016 and 2,945

Question 8

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?

Accepted Answer

A)  3 
B)  4 
C)  11 
D)  45 
A)  3 
B)  4 
C)  11 
D)  45

Question 9

The combinations of inputs that produce a given level of output are depicted by:

Accepted Answer

A)  indifference curves. 
B)  budget lines. 
C)  isocost curves. 
D)  isoquants. 
A)  indifference curves. 
B)  budget lines. 
C)  isocost curves. 
D)  isoquants.

Question 10

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

Accepted Answer

A)  more capital and less labor. 
B)  more labor and less capital. 
C)  three times more capital than labor. 
D)  none of the answers are correct. 
A)  more capital and less labor. 
B)  more labor and less capital. 
C)  three times more capital than labor. 
D)  none of the answers are correct.

Question 11

Average fixed cost:

Accepted Answer

A)  initially declines, reaches a minimum, and then begins to increase as output increases. 
B)  increases continuously as output increases. 
C)  declines continuously as output is expanded. 
D)  keeps constant as output is expanded. 
A)  initially declines, reaches a minimum, and then begins to increase as output increases. 
B)  increases continuously as output increases. 
C)  declines continuously as output is expanded. 
D)  keeps constant as output is expanded.

Question 12

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the marginal cost of producing 10 units?

Accepted Answer

A)  $401 
B)  $1,060 
C)  $560 
D)  $1,010 
A)  $401 
B)  $1,060 
C)  $560 
D)  $1,010

Question 13

If a firm is operating on the production function, then workers:

Accepted Answer

A)  must be putting forth maximal effort. 
B)  may not be putting forth maximal effort. 
C)  are usually putting forth average effort. 
D)  are usually putting forth minimal effort. 
A)  must be putting forth maximal effort. 
B)  may not be putting forth maximal effort. 
C)  are usually putting forth average effort. 
D)  are usually putting forth minimal effort.

Question 14

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?

Accepted Answer

A)  Economies of scale 
B)  Diminishing average fixed costs 
C)  Cost complementarity 
D)  Economies of scope 
A)  Economies of scale 
B)  Diminishing average fixed costs 
C)  Cost complementarity 
D)  Economies of scope

Question 15

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the variable cost of producing 10 units?

Accepted Answer

A)  $401 
B)  $1,060 
C)  $560 
D)  $1,010 
A)  $401 
B)  $1,060 
C)  $560 
D)  $1,010

Question 16

The maker of Turbotax produces software that prepares federal income tax returns. In addition, it produces software that prepares various state income tax returns. Why doesn't it pay for the firm to specialize in federal software?

Accepted Answer

There are cost complementarities and eco

Question 17

Two firms producing identical products may merge due to the existence of:

Accepted Answer

A)  economies of scope. 
B)  economies of scale. 
C)  cost complementarities. 
D)  All of the statements are correct. 
A)  economies of scope. 
B)  economies of scale. 
C)  cost complementarities. 
D)  All of the statements are correct.

Question 18

In the short run, the marginal cost curve crosses the average total cost curve at:

Accepted Answer

A)  a point just below the average fixed cost curve. 
B)  the minimum point of the average total cost curve. 
C)  the maximum point of the average total cost curve. 
D)  the point where the average total cost curve and average variable cost curve intersect. 
A)  a point just below the average fixed cost curve. 
B)  the minimum point of the average total cost curve. 
C)  the maximum point of the average total cost curve. 
D)  the point where the average total cost curve and average variable cost curve intersect.

Question 19

Variable factors of production are the inputs that a manager:

Accepted Answer

A)  may adjust in order to alter sales. 
B)  may adjust in order to alter production. 
C)  cannot adjust in the short run. 
D)  cannot adjust in the long run. 
A)  may adjust in order to alter sales. 
B)  may adjust in order to alter production. 
C)  cannot adjust in the short run. 
D)  cannot adjust in the long run.

Question 20

Congress is considering legislation that will provide additional investment tax credits to businesses. Effectively, an investment tax credit reduces the cost to firms of using capital in production. Would you expect labor unions to lobby for or against such a bill? (Hint: What impact would such a plan have on the capital-to-labor ratio at the typical firm?)

Accepted Answer

An investment tax credit would reduce th

When marginal cost curve is below an average cost curve, average cost is:

It is profitable to hire labor so long as the:

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

Costs that change as output changes are:

The production function in the table below exhibits decreasing marginal returns to capital over what output range?

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?

The combinations of inputs that produce a given level of output are depicted by:

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

Average fixed cost:

Suppose the cost function is C(Q) = 50 + Q - 10Q² + 2Q³. What is the marginal cost of producing 10 units?

If a firm is operating on the production function, then workers:

What is implied when the total cost of producing Q₁ and Q₂ together is less than the total cost of producing Q₁ and Q₂ separately?

Suppose the cost function is C(Q) = 50 + Q - 10Q² + 2Q³. What is the variable cost of producing 10 units?

The maker of Turbotax produces software that prepares federal income tax returns. In addition, it produces software that prepares various state income tax returns. Why doesn't it pay for the firm to specialize in federal software?

Two firms producing identical products may merge due to the existence of:

In the short run, the marginal cost curve crosses the average total cost curve at:

Variable factors of production are the inputs that a manager:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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Exam 5: The Production Process and Costs

When marginal cost curve is below an average cost curve, average cost is:

It is profitable to hire labor so long as the:

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

Costs that change as output changes are:

The production function in the table below exhibits decreasing marginal returns to capital over what output range?

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?

The combinations of inputs that produce a given level of output are depicted by:

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

Average fixed cost:

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the marginal cost of producing 10 units?

If a firm is operating on the production function, then workers:

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately?

Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. What is the variable cost of producing 10 units?

The maker of Turbotax produces software that prepares federal income tax returns. In addition, it produces software that prepares various state income tax returns. Why doesn't it pay for the firm to specialize in federal software?

Two firms producing identical products may merge due to the existence of:

In the short run, the marginal cost curve crosses the average total cost curve at:

Variable factors of production are the inputs that a manager:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

Quantitative Demand Analysis

The Theory of Individual Behavior

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

Suppose the cost function is C(Q) = 50 + Q - 10Q² + 2Q³. What is the marginal cost of producing 10 units?

What is implied when the total cost of producing Q₁ and Q₂ together is less than the total cost of producing Q₁ and Q₂ separately?

Suppose the cost function is C(Q) = 50 + Q - 10Q² + 2Q³. What is the variable cost of producing 10 units?