Question 1

Given the following table, how many workers should be hired to maximize profits?

Accepted Answer

A)  1 
B)  2 
C)  3 
D)  4 
A)  1 
B)  2 
C)  3 
D)  4

Question 2

The marginal product of an input is defined as the change in:

Accepted Answer

A)  average output attributable to the last unit of an input. 
B)  total output attributable to the last unit of an input. 
C)  total input attributable to the last unit of an output. 
D)  average output attributable to the last unit of an output. 
A)  average output attributable to the last unit of an input. 
B)  total output attributable to the last unit of an input. 
C)  total input attributable to the last unit of an output. 
D)  average output attributable to the last unit of an output.

Question 3

Suppose that production for good X is characterized by the following production function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the variable cost of using 81 units of capital and 9 units of labor is:

Accepted Answer

A)  $2,160. 
B)  $2,025. 
C)  $135. 
D)  There is insufficient information to determine the variable costs. 
A)  $2,160. 
B)  $2,025. 
C)  $135. 
D)  There is insufficient information to determine the variable costs.

Question 4

Which of the following statements is incorrect?

Accepted Answer

A)  Fixed costs do not vary with output. 
B)  Sunk costs are those costs that are forever lost after they have been paid. 
C)  Fixed costs are always greater than sunk costs. 
D)  Fixed costs could be positive when sunk costs are zero. 
A)  Fixed costs do not vary with output. 
B)  Sunk costs are those costs that are forever lost after they have been paid. 
C)  Fixed costs are always greater than sunk costs. 
D)  Fixed costs could be positive when sunk costs are zero.

Question 5

A production function:

Accepted Answer

A)  defines the minimum amount of output that can be produced with inputs such as capital and labor. 
B)  defines the average amount of output that can be produced with inputs such as capital and labor. 
C)  represents the technology available for turning inputs into output. 
D)  is determined only by the expenditures on R&D. 
A)  defines the minimum amount of output that can be produced with inputs such as capital and labor. 
B)  defines the average amount of output that can be produced with inputs such as capital and labor. 
C)  represents the technology available for turning inputs into output. 
D)  is determined only by the expenditures on R&D.

Question 6

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm:

Accepted Answer

A)  is cost minimizing. 
B)  should use less L and more K to cost minimize. 
C)  should use more K and less L to cost minimize. 
D)  is profit maximizing but not cost minimizing. 
A)  is cost minimizing. 
B)  should use less L and more K to cost minimize. 
C)  should use more K and less L to cost minimize. 
D)  is profit maximizing but not cost minimizing.

Question 7

Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?

Accepted Answer

A)  14 
B)  10 
C)  7 
D)  5 
A)  14 
B)  10 
C)  7 
D)  5

Question 8

For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output?

Accepted Answer

A)  18.31 
B)  212.61 
C)  42.12 
D)  33.33 
A)  18.31 
B)  212.61 
C)  42.12 
D)  33.33

Question 9

For given input prices, isocosts closer to the origin are associated with:

Accepted Answer

A)  lower costs. 
B)  the same costs. 
C)  higher costs. 
D)  initially lower, then higher costs. 
A)  lower costs. 
B)  the same costs. 
C)  higher costs. 
D)  initially lower, then higher costs.

Question 10

Which of the following cost functions exhibits economies of scope over the specified output range?

Accepted Answer

A)  C(Q1, Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0 
B)  C(Q1, Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0 
C)  C(Q1, Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 2 1, Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 4 and Q2 > 4 
A)  C(Q1, Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0 
B)  C(Q1, Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0 
C)  C(Q1, Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 2 1, Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 4 and Q2 > 4

Question 11

For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output?

Accepted Answer

A)  $42 
B)  $295 
C)  $230 
D)  $116 
A)  $42 
B)  $295 
C)  $230 
D)  $116

Question 12

The point where diminishing marginal returns has begun to affect production is best characterized by the point where the:

Accepted Answer

A)  total product curve flattens out. 
B)  average product curve begins to be negatively sloped. 
C)  marginal product curve begins to be negatively sloped. 
D)  marginal product curve equals the average product curve. 
A)  total product curve flattens out. 
B)  average product curve begins to be negatively sloped. 
C)  marginal product curve begins to be negatively sloped. 
D)  marginal product curve equals the average product curve.

Question 13

The production function for good X in the table below exhibits increasing 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 14

The long run is defined as:

Accepted Answer

A)  the horizon in which the manager can adjust all factors of production. 
B)  the horizon in which there are only fixed factors of production. 
C)  the horizon in which there are both fixed and variable factors of production. 
D)  greater than one year. 
A)  the horizon in which the manager can adjust all factors of production. 
B)  the horizon in which there are only fixed factors of production. 
C)  the horizon in which there are both fixed and variable factors of production. 
D)  greater than one year.

Question 15

Suppose the production function is given by Q = min{K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

Accepted Answer

A)  0 
B)  4 
C)  9 
D)  13 
A)  0 
B)  4 
C)  9 
D)  13

Question 16

To open a new business, a manager must obtain a license from the city for $20,000. The license is transferable, but only $3,000 is refundable in the event the firm does not use the license.
a. What are the firm's fixed costs? Sunk costs?
b. Suppose the manager obtains a license but then decides against opening the business. If another firm offers the manager $2,000 for the license, should the manager accept the offer?

Accepted Answer

a. Fixed costs are $20,000. Sunk costs a

Question 17

An isocost line:

Accepted Answer

A)  represents the combinations of w and K that cost the firm the same amount of money. 
B)  represents the combinations of K and L that cost the firm the same amount of money. 
C)  represents the combinations of r and w that cost the firm the same amount of money. 
D)  has a convex shape. 
A)  represents the combinations of w and K that cost the firm the same amount of money. 
B)  represents the combinations of K and L that cost the firm the same amount of money. 
C)  represents the combinations of r and w that cost the firm the same amount of money. 
D)  has a convex shape.

Question 18

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

Accepted Answer

A)  that input's price rises. 
B)  that input's price falls. 
C)  that input's price remains the same. 
D)  the prices of other inputs fall. 
A)  that input's price rises. 
B)  that input's price falls. 
C)  that input's price remains the same. 
D)  the prices of other inputs fall.

Question 19

Inputs a manager may adjust in order to alter production are:

Accepted Answer

A)  all factors. 
B)  variable factors. 
C)  long-run factors. 
D)  fixed factors. 
A)  all factors. 
B)  variable factors. 
C)  long-run factors. 
D)  fixed factors.

Question 20

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

Accepted Answer

A)  $5 million 
B)  $500,000 
C)  $3.4 million 
D)  $1.6 million 
A)  $5 million 
B)  $500,000 
C)  $3.4 million 
D)  $1.6 million

Given the following table, how many workers should be hired to maximize profits?

The marginal product of an input is defined as the change in:

Which of the following statements is incorrect?

A production function:

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MP_L = 4, and MP_K = 40 the firm:

Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?

For the cost function C(Q) = 200 + 3Q + 8Q² + 4Q³, what is the average fixed cost of producing six units of output?

For given input prices, isocosts closer to the origin are associated with:

Which of the following cost functions exhibits economies of scope over the specified output range?

For the cost function C(Q) = 1000 + 14Q + 9Q² + 3Q³, what is the marginal cost of producing the fourth unit of output?

The point where diminishing marginal returns has begun to affect production is best characterized by the point where the:

The production function for good X in the table below exhibits increasing marginal returns to capital over what output range?

The long run is defined as:

Suppose the production function is given by Q = min{K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

An isocost line:

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

Inputs a manager may adjust in order to alter production are:

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

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

Exam 5: The Production Process and Costs

Given the following table, how many workers should be hired to maximize profits?

The marginal product of an input is defined as the change in:

Which of the following statements is incorrect?

A production function:

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm:

Suppose the production function is given by Q = 4K + 6L. What is the average product of capital when 10 units of capital and 5 units of labor are employed?

For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output?

For given input prices, isocosts closer to the origin are associated with:

Which of the following cost functions exhibits economies of scope over the specified output range?

For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output?

The point where diminishing marginal returns has begun to affect production is best characterized by the point where the:

The production function for good X in the table below exhibits increasing marginal returns to capital over what output range?

The long run is defined as:

Suppose the production function is given by Q = min{K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

An isocost line:

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

Inputs a manager may adjust in order to alter production are:

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

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

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MP_L = 4, and MP_K = 40 the firm:

For the cost function C(Q) = 200 + 3Q + 8Q² + 4Q³, what is the average fixed cost of producing six units of output?

For the cost function C(Q) = 1000 + 14Q + 9Q² + 3Q³, what is the marginal cost of producing the fourth unit of output?