Question 1

In the short run,the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

Accepted Answer

A)  peaks. 
B)  bottoms out. 
C)  is upward sloping. 
D)  is downward sloping.

Question 2

Which of the following is NOT an explicit cost?

Accepted Answer

A)  $200 to hire 2 gardeners for landscaping work 
B)  $1500 to buy bricks for the driveway of your house 
C)  $25 for lunch to serve to your workers 
D)  The $100 in interest you lost by using your CD funds to pay for new pizza oven

Question 3

If the marginal rate of technical substitution for a cost minimizing firm is 10,and the wage rate for labor is $5,what is the rental rate for capital in dollars?

Accepted Answer

A)  .5 
B)  1 
C)  2 
D)  10

Question 4

Learning by doing will result in

Accepted Answer

A)  an upward sloping long-run average cost curve. 
B)  a larger long-run marginal cost than long-run average cost. 
C)  a rotation in the isocost curves. 
D)  lower long-run average costs than short-run average costs.

Question 5

The production of cigarettes is highly automated; however,a worker is required to monitor each machine.Machines and workers do not interact with one another.Given this information,there are most likely

Accepted Answer

A)  economies of scale. 
B)  economies of scope. 
C)  constant returns to scale. 
D)  increasing returns to scale.

Question 6

If there are diseconomies of scale within a given range of output,which of following is(are)TRUE?

Accepted Answer

A)  The short-run average cost curve must be upward sloping within that range of output. 
B)  The long-run average cost curve must be upward sloping within that range of output. 
C)  Long-run average cost must equal short-run average cost. 
D)  All of the above.

Question 7

Fixed costs are

Accepted Answer

A)  a production expense that does not vary with output. 
B)  a production expense that changes with the quantity of output produced. 
C)  equal to total cost divided by the units of output produced. 
D)  the amount by which a firm's cost changes if the firm produces one more unit of output.

Question 8

When a firm produces one unit,the variable cost is $3.When the firm produces two units,the variable cost is $6.What is the marginal cost associated with two units of production?

Accepted Answer

A)  $2 
B)  $0.5 
C)  $6 
D)  $3

Question 9

Suppose MPL = 0.5 ∗ (q/L)and MPₖ = 0.5 ∗ (q/K).In the long run,the firm will hire equal amounts of capital and labor

Accepted Answer

A)  all of the time. 
B)  only when w = r. 
C)  only when w = 0.5 ∗ r. 
D)  at no point in time.

Question 10

Suppose capital and labor are perfect substitutes resulting in a production function of q = K + L.That is,the isoquants are straight lines with a slope of -1.Derive the long-run total cost function TC = C(q)when the wage rate is w and the rental rate on capital is r.

Accepted Answer

The answer of Suppose capital and labor are perfect substitutes...

Question 11

You have two career options.You can work for someone else for $50,000 a year,or,you can run your own business,with an annual revenue of $100,000,and explicit costs of $40,000 annually.Explain which career option a profit-maximizer would select and why.

Accepted Answer

The answer of You have two career options.You can work...

Question 12

The total cost of producing one unit is $50.The total cost of producing two units is $75.At a production level of two units,the cost function exhibits

Accepted Answer

A)  economies of scale. 
B)  rising average costs. 
C)  increasing marginal costs. 
D)  constant returns to scale.

Question 13

Economies of scope exist between book publishing and magazine publishing if

Accepted Answer

A)  the cost of publishing a magazine is lower for book publishers than for other firms. 
B)  the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine. 
C)  the cost of publishing a book falls over time as the publisher acquires more experience. 
D)  the cost of a publishing a book is not subject to diminishing marginal returns.

Question 14

Sue is taking an accounting job she was offered that pays $67,000 per year.She also had two other offers,a sales job paying $71,000 per year and a marketing job paying $65,000 per year.What is Sue's opportunity cost of taking the accounting job?

Accepted Answer

A)  $65,000 
B)  $67,000 
C)  $71,000 
D)  $136,000

Question 15

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Accepted Answer

A)  a $5 million penalty charged to each cigarette maker 
B)  a $1 per pack tax on cigarettes 
C)  a $3 per hour wage increase 
D)  An increase in the demand for cigarettes.

Question 16

A durable good is product that

Accepted Answer

A)  holds up well under abuse. 
B)  has had the same design over a long period of time. 
C)  is purchased only once. 
D)  is usable over a long period of time.

Question 17

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q.The marginal cost of the 5th T-shirt is

Accepted Answer

A)  2. 
B)  10. 
C)  12. 
D)  60.

Question 18

Which of the following is a form of outsourcing?

Accepted Answer

A)  changing your own oil 
B)  washing your clothes 
C)  getting your fruits and vegetables from the farmers' market 
D)  studying for your economics exam

Question 19

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced.This would

Accepted Answer

A)  guarantee a decrease in profits. 
B)  guarantee an increase in profits. 
C)  guarantee an increase in tax revenues. 
D)  None of the above.

Question 20

If producing more output has increases average cost then

Accepted Answer

A)  there are diseconomies of scale. 
B)  there are economies of scope. 
C)  there are diseconomies of scope. 
D)  there are no economies of scale.

Exam 6: Costs