INTERMEDIATE MICRO EXAM #2

The firm's profit is represented by what area?

ABCD

Which area represents producer surplus?

ABCDE

What is the average product of 20 workers?

1.1 units of output

What is the marginal product of the 25th worker?

1.6 units of output

Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long run production function is Q= F(L,K) = 5√L√K. If the firm has 100 units of capital, what is the short run production function?

Q=F(L)=50√L

Suppose a firm has a weekly cost function of C(Q) = 8Q+(Q^2/100) and a marginal cost function of (Q/50), What is the efficient scale of production, and what is the minimum average cost?

Qd = 0; AC = $8

Suppose a firm's short run production function is given by Q = F(L) = 4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's VARIABLE COST function is?

VC(Q)=$3Q

If Q represents a firm's level of output, W represents the wage paid to labor (L) and R is the cost of capital (K), then which of the following represents the firm's isocost line?

WL + RK

If marginal cost is _________ average cost, then average cost will __________

greater than; increase

Suppose MPL = 100 and MPK = 80. If W = 25 and R = 20, then a firm:

is producing its output at the lowest possible cost

As any firm with decreasing returns to scale increases its output:

its average cost of production must RISE.

Suppose MPL = 200 and MPK = 240. If R = 30 then at which of the following wages would the firm want to hire a fewer workers and more capital?

w = 26

Which graph represents decreasing returns to scale?

C

What is the average cost of a sandwich at the quantity of sandwiches Jessica should be selling each day?

$3.75

Suppose a firm has a Cobb-Douglas weekly production Q = F(L,K) = 25L^0.5 K^0.5, where L is the number of workers and K is units of capital. MRTSLK is K/L. The wage rate is $900 per week, and a unit of capital costs $400 per week. Assuming no fixed costs, what is the firm's total cost of production if it uses least-cost input, combination to produce 675 units of output?

$32,400

What is marginal cost when output is 200 units?

$9

The slope of an isocost line is equal to

- (wage rate / rental rate of capital)

A price-taking firm's variable cost function is C = Q3, where Q is the output per week. It has an AVOIDABLE fixed cost of $2,000 per week. Its marginal cost is MC = 3Q2. What is the profit maximizing output if the price is P = $192?

0

Suppose a firm moves along the isoquant from point a to point b. The rate of substitution for labor with capital is

2

Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long run production function is Q= F(L,K) = 5√L√K. The firm has 100 units of capital. If the firm uses an efficient production method, how much output does it produce in the short run if it hires 25 workers?

250 units

What is the marginal product of the 3rd worker?

4 units of output

Jessica owns a company that makes pre-packages sandwiches for convenience stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily cost for making sandwiches is C(Q) = 2.5Q + (Q2/40) and her marginal cost is MC = 2.5 + (Q/20). How many sandwiches should Jessica produce each day?

50 sandwiches

A price-taking firm's variable cost function is C = Q3, where Q is the output per week. It has a SUNK fixed cost of $2,000 per week. Its marginal cost is MC = 3Q2. What is the profit-maximizing output if the price is P = $192?

8

Which graph best represents the VARIABLE COST FUNCTION?

B

If Q represents a firm's level of output. W represents the wage paid to Labor (L) and R is the cost of capitalism then which of the following represents the firm's cost function?

C(Q) = FC+VC(Q)

Suppose a firm's short run production function is given by Q = F(L) = 4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's COST FUNCTION is?

C(Q) =$300 + $3Q

Suppose a firm uses only capital and labor to produce output. When the firm doubles the amount of both inputs, output increases by less than double. This firm exhibits:

Decreasing returns to scale

The firm is producing Q units. Which area represents avoidable cost?

EDCHF

Diminishing returns set in with the _______ worker

FIFTH

A firm that is a price taker faces a perfectly _________ demand curve

HORIZONTAL

According to the Law of Diminishing Marginal Returns, as additional units of one input are equal, other inputs are held constant, total output will eventually _____________________

Increase at a decreasing rate

Suppose a firm's total cost of production is $40,000 per week, the wage rate is $1,000 per week and capital is $2,000. Which of the following gives the equation for the firm's isocost line?

K = 20 - 0.5L

Suppose a firm has a Cobb-Douglas weekly production function Q = F(L,K) = 25L^0.5K^0.5 where L is the number of workers and K is units of capital. MRTSLK is K/L. The wage rate is $900 per week, and a unit of capital costs $400 per week. What is the least-cost input combination for producing 675 units of output?

L = 18 K = 40.5

How would a $10 increase in per-unit input costs affect a price-taking firm's supply curve?

MC and AC would BOTH INCREASE by $10

Which of the following formulas represents the marginal rate of technical substitution of labor?

MPL/MPK

Whenever a firm uses input X but not input Y, then at the chosen input combination:

MRTSXY > PX/PY

What should Jessica do if she has an avoidable fixed cost of $50 a day?

She should keep producing sandwiches because she is maximizing profit at the current quantity.

What type of cost has NO impact on determining the profit-maximizing sales quantity?

Sunk fixed costs

The Cobb-Douglas production function F(L,K = AL^a K^b will exhibit decreasing returns to scale when:

a + B < 1

Two inputs ___________ when they must be combined in a fixed ratio.

are perfect complements

Suppose MPL = 50 and MPK = 30. If W = 25 and R = 10, then a firm

could reduce costs by employing more capital and less labor

A price-taking firm's marginal revenue is _____________ the price of its output

equal to

When a firm's profit maximizing sales level is positive, its marginal revenue is _________ its marginal cost at that quantity

equal to

A ______ cost is _____________ if the firm doesn't incur the cost if it produces no output.

fixed; avoidable

When the marginal product of an input is ___________ than the average product, the marginal units of the input ________ the average product.

larger ; raise

Returns to scale is a ________ concept because __________

long-run; it refers to changes in all of the firm's inputs.

If labor is measured along the horizontal axis and capital is measured along the vertical axis, an increase in the wage rate will cause the isocost line to:

rotate clockwise, causing the firm to use LESS LABOR and MORE CAPITAL

The marginal product of labor is defined as

the additional output produced by the last ΔL units of labor hired.

Suppose the firm increases output from 20 to 30 units. In the short run:

the firm will employ 5 more workers and 2 less units of capital than it would be in the long run.