ECON Chapter 7: Costs
Suppose MPL = 40 and MPK = 20 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be
$20
Suppose a production function is q = K^1/2 L^1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the fixed cost is
$2000
Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be
$5
A linear total cost curve which passes through the origin implies that
. average and marginal costs are constant and equal.
Suppose a production function is q = K^1/2 L^1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run average cost is
2000/q + q^2/100
Suppose a production function is q = K^1/2 L^1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run marginal cost is
3q^2 / 100
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $2 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P = 100?
All points on the P = 100 isoquant, including those listed in a-c would cost the same.
Suppose a cost function is TC = Aq^3 + bq^2 + cq + d. Then the average variable cost is
Aq^2 + bq + c
Suppose a cost function is TC = Aq^3 + bq^2 + cq + d. Then the average total cost is
Aq^2 + bq + cq +d/q
Suppose the production function for coffee (C) is C = min(B,W), where B = beans in pounds and W = water in gallons. Suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. The cost minimizing combination of beans and water for C = 200 is
B = 200, W = 200
Suppose the production function for coffee (C) is C = min(B,W), where B = beans in pounds and W = water in gallons. Suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. The expansion path is
B = W
The shape of a firm's long-run average cost curve is determined by
The shape of a firm's long-run average cost curve is determined by
A firm whose production function displays increasing returns to scale will have a total cost curve that is
a curve with a positive and continually decreasing slope
In the long run
all inputs are variable.
A firm's marginal cost curve
always intersects its average cost curve at its minimum point
For any given output level, a firm's long-run costs
are always less than or equal to its short-run costs.
Suppose the production function for coffee (C) is C = min(B,W), where B = beans in pounds and W = water in gallons. Suppose the price of water is $.10 per gallon and the price of beans is $10 per pound. The expansion path
depends on the price of neither beans nor water
As long as marginal cost is below average cost, average cost will be
falling
The expansion path for a constant-returns-to-scale production function
is a straight line through the origin, though its slope cannot be determined by w and v alone.
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. The expansion path depends
on whether the price of corn-based feed is greater than or less than 2/5 the price of soybean-based feed
The shape of a firm's expansion path depends upon
pice of labor input, price of capital input, and shape of firm's production function
Suppose a production function is q = K^1/2 L^1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run production function is
q = 10L^1/3
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P = 200?
s=40
Technical progress will
shift a firm's production function and its related cost curves
Short-run total cost is the sum of
short-run fixed cost and short-run variable cost.
In the short run,
some inputs are fixed
A firm's marginal cost is defined as
the additional cost of producing one more unit of output
An increase in the wage rate will have a greater effect on average costs
the larger the proportion labor costs are of total costs and the harder it is to substitute capital for labor
The accountant's cost of producing a bicycle refers to
the out-of-pocket payments made to produce the bicycle
A firm's short-run average cost is defined as
the ratio of short-run total cost to total output
The opportunity cost of producing a bicycle refers to
the value of the goods that were given up to produce the bicycle
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and corn feed is on the horizontal axis, and the price of soybean feed is $5 and soybean feed lies on the vertical axis, what is expansion path?
the vertical axis
A firm's economic profits are given by
total revenue minus total economic cost
For a constant-returns-to-scale production function,
both average and marginal costs are constant.
Suppose a cost function is TC = Aq3 + bq2 + cq + d. Then the total fixed cost is
d
Suppose that a lawn mowing services production function for lawns mowed in a week is M = (LK)^1/2, where L is labor hours and K is the amount of capital (mowers and trimmers). The expansion path depends on
both the wage and rental rates
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $2 and the price of soybean feed is $6, what is the cost-minimizing fee combination producing P = 200?
c=100
The firm's expansion path records
cost-minimizing input choices for all possible output levels for a fixed set of input prices
In order to minimize the cost of a particular level of output, a firm should produce where
the RTS (of L for K) = w/v
