Economics Chapter 7

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A learning curve may be expressed as a relationship between the labor per unit (L) and the total number of units produced (N). Which of the following learning curves exhibits a faster reduction in cost of production due to learning, (1) L = 10 + N-1 or (2) L = 10 + N-0.5? A) Learning curve (1) B) Learning curve (2) C) Curves (1) and (2) exhibit the same rate. D) We cannot determine the rate of cost reduction without knowing the value of N.

A

Consider the following statements when answering this question I. If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm s short-run average variable cost exceeds marginal cost. II. If labor obeys the law of diminishing returns, and is the only factor of production used by the firm, then at every output level short-run average variable costs exceed marginal costs. A) I is true, and II is false. B) I is false, and II is true. C) I and II are both true. D) I and II are both false.

A

Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth $500,000, and the interest rate is 10 percent. ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for $530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all of his expenses) if he farms the land this year. What should he do? A) Sell to ABC Corporation. B) Farm the land for another year and sell to XYZ Corporation. C) Accept either offer as they are equivalent. D) Reject both offers.

A

Fixed costs are fixed with respect to changes in A) output. b)capital expenditure C) wages. d) time

A

In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land? A) Yes. B) No. C) It depends on what the rate of inflation was between 1985 and 1992. D) It depends on what the rate of interest was.

A

In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, marginal cost is A) below average total cost. B) above average total cost. C) between the average variable and average total cost curves. D) below average fixed cost.

A

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of A) a fixed cost. B) a variable cost. C) an implicit cost. D) an opportunity cost. E) a sunk cost.

A

Prospective sunk costs A) are relevant to economic decision-making. B) are considered as investment decisions. C) rise as output rises. D) do not occur when output equals zero.

A

The cost-output elasticity can be written and calculated as A) MC/AC. B) AC/MC. C) (AC)(MC). D) (AC)2(MC). E) (AC)(MC)2.

A

The key assumption required for us to use a linear variable cost function of the form VC = bq is that: A) marginal cost must be constant and equal to b. B) marginal cost must be increasing at rate b. C) fixed costs must be zero. D) marginal cost is always greater than average variable cost.

A

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the fixed cost? A) 200 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above

A

Use the following two statements to answer this question: I. A growing firm s average cost of production will decline over time if output continually expands and economies of scale are present. II. A firm s average cost of production can decline over time if learning occurs as cumulative output increases. A) Both I and II are true. C) I is false, and II is true. B) I is true, and II is false. D) Both I and II are false.

A

When a product transformation curve is bowed outward, there are __________ in production. A) economies of scope B) economies of scale C) diseconomies of scope D) diseconomies of scale E) none of the above

A

When an isocost line is just tangent to an isoquant, we know that A) output is being produced at minimum cost. B) output is not being produced at minimum cost. C) the two products are being produced at the least input cost to the firm. D) the two products are being produced at the highest input cost to the firm.

A

Which of the following is NOT an expression for the cost minimizing combination of inputs? A) MRTS = MPL /MPK B) MPL/w = MPK/r C) MRTS = w/r D) MPL/MPK = w/r E) none of the above

A

Which of the following relationships is NOT valid? A) Rising marginal cost implies that average total cost is also rising. B) When marginal cost is below average total cost, the latter is falling. C) When marginal cost is above average variable cost, AVC is rising. D) none of the above

A

Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that level of output. A) Both I and II are true. C) I is false, and II is true. B) I is true, and II is false. D) Both I and II are false.

Answer: A

Two firms, each producing different goods, can achieve a greater output than one firm producing both goods with the same inputs. We can conclude that the production process involves A) diseconomies of scope. C) decreasing returns to scale. B) economies of scale. D) increasing returns to scale.

Answer: A Diff: 1 Section: 7.5

If a factory has a short-run capacity constraint (e.g., an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes __________ at the capacity constraint. A) infinite C) highly elastic B) zero D) less than the average variable cost

Answer: A Diff: 2 Section: 7.2

Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output. A) Both I and II are true. C) I is false, and II is true. B) I is true, and II is false. D) Both I and II are false.

Answer: A Diff: 2 Section: 7.2

An effluent fee is imposed on a steel firm to reduce the amount of waste materials that it dumps in a river. Use the following two statements to answer this question: I. The more easily factors of production can be substituted for one another (for example, capital can be used to reduce waste water), the more effective the fee will be in reducing effluent. II. The greater the degree of substitution of capital for waste water, the less the firm will have to pay in effluent fees. A) Both I and II are true. C) I is false, and II is true. B) I is true, and II is false. D) Both I and II are false.

Answer: A Diff: 2 Section: 7.3

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale. A) Both I and II are true. B) I is true, and II is false. C) I is false, and II is true. D) Both I and II are false.

Answer: B

Incremental cost is the same concept as __________ cost. A) average B) marginal C) fixed D) variable

Answer: B Diff: 1 Section: 7.1

Use the following statements to answer this question: I. The long-run average cost (LAC) curve is the envelope of the short-run average cost (SAC) curves. II. The long-run marginal cost (LMC) curve is the envelope of the short-run marginal cost (SMC) curves. A) I and II are true. C) II is true and I is false. B) I is true and II is false. D) I and II are false.

Answer: B Diff: 1 Section: 7.4

A firm produces leather handbags and leather shoes. If there are economies of scope, the product transformation curve between handbags and shoes will be A) a straight line. C) bowed inward (convex). B) bowed outward (concave). D) a rectangle.

Answer: B Diff: 1 Section: 7.5

Consider the following statements when answering this question. I. Investment in new technology generates learning by doing. II. Economies of scale cannot shift the long-run average cost curve down, whereas learning by doing can. A) I is true, and II is false. C) Both I and II are true. B) I is false, and II is true. D) Both I and II are false.

Answer: B Diff: 2 Section: 7.6

Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? I. Even though I hate my MBA classes, I can t quit because I ve spent so much money on tuition. II. To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account. A) I only C) Both I and II B) II only D) Neither I nor II

Answer: B Diff: 3 Section: 7.1

Consider the following statements when answering this question I. Whenever a firm s average variable costs are falling as output rises, marginal costs must be falling too. II. Whenever a firm s average total costs are rising as output rises, average variable costs must be rising too. A) I is true, and II is false. C) I and II are both true. B) I is false, and II is true. D) I and II are both false.

Answer: B Diff: 3 Section: 7.2

Consider the following statements when answering this question. I. As Boeing s production fell 10% to 100 planes last year, learning by doing cannot account for this year s changes in long-run average costs. II. Failure to take into account the effects of learning by doing will lead to overestimates of the cost-output elasticity. A) I is true, and II is false. C) Both I and II are true. B) I is false, and II is true. D) Both I and II are false.

Answer: B Diff: 3 Section: 7.6

Use the following statements to answer this question: I. The scale economies index is positive if the cost-output elasticity that is greater than one. II. A negative scale economies index indicates the presence of diseconomies of scale. A) I and II are true. B) I is true and II is false. C) IIistrueandIisfalse. D)IandIIaretrue.

Answer: C

Consider the following statements when answering this question. I. Increases in the rate of income tax decrease the opportunity cost of attending college. II. The introduction of distance learning, which enables students to watch lectures at home, decreases the opportunity cost of attending college. A) I is true, and II is false. C) I and II are both true. B) I is false, and II is true. D) I and II are both false.

Answer: C Diff: 1 Section: 7.1

Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be A) 500. B) 25/500. C) -4/5. D) 25/20 or 1.25.

Answer: C Diff: 1 Section: 7.3

When a product transformation curve for a firm is bowed inward, there are __________ in production. A) economies of scope C) diseconomies of scope B) economies of scale D) diseconomies of scale

Answer: C Diff: 2 Section: 7.5

Consider the following statements when answering this question I. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too. II. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises. A) I is true, and II is false. C) I and II are both true. B) I is false, and II is true. D) I and II are both false.

Answer: C Diff: 3 Section: 7.2

Consider the following statements when answering this question; I. A firm s marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm s average total cost and average variable cost curves cannot rise. A) I is true, and II is false. C) I and II are both true. B) I is false, and II is true. D) I and II are both false.

Answer: C Diff: 3 Section: 7.2

Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? A) $25,000 per year C) $70,000 per year B) zero D) $45,000 per year

Answer: D Diff: 2 Section: 7.1

A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm s long-run average cost curve over this range of output A) is downward sloping. C) is horizontal. B) is upward sloping. D) may be any of the above.

Answer: D Diff: 2 Section: 7.6

Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output. A) Both I and II are true. C) I is false, and II is true. B) I is true, and II is false. D) Both I and II are false.

Answer: D Diff: 3 Section: 7.2

Assume that a firm s production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to A) increase. B) decline. C) remain constant. D) fall to a minimum and then rise.

B

At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that: A) there are neither economies nor diseconomies of scale. B) there are economies of scale. C) there are diseconomies of scale. D) the cost-output elasticity is greater than one.

B

Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine s investment strategy is buy low, sell high. Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have bought high and sold low. Constantine s decision: A) is correct and shows a solid command of the nature of opportunity cost. B) is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold. C) is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares. D) is incorrect because it treats the price of the shares as an explicit cost.

B

Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). If the wage rate paid to the pilots increases relative to the rental rate of capital for the airplanes, then: A) the optimal capital-labor ratio should increase. B) the optimal capital-labor ratio should decrease. C) the optimal capital-labor ratio remains the same. D) We do not have enough information to answer this question.

B

Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will: A) increase at a decreasing rate because we will substitute capital for labor as the business grow. B) follow the 45-degree line from the origin. C) not be defined. D) be a vertical line.

B

Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100? A) PL + 20PK B) 100 = 10L + 20K C) 100 = 30(L+K) D)100+30 PL+PK E) none of the above

B

The cost-output elasticity is used to measure: A) economies of scope. C) the curvature in the fixed cost curve. B) economies of scale. D) steepness of the production function.

B

The scale economies index (SCI) is equal to: A) the cost-output elasticity. B) one minus the cost-output elasticity. C) 100 times the degree of economies of scope (SC). D) marginal cost divided by average cost.

B

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the variable cost? A) 200 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above

B

The total cost of producing a given level of output is A) maximized when a corner solution exists. B) minimized when the ratio of marginal product to input price is equal for all inputs. C) minimized when the marginal products of all inputs are equal. D) minimized when marginal product multiplied by input price is equal for all inputs.

B

To model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: A) a vertical line. B) a horizontal line. C) equal to the 45-degree line from the origin. D) not defined.

B

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average fixed cost? A) 500 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above

E

A firm's expansion path is A) the firm s production function. B) a curve that makes the marginal product of the last unit of each input equal for each output. C) a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices. D) none of the above

C

An isocost line reveals the A) costs of inputs needed to produce along an isoquant. B) costs of inputs needed to produce along an expansion path. C) input combinations that can be purchased with a given outlay of funds. D) output combinations that can be produced with a given outlay of funds.

C

Consider the following statements when answering this question I. The marginal cost curve intersects the average total cost and average variable cost curves at their minimum values. II. When a firm has positive fixed costs, the output level associated with minimum average variable costs is less than the output associated with minimum average total costs. A) I is true, and II is false. B) I is false, and II is true. C) I and II are both true. D) I and II are both false.

C

Consider the following statements when answering this question. I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale. II. Diminishing returns determines the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve. A) I is true, and II is false. B) I is false, and II is true. C) Both I and II are true. D) Both I and II are false.

C

Consider the following statements when answering this question. I. With convex isoquants, a firm s expansion path cannot be negatively sloped. II. If a firm uses only two factors of production, one of whose marginal product becomes negative when its use exceeds a certain level, then a cost-minimizing firm s expansion path will have vertical or horizontal segments. A) I is true, and II is false. C) Both I and II are true. B) I is false, and II is true. D) Both I and II are false.

C

Economies of scope refer to A) changes in technology. B) the very long run. C) multiproduct firms. D) single product firms that utilize multiple plants. E) short-run economies of scale.

C

For a given pair of production outputs, the degree of economies of scope: A) is constant across different output levels. B) only increases as the level of output increases. C) may increase or decrease with output. D) will always tend to zero as output becomes very large.

C

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must: A) be declining with output. B) be positive. C) equal zero. D) We do not have enough information to answer this question.

C

The cost-output elasticity equals 1.4. This implies that: A) there are neither economies nor diseconomies of scale B) there are economies of scale. C) there are diseconomies of scale. D) marginal cost is less than average cost.

C

The difference between the economic and accounting costs of a firm are A) the accountant s fees. B) the corporate taxes on profits . C) the opportunity costs of the factors of production that the firm owns. D) the sunk costs incurred by the firm. E) the explicit costs of the firm.

C

The equation below gives the degree of economies of scope (SC): SC = (C(Q1) + C(Q2) - C(Q1,Q2)) / C(Q1,Q2) where C(Q1) is the cost of producing output Q1, C(Q2) is the cost of producing output Q2, and C(Q1,Q2) is the joint cost of producing both outputs. If SC is negative: A) there are neither economies nor diseconomies of scope. B) there are economies of scope. C) there are diseconomies of scope. D) there are both economies and diseconomies of scope.

C

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost? A) 200 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above

C

Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs? A) Fly Right. B) Fly by Night. C) Neither, the costs are identical. D) Neither, Fly by Night has lower costs at small output levels and Fly Right has lower costs at high output levels.

C

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost? A) An hourly employee B) A temporary worker who is paid by the hour C) A salaried manager who has a three-year employment contract D) none of the above

C

When we solve the firm s cost minimization problem by the method of Lagrange multipliers, the optimal value of the Lagrange multiplier equals the: A) marginal product of labor. B) marginal product of capital. C) marginal cost of production. D) cost-output elasticity.

C

With its current levels of input use, a firm s MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies A) the firm could produce 3 more units of output if it increased its use of capital by one unit (holding labor constant). B) the firm could produce 3 more units of output if it increased its use of labor by one unit (holding capital constant). C) if the firm reduced its capital stock by one unit, it would have to hire 3 more workers to maintain its current level of output. D) if it used one more unit of both capital and labor, the firm could produce 3 more units of output. E) the marginal product of labor is 3 times the marginal product of capital.

C

A Cobb-Douglas production function: A) exhibits constant returns to scale. B) exhibits increasing returns to scale. C) exhibits decreasing returns to scale. D) can exhibit constant, increasing, or decreasing returns to scale.

D

A cubic cost function implies: A) a U-shaped average variable cost curve. B) a U-shaped marginal cost curve. C) a U-shaped average cost curve. D) all of the above

D

A firm s short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm s returns to scale? A) The firm experiences increasing returns to scale. B) The firm experiences increasing, constant, and decreasing returns in that order. C) The firm experiences first decreasing, then increasing returns to scale. D) The short-run average cost curve reveals nothing regarding returns to scale.

D

A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where A) the marginal products of chemicals and labor are equal B) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the marginal product of chemicals to the marginal product of labor C) the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the price of chemicals to the wage rate D) the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used E) none of the above

D

At every output level, a firm s short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because A) diminishing returns apply in the short run. B) returns to scale only exist in the long run. C) opportunity costs are taken into account in the short run. D) there are at least as many possibilities for substitution between factors of production in the long run as in the short run. E) none of the above

D

At the optimum combination of two inputs, A) the slopes of the isoquant and isocost curves are equal. B) costs are minimized for the production of a given output. C) the marginal rate of technical substitution equals the ratio of input prices. D) all of the above E) A and C only

D

Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery? A) Bubba adds more varied inputs to burger production. B) Bubba expands burger production, focusing on that one good. C) Bubba contracts burger production. D) Bubba adds grilled chicken sandwiches to the menu. E) Bubba cuts back on the diversity of the menu.

D

Generally, economies of scope are present when A) economies of scale are present in the production of two or more goods. B) economies of scale are constant in the joint production of two products. C) joint output is less from a single firm than could be achieved from two different firms each producing a single product (assuming equivalent production inputs in both situations). D) joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).

D

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus, A) average fixed cost is constant. B) marginal cost is above average variable cost. C) marginal cost is below average fixed cost. D) marginal cost is below average variable cost.

D

The learning curve is graphically represented as a plot of: A) labor per unit on the horizontal axis and total cost on the vertical axis. B) labor per unit on the horizontal axis and total number of units produced on the vertical axis. C) total cost on the vertical axis and total number of units produced on the horizontal axis. D) labor per unit on the vertical axis and total number of units produced on the horizontal axis.

D

The presence of a learning curve may induce a decision maker in a startup firm to choose A) low levels of output to exploit economies of scale. B) high levels of output to exploit economies of scale. C) low levels of output to shift the average cost curve down over time. D) high levels of output to shift the average cost curve down over time. E) to produce more than one output.

D

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average total cost? A) 500 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above

D

When there are economies of scale, A) MC > AC, so cost-output elasticity is greater than AC. B) MC < AC, so cost-output elasticity is less than AC. C) MC < AC, so cost-output elasticity is greater than 1. D) MC < AC, so cost-output elasticity is less than 1. E) long-run marginal cost is declining.

D

Which of the following business combinations likely exhibit economies of scope? A) Banking services for individuals and banking services for other business B) Retail clothing stores and electronic (internet) clothing sales C) Hospitals that perform heart surgery and hospitals that perform cosmetic surgery D) all of the above

D

Which of the following costs always declines as output increases? A) Average cost B) Marginal cost C) Fixed cost D) Average fixed cost E) Average variable cost

D

Which of the following is true regarding the relationship between returns to scale and economies of scope? A) A firm experiencing economies of scope must also experience increasing returns to scale. B) Economies of scale and economies of scope must occur together. C) A firm experiencing increasing returns to scale must also experience economies of scope. D) There is no definite relationship between returns to scale and economies of scope.

D

Which of the following statements correctly uses the concept of opportunity cost in decision making? I. Because my secretary s time has already been paid for, my cost of taking on an additional project is lower than it otherwise would be. II. Since NASA is running under budget this year, the cost of another space shuttle launch is lower than it otherwise would be. A) I is true, and II is false. B) I is false, and II is true. C) I and II are both true D) I and II are both false..

D

Which of the following statements is true regarding the differences between economic and accounting costs? A) Accounting costs include all implicit and explicit costs. B) Economic costs include implied costs only. C) Accountants consider only implicit costs when calculating costs. D) Accounting costs include only explicit costs.

D

The cost-output elasticity is used to measure A) input substitution flexibility. B) the slope of the firm s expansion path. C) the slope of long-run average cost. D) the slope of long-run marginal cost. E) economies of scale.

E

A plant uses machinery and waste water to produce steel. The owner of the plant wants to maintain an output of 10,000 tons a day, even though the government has just imposed a $100 per gallon tax on using waste water. The reduction in the amount of waste water that results from the imposition of this tax depends on A) the amount of waste water used before the tax was imposed. B) the cost to the firm of using waste water before the tax was put in place. C) the rental rate of machinery. D) the marginal product of waste water only. E) the ratio of the marginal product of waste water to the marginal product of machinery.

E

Carolyn knows average total cost and average variable cost for a given level of output. Which of the following costs can she not determine given this information? A) total cost B) average fixed cost C) fixed cost D) variable cost E) Carolyn can determine all of the above costs given the information provided.

E

For any given level of output: A) marginal cost must be greater than average cost. B) average variable cost must be greater than average fixed cost. C) average fixed cost must be greater than average variable cost. D) fixed cost must be greater than variable cost. E) None of the above is necessarily correct.

E

In the long run, which of the following is considered a variable cost? A) Expenditures for wages B) Expenditures for research and development C) Expenditures for raw materials D) Expenditures for capital machinery and equipment E) all of the above

E

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: A) marginal cost is less than average total cost. B) average total cost is positive and constant. C) average total cost equals marginal cost. D) A and B are correct. E) B and C are correct.

E

Which always increase(s) as output increases? A) Marginal Cost only B) Fixed Cost only C) Total Cost only D) Variable Cost only E) Total Cost and Variable Cost

E

Which of the following is NOT a reason for average costs to fall according to the learning curve? A) Workers accomplish tasks more quickly after doing the task a few times. B) Managers schedule more efficiently over time. C) Engineers determine more accurately what tolerances can be used. D) Suppliers may become better able to produce the exact inputs the firm needs. E) Competing firms leave the industry as the learning firm becomes more efficient.

E

Which of the following is true of cost curves? A) The ATC curve goes through the minimum of the MC curve. B) The AVC curve goes through the minimum of the MC curve. C) The MC curve goes through the minimum of the ATC curve, to the left of the minimum of the AVC curve. D) The MC curve goes through the minimum of the AVC curve, to the right of the minimum of the ATC curve. E) The MC curve goes through the minimum of both the AVC curve and the ATC curve.

E

Which of the following situations is NOT possible? A) SAC and LAC are both increasing for some output levels. B) SAC is increasing but LAC is decreasing for some output levels. C) SAC is decreasing but LAC is increasing for some output levels. D) SAC and LAC are both decreasing for some output levels. E) All of the above are possible.

E

With its current levels of input use, a firm s MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies A) the firm could produce 3 more units of output if it increased its use of capital by one unit (holding labor constant). B) the firm could produce 3 more units of output if it increased its use of labor by one unit (holding capital constant). C) if the firm reduced its capital stock by one unit, it would have to hire 3 more workers to maintain its current level of output. D) if it used one more unit of both capital and labor, the firm could produce 3 more units of output. E) the marginal product of labor is 3 times the marginal product of capital.

E


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