Econ 361, Chapter 7 Review Qs

assume the amount of labor is on the x-axis and the amount of capital is on the the y-axis. If the price of the labor doubles what happens to the slope of the isocost lines?

They become steeper(more negative)

A firm is trying to produce Q0=100 units of output and faces a production function of Q(L,K)=LK. Currently the firm is producing 100 units of output, has MPL=10 and MPK=20 and faces a price of labor w=1 per unit and price of capital r=3 per unit.

Use less capital more and more labor

economics of scale occur when

When average cost is decreasing

which statement about the long-run and short-run total cost curve is true

the short-run total cost is greater than or equal to the long-run total cost

In a perfectly competitive market with a subsidy, what can we say?

there will be one value for the consumer surplus and the producer surplus.

To solve the long-run cost-minimization problem, you do the following

Fix an isoquant and find the isocost furthest to the southwest that still intersects the given isoquant line

Suppose the demand is given Q=10-P. What is the consumer surplus when the price is P=4?

18

Assume that a firm operates in the short run with fixed levels of capital K bar=5 and production function Q(K,L)=KL with production target Q=100 how much labor should the firm produce in the short run.

20

Assume that a firm operates with production function Q(K,L)=KL with production target Q=32. The price of labor w=2 and the price of capital r=1. How much labor should the firm produce in the LONG RUN.

4

If the short-run total cost is given by STC(Q) =32+2Q^2, and 7 of the fixed costs are sunk what is minimum efficent scale?

4

when the government introduces a subsidy in a market, which of the following is true?

Both consumer surplus and producer surplus increase

which of the following would lead to an excess supply?

Price Floor

Which of the following is true about the relationship between the long-run total cost(TC(Q)) and the short-run total cost (STC(Q))?

STC(Q) is always higher or equal to TC(Q)

An endogenous variable in the firms cost-minimizing problem would be?

The amount of labor and capital

The long-run total cost curve shows

The minimum total cost to produce any level of output holding input prices fixed and choosing all inputs to minimize cost.

which statement about the long-run and short-run total cost curve is true?

The short-run total cost is greater than or equal to the long-run total cost.

a subsidy is?

a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive.

If ac(q) is less then mc(q), then

ac(q) is increasing

An isocost line represents:

all combinations of a firm's factors of production that have the same total cost.

An isoquant line repersents

all combinations of of inputs in which the firm has the same level of total cost

Cost minimization

determine what mix of labor and capital produces output at the lowest cost. In other words, what the most cost-effective method of delivering goods and services would be while maintaining a desired level of quality.

an analysis determines the equilibrium prices and quantities in more then one market simultaneously is called?

general equilibrium analysis

A firm has a production function with diminishing MRTS L,K is currently producting Q=25 units of output at the cost minimizing combination of labor and capital. if the cost of capital decreases then the new cost minimizing combination of labor and capital will have?

more capital and less labor

In the short run, a firm in a perfectly competitive market will earl

profits that could be positive, negative, or zero.

consumer surplus is?

the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it

producer surplus is?

the amount a seller is paid for a good minus the seller's cost of providing it

an example of an implicit cost for you if you decide to build your own house would be a

the cost of spending time working on the house rather than at your job (implicit costs are opportunity costs)