Microeconomics Chapter 7

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q . What is the variable cost? Select one: a. 5 b. 200 c. 5Q d. 5 + (200/Q)

c. 5Q

The cost-output elasticity can be written and calculated as Select one: a. (AC)(MC)^2. b. AC/MC. c. MC/AC. d. (AC)(MC).

c. MC/AC

The cost-output elasticity is used to measure: Select one: a. steepness of the production function. b. economies of scope. c. economies of scale. d. the curvature in the fixed cost curve.

c. economies of scale

An isocost line reveals the Select one: a. input combinations that can be purchased for a given total cost. b. costs of inputs needed to produce along an isoquant. c. costs of inputs needed to produce along an expansion path. d. output combinations that can be produced with a given outlay of funds.

a. input combinations that can be purchased for a given total cost.

Economies of scope refer to Select one: a. multiproduct firms. b. short-run economies of scale. c. single product firms that utilize multiple plants. d. changes in technology.

a. multiproduct firms

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? Select one: a. 100 + 30 (Pl+Pk) b. 100 = 10L + 20K c. PL + 20PK d. 100 = 30(L+K)

b. 100 = 10L + 20K

Which of the following costs always declines as output increases? Select one: a. Marginal cost b. Average fixed cost c. Average cost d. Fixed cost

b. Average Fixed Cost

A firm's expansion path is: Select one: a. none of the above 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. the firm's production function.

c. a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices.

A Cobb-Douglas production function: Select one: a. exhibits decreasing returns to scale. b. exhibits increasing returns to scale. c. can exhibit constant, increasing, or decreasing returns to scale. d. exhibits constant returns to scale.

c. can exhibit constant, increasing, or decreasing returns to scale.

The total cost of producing a given level of output is: Select one: a. minimized when the marginal products of all inputs are equal. b. maximized when a corner solution exists. c. minimized when the ratio of marginal product to input price is equal for all inputs. d. minimized when marginal product multiplied by input price is equal for all inputs.

c. minimized when the ratio of marginal product to input price is equal for all inputs.

In our analysis, it is best to treat capital as if it was: Select one: a. rented first, then purchased. b. purchased, even if it is just rented. c. rented, even if it was purchased. d. purchased and also rented.

c. rented even if it was purchased

Scenario 7.2: The production function for earthquake detectors (Q) is given as follows: Q = 4K1/2L1/2 where K is the amount of capital employed and L is the amount of labor employed. The price of capital, PK, is $18 and the price of labor, PL, is $2. Refer to Scenario 7.2. Suppose that you receive an order for 60 earthquake detectors. How much labor will you use to minimize the cost of 60 earthquake detectors? Select one: a. 1 b. 5 c. 10 d. 45

d. 45