Test 2- ECON 6115
A firm's expansion path is: A. a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices. B. a curve that makes the marginal product of the last unit of each input equal for each output. C. the firm's production function. D. none of the above
A
A production function defines the output that can be produced: A. if the firm is technically efficient. B. for the average firm. C. at the lowest cost, given the inputs available. D. as technology changes over time. E. in a given time period if no additional inputs are hired.
A
A variable cost function of the form: VC = 23 + Q + 7Q2 implies a marginal cost curve that is: A. linear. B. U-shaped. C. downward sloping. D. quadratic.
A
According to the law of diminishing returns: A. the marginal product of an input will eventually decline. B. the total product of an input will eventually decline. C. none of the above D. the total product of an input will eventually be negative. E. the marginal product of an input will eventually be negative.
A
Although the long-run equilibrium price of oil is $80 per barrel, some producers have much lower costs because their oil reserves are relatively close to the surface and are easier to extract. If the low-cost producers have a minimum LAC equal to $20 per barrel, then the difference ($60 per barrel) is: A. an economic rent due to the scarcity of low-cost oil reserves. B. a profit that will go to zero as new oil producers enter the market. D. none of the above C. an above-normal economic profit.
A
An increasing-cost industry is so named because of the positive slope of which curve? A. The industry's long-run supply curve B. Each firm's short-run marginal cost curve C. Each firm's short-run average cost curve D. Each firm's long-run average cost curve E. Each firm's long-run marginal cost curve
A
An upward sloping isoquant: A. cannot be derived from a production function when a firm is assumed to maximize profits. B. can be derived whenever one input to production is available at zero cost to the firm. C. can be derived from a production function that uses more than one input where reductions in the use of any input always reduces output. D. can be derived from a production function with one input. E. none of the above
A
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. -4/5. B. 25/20 or 1.25. C. 25/500. D. 500.
A
Economies of scope refer to: A. multiproduct firms. B. short-run economies of scale. C. single product firms that utilize multiple plants. D. changes in technology. E. the very long run.
A
For a given pair of production outputs, the degree of economies of scope: A. may increase or decrease with output. B. is constant across different output levels. C. only increases as the level of output increases. D. will always tend to zero as output becomes very large.
A
Higher input prices result in: A. upward shifts of MC and reductions in output. B. upward shifts of MC and increases in output. C. downward shifts of MC and reductions in output. D. downward shifts of MC and increases in output. E. increased demand for the good the input is used for.
A
In a constant-cost industry, price always equals: A. LRMC and minimum LRAC. B. LRMC and LRAC, but not necessarily minimum LRAC. C. minimum LRAC, but not LRMC. D. LRAC and minimum LRMC. E. minimum LRAC and minimum LRMC.
A
In long-run competitive equilibrium, a firm that owns factors of production will have an: A. economic profit = $0 and accounting profit > $0. B. economic profit > $0 and accounting profit = $0. C. economic and accounting profit = $0. D. economic and accounting profit > $0. E. economic and accounting profit can take any value.
A
In the short run, a perfectly competitive firm earning negative economic profit is: A. on the downward-sloping portion of its ATC curve. B. above its ATC curve. C. on the upward-sloping portion of its ATC curve. D. at the minimum of its ATC curve.
A
In the short run, a perfectly competitive firm earning negative economic profit is: A. on the downward-sloping portion of its ATC curve. B. at the minimum of its ATC curve. C. on the upward-sloping portion of its ATC curve. D. above its ATC curve.
A
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor? A. MP = 5K B. MP = 5K/L C. MP = 5 D. MP = 5L
A
Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=3 machines, what is his short-run production function? A. q = 9L B. q = 3L C. q = 3K2 D. q = 3L2
A
Prospective sunk costs: A. are relevant to economic decision-making. B. do not occur when output equals zero. C. rise as output rises. D. are considered as investment decisions.
A
Suppose capital and labor are perfect substitutes in a long-run production process. If labor costs $15 per hour and the rental rate of capital is $20 per hour, what can we say about the profit maximizing choice of labor and capital inputs? A. We will only use labor in the production process. B. We will only use capital in the production process.You Answered C. The optimal capital-labor ratio is 0.75-to-1. D. We will use equal amounts of capital and labor.
A
The concerns about world food production raised by Malthus have not materialized because: A. technological improvements have increased our ability to produce food over time. B. Malthus was wrong about the diminishing returns to labor in agriculture. C. input prices have fallen over time. D. crop prices have risen over time.
A
The cost-output elasticity can be written and calculated as: A. MC/AC. B. (AC)(MC)2. C. (AC)(MC). D. AC/MC. E. (AC)2(MC).
A
The cost-output elasticity is used to measure: A. economies of scale. B. the curvature in the fixed cost curve. C. steepness of the production function. D. economies of scope.
A
The function which shows combinations of inputs that yield the same output is called a(n): A. isoquant curve. B. production function. C. production possibilities frontier. D. isocost curve.
A
The law of diminishing returns assumes that: A. there is at least one fixed input. B. all inputs are changed by the same percentage. C. additional inputs are added in smaller and smaller increments. D. all inputs are held constant.
A
The perfectly competitive firm's marginal revenue curve is: A. horizontal. B. downward-sloping, at twice the (negative) slope of the market demand curve. C. upward-sloping. D. vertical. E. exactly the same as the marginal cost curve.
A
The production function Q = 4L1/2K1/2 exhibits: A. constant returns to scale. B. all of the above at various levels of output. C. decreasing returns to scale. D. increasing returns to scale.
A
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. A salaried manager who has a three-year employment contract B. A temporary worker who is paid by the hour C. none of the above D. An hourly employee
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 highest input cost to the firm. D. the two products are being produced at the least input cost to the firm.
A
When the TR and TC curves have the same slope, A. they are the furthest from each other. B. they are closest to each other. C. they intersect each other. D. profit is negative. E. profit is zero.
A
Which of the following business combinations likely exhibit economies of scope? A. all of the above B. Hospitals that perform heart surgery and hospitals that perform cosmetic surgery C. Retail clothing stores and electronic (internet) clothing sales D. Banking services for individuals and banking services for other business
A
Which of the following business combinations likely exhibit economies of scope? A. all of the above B. Retail clothing stores and electronic (internet) clothing sales C. Hospitals that perform heart surgery and hospitals that perform cosmetic surgery D. Banking services for individuals and banking services for other business
A
Which of the following costs are always increasing as output increases? A. Total Cost and Variable Cost B. Variable Cost onlyYou Answered C. Total Cost only D. Fixed Cost only E. Marginal Cost only
A
Which of the following statements is true regarding the differences between economic and accounting costs? A. Accounting costs include only explicit costs. B. Accounting costs include all implicit and explicit costs. C. Accountants consider only implicit costs when calculating costs. D. Economic costs include implied costs only.
A
A few sellers may behave as if they operate in a perfectly competitive market if the market demand is: A highly inelastic. B very elastic. C unitary elastic. D composed of many small buyers.
B
A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm: A. could increase its output at no extra cost by employing more capital and less labor. B. could reduce the cost of producing its current output level by employing more labor and less capital. C. could reduce the cost of producing its current output level by employing more capital and less labor. D. is producing its current output level at the minimum cost. E. Both B and D are true.
B
A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that: A. none of the above B. isoquants have negative slope. C. isoquants are relevant only in the long run. D. isoquants are convex. E. isoquants can become vertical or horizontal.
B
A variable cost function of the form: VC = 23 + Q + 7Q2 implies a marginal cost curve that is: A. downward sloping. B. linear. C.quadratic. D. U-shaped.
B
Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen, A. marginal product is rising. B. average product is rising. C. marginal product is falling. D. average product is falling.
B
At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you: A. whether increasing labor use raises output. B. how increasing labor use alters the average product of labor. C. whether the law of diminishing returns applies. D. whether economies of scale exist. E. whether increasing labor use changes the marginal product of labor.
B
At the profit-maximizing level of output, marginal profit A. is also maximized. B. is zero. C. is positive. D. is increasing. E. may be positive, negative or zero.
B
For any given level of output: A. average fixed cost must be greater than average variable cost. B. None of the above is necessarily correct. C. marginal cost must be greater than average cost. D. fixed cost must be greater than variable cost.
B
If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the: A. marginal product of capital B. rate at which the firm can replace capital with labor without C.changing the output rate. D. average rate at which the firm can replace capital with labor without changing the output rate. E. marginal product of labor.
B
If input prices are constant, a firm with increasing returns to scale can expect: A. costs to more than double as output doubles. B. costs to go up less than double as output doubles. C. to never reach the point where the marginal product of labor is equal to the wage. D. costs to double as output doubles. E. to hire more and more labor for a given amount of capital, since marginal product increases.
B
If price is between AVC and ATC, the best and most practical thing for a perfectly competitive firm to do is: A. lower prices to gain revenue from extra volume. B. continue operating, but plan to go out of business. C. raise prices. D. shut down immediately and liquidate the business. E. shut down immediately, but not liquidate the business
B
If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit maximizing firm choose between these two inputs? A.The firm will only use the input with higher cost. B. The firm will only use the input with lower cost C. The firm will use equal amounts of the two inputs, even if one of the inputs has a lower cost. D. The firm cannot achieve a profit maximizing level of output under these circumstances.
B
In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences: A. increasing returns to scale. B. decreasing returns to scale. C. constant returns to scale. D. negative returns to scale.
B
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. equal zero. C. be positive. D. We do not have enough information to answer this question.
B
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. Zero B. $45,000 per year C. $70,000 per year D. $25,000 per year
B
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case? A. Yes, if capital also exhibits diminishing marginal returns. B. No, the marginal product of labor is constant (for a given K). C. No, the marginal product of labor is increasing (for a given K). D. Yes, this is true for all values of K.
B
Joe's Organic Cereal Company produces granol3reakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change? A. Shift leftward B. Shift downward C. Shift rightward D. Shift upward
B
Marginal product crosses the horizontal axis (is equal to zero) at the point where: A. output per worker reaches a maximum. B. All of the above are true. C. total product is maximized. D. average product is maximized. E. diminishing returns set in.
B
Marginal product crosses the horizontal axis (is equal to zero) at the point where: A. All of the above are true. B. total product is maximized. C. output per worker reaches a maximum. D. diminishing returns set in. E. average product is maximized.
B
One of the factors contributing to the fact that labor productivity is higher in the U.S. than in the People's Republic of China is: A. the fact that much labor in the U.S. is in management. B. the higher capital/labor ratio in the U.S. C. China's smaller stock of fossil fuels. D. the higher capital/labor ratio in China. E. China's larger stock capital
B
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. Suppose that you receive an order for 60 earthquake detectors. How much labor will you use to minimize the cost of 60 earthquake detectors? A. 10 B. 45 C. none of the above D. 5 E. 1
B
The production function is: Q = 4L1/2K1/2. Which of the following combinations of inputs is on the isoquant to produce 400 units of output? A. A and B, but not C B. L = 100, K = 100 C. all of the above D. L = 0, K = 400 E. L = 400, K = 0
B
The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the: A. slope of the isocost curve. B. marginal rate of technical substitution. C. marginal rate of substitution. D. average product of the input.
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 marginal product multiplied by input price is equal for all inputs. D. minimized when the marginal products of all inputs are equal.
B
We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K = 10 robots and L = 10 workers in order to produce q = 450 autos per shift, then we know that production is: A. technologically efficient. B. technologically inefficient. C. maximized. D. optimal.
B
We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K = 10 robots and L = 10 workers in order to produce q = 450 autos per shift, then we know that production is: A. technologically efficient. B. technologically inefficient. C. maximized D. optimal
B
A cubic cost function implies: A. linear marginal cost curve. B. linear average fixed cost curve. C. a U-shaped average cost curve. D. all of the above
C
A decreasing-cost industry has a downward-sloping: A. long-run marginal cost curve. B. short-run marginal cost curve. C. long-run industry supply curve. D. short-run average cost curve. E. long-run average cost curve.
C
A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called: A. a production possibility curve. B. an isocost function. C. a production function. D. an isoquant.
C
An L-shaped isoquant: A. is impossible. B. would indicate that the firm could not switch from one output to another. C. would indicate that capital and labor cannot be substituted for each other in production. D. would indicate that capital and labor are perfect substitutes in production. E. would indicate that the firm could switch from one output to another costlessly.
C
An association of businesses that are jointly owned and operated by members for mutual benefit is a: A condominium. B corporation. C cooperative. D joint tenancy.
C
As we move downward along a typical isoquant, the slope of the isoquant: A. becomes steeper. B. becomes linear. C. becomes flatter. D. remains constant.
C
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should: A. close her doors immediately. B. continue producing in the short and long run. C. continue producing in the short run, but plan to go out of business in the long run. D. raise her prices above the perfectly competitive level. lower her output.
C
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. Farm the land for another year and sell to XYZ Corporation. B. Accept either offer as they are equivalent. C. Sell to ABC Corporation. D. Reject both offers.
C
Generally, economies of scope are present when: A. economies of scale are constant in the joint production of two products. B. 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). C. 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. economies of scale are present in the production of two or more goods.
C
Generally, long-run elasticities of supply are: A. the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process. B. smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify. C. greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production. D. greater than short-run elasticities, because consumers have time to find substitutes for the good. E. greater than short-run elasticities, because existing inventories can be exploited during shortages.
C
Generally, long-run elasticities of supply are: A. greater than short-run elasticities, because existing inventories can be exploited during shortages. B. greater than short-run elasticities, because consumers have time to find substitutes for the good. C. greater than short-run elasticities, because firms can make alterations to plant size and input combinations to be more flexible in production. D. smaller than short-run elasticities, because the firm has made long-term commitments it cannot easily modify. E. the same as short-run elasticities, because technology is not assumed to change in the long-run adjustment process.
C
If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: A. technical efficiency. B. positive average product. C. diminishing marginal returns. D. free disposal.
C
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. It depends on what the rate of interest was. B. It depends on what the rate of inflation was between 1985 and 1992 C. Yes D. No
C
In a constant-cost industry, an increase in demand will be followed by: A. no increase in supply. B. an increase in supply that will not change price from the higher level that occurs after the demand shift. C. an increase in supply that will bring price down to the level it was before the demand shift. D. an increase in supply that will bring price down below the level it was before the demand shift. E. a decrease in demand to keep price constant.
C
In the short run, a perfectly competitive profit maximizing firm that has not shut down: A. is operating at the minimum of its AVC curve. B. can be at any point on its AVC curve. C. is operating on the upward-sloping portion of its AVC curve. D. is not operating on its AVC curve. E. is operating on the downward-sloping portion of its AVC curve.
C
Increasing returns to scale in production means: A. more than twice as much of only one input is required to double output. B. more than 10% as much of all inputs are required to increase output 10%. C. less than twice as much of all inputs are required to double output. D. isoquants must be linear.
C
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the average product of labor? A. AP = 5K/L B. AP = 5 C. AP = 5K D. AP = 5L
C
Marginal profit is negative when: A. marginal revenue is negative. B. total cost exceeds total revenue. C. output exceeds the profit-maximizing level. D. profit is negative.
C
Marginal revenue, graphically, is: A. the slope of a line from the origin to a point on the total revenue curve. B. the slope of a line from the origin to the end of the total revenue curve. C. the slope of the total revenue curve at a given point. D. the vertical intercept of a line tangent to the total revenue curve at a given point. E. the horizontal intercept of a line tangent to the total revenue curve at a given point.
C
Owners and managers: A. must be the same people. B. may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. C. may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners. D. may be different people with different but exactly complementary goals. E may be different people with the same goals.
C
Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? A. Output increases to cover the higher input cost. B. Output increases because the marginal cost curve shifts upward. C. Output decreases because the marginal cost curve shifts upward. D. Output decreases because the price of pizza must also increase.
C
Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? A. Administrative B. Normative C. Positive D. Executive
C
Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit? A. Marginal revenue and marginal cost increase B. Marginal cost may change but marginal revenue remains the same C. Marginal revenue increases but marginal cost remains the same D. Marginal revenue and marginal cost decrease
C
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 50 cookies is: A. $50 B. $25 C. $20 D. $60
C
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Which piece of information would NOT be helpful in calculating the marginal cost of the 75th unit of output? A. The total cost of 75 units B. The total cost of 74 units C. The firm's fixed cost D. The variable cost of 74 units E. The variable cost of 75 units
C
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. equal to the 45-degree line from the origin. B. not defined. C. a horizontal line. D. a vertical line.
C
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly, Fizzle and Sizzle: A. would be perfectly competitive if their purification costs were equal; otherwise, not. B. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. C. may or may not be perfect competitors, but their position on the river has nothing to do with it. D. cannot be perfect competitors because they are not identical firms.
C
Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. If Fizzle and Sizzle sell the same output at the same price and are otherwise identical, Fizzle's profit will be: A. higher than Sizzle's by $500,000 yearly. B. higher than Sizzle's by just less than $500,000 yearly. zero in the long run, and Sizzle will be out of business. C. the same as Sizzle's because Fizzle must be assigned an implicit cost of $500,000 yearly for economic rent. D. the same as Sizzle's because Sizzle will move to a more advantageous location in order to compete.
C
When labor usage is at 12 units, output is 36 units. From this we may infer that: A. the marginal product of labor is 3. B. none of the above C. the average product of labor is 3. D.the total product of labor is 1/3.
C
When the TR and TC curves have the same slope, A. they intersect each other. B. profit is zero. C. they are the furthest from each other. D. profit is negative. E.they are closest to each other.
C
Which of the following actions is NOT an example of the production coordination provided by firms? A. Set the production schedule for each week B. Pay wages to workers C. Establish industry safety regulations D. Manage production activities of workers
C
Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition? A. No firm has an incentive to enter the market. B. No firm has an incentive to exit the market. C. Prices are relatively low. D. Each firm earns zero economic profit. E. Each firm is maximizing profit.
C
Which of the following is NOT related to the slope of isoquants? A. The fact that inputs have diminishing marginal product B. The fact that more of either input increases output C. The fact that input prices are positive D. The fact that there are diminishing returns to inputs E. The fact that inputs have positive marginal product
C
Which of the following production functions exhibits constant returns to scale? A. q = log(KL) B. q = KL0.5 C. q = K + L D. q = KL
C
Which of the following situations is NOT possible? A. SAC and LAC are both increasing for some output levels. B. SAC and LAC are both decreasing for some output levels. C.All of the above are possible. D. SAC is decreasing but LAC is increasing for some output levels. E. SAC is increasing but LAC is decreasing for some output levels.
C
Which of the following statements identifies a key difference between condominiums and cooperative housing? A Condos tend to be less expensive. B Condo owners are not responsible for maintaining the common spaces in the building. C Co-op owners have more control over who can move into their building. D Co-op owners generally commit less time to the building governance.
C
Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic. The result of the tax in the long run will be that: A. Q falls from 30,000; P rises by $20,000. B. Q stays at 30,000; P rises by less than $20,000. C. Q falls from 30,000; P rises by less than $20,000. D. Q falls from 30,000; P does not change. E. Q stays at 30,000; P rises by $20,000.
C
A firm maximizes profit by operating at the level of output where: A. average revenue equals average cost. B. marginal revenue exceeds marginal cost by the greatest amount. C. total costs are minimized. D. marginal revenue equals marginal cost. E. average revenue equals average variable cost.
D
A firm never operates: A. at the minimum of its ATC curve. B. at the minimum of its AVC curve. C. on the downward-sloping portion of its ATC curve. D. on the downward-sloping portion of its AVC curve. E. on its long-run marginal cost curve.
D
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. none of the above D. a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices.
D
A straight-line isoquant: A. is impossible. B. would indicate that the firm could not switch from one output to another. C. would indicate that capital and labor cannot be substituted for each other in production. D. would indicate that capital and labor are perfect substitutes in production. E. would indicate that the firm could switch from one output to another costlessly.
D
An improvement in technology would result in: A. upward shifts of MC and reductions in output. B. upward shifts of MC and increases in output. C. downward shifts of MC and reductions in output. D. downward shifts of MC and increases in output. E. increased quality of the good, but little change in MC.
D
An isocost line reveals the A. costs of inputs needed to produce along an expansion path. B. costs of inputs needed to produce along an isoquant. C. output combinations that can be produced with a given outlay of funds. D. input combinations that can be purchased for a given total cost.
D
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. B. I and II are both false. C. I and II are both true. D. I is false, and II is true.
D
Does it make sense to consider the returns to scale of a production function in the short run? A. Yes, this is an important short-run characteristic of production functions. B. No, returns to scale is a property of the consumer's utility function. C. Yes, returns to scale determine the diminishing marginal returns of the inputs. D.No, we cannot change all of the production inputs in the short run.
D
If a competitive firm's marginal cost curve is U-shaped, then: A. its short-run supply curve is U-shaped too B. its short-run supply curve is the downward-sloping portion of the marginal cost curve C. its short-run supply curve is the upward-sloping portion of the marginal cost curve D. its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average variable cost curve E. its short-run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short-run average total cost curve
D
If the capital market is competitive, the user cost of capital equals: A. the rate of return of investing elsewhere. B. the return in that market. C. the rental rate of capital. D. all of the above.
D
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. above average total cost. B. below average fixed cost. C. between the average variable and average total cost curves D. below average total cost.
D
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 fixed cost. B. above average total cost. C. between the average variable and average total cost curves. D. below average total cost.
D
Marginal profit is negative when: A. marginal revenue is negative. B. profit is negative. C. total cost exceeds total revenue. D. output exceeds the profit-maximizing level.
D
Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions? A. No impact on the restaurant's decisions B. Ronny's will remain in business but will definitely produce less pizza. C. Ronny's will definitely shut down. D. Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down.
D
Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book). Under price-taking behavior, the total revenue curve should be: A. an inverted U-shaped curve (first increasing and then decreasing). B. a U-shaped curve (first decreasing and then increasing). C. a horizontal line with vertical axis intercept equal to the market price. D. a straight line from the origin with slope equal to the market price.
D
The cost-output elasticity is used to measure: A. steepness of the production function. B. the curvature in the fixed cost curve. C. economies of scope. D. economies of scale.
D
The function which shows combinations of inputs that yield the same output is called a(n): A.isocost curve. B. production possibilities frontier. C. production function. D. isoquant curve.
D
The long-run supply curve in a constant-cost industry is linear and: A. upward-sloping. B. vertical. C. could have any constant slope. D. horizontal. E. downward-sloping.
D
The slope of the total product curve is the: A. marginal rate of technical substitution. B. average product. C. slope of a line from the origin to the point. D. marginal product.
D
The supply curve for a competitive firm is A. its entire MC curve. B. its MR curve. C. its MC curve above the minimum point of the ATC curve. D. its MC curve above the minimum point of the AVC curve. E. the upward-sloping portion of its MC curve.
D
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. economies of scale. B. decreasing returns to scale. C. increasing returns to scale. D. diseconomies of scope.
D
What do cooperative firms do if they make a profit? A. Cooperatives never earn profits, so this issue does not occur. B. Cooperatives must pay their profits to the federal governments as a windfall profit tax. C. Cooperatives must keep half of the profits and return the other half to their members. D. Cooperatives generally return the profits to their members as a dividend.
D
Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? A. Legal services B. Petroleum production C. Medical care D. All of the above
D
Which of the following events does NOT occur when market demand shifts leftward in an increasing-cost industry? A. Initially, the output produced by existing firms declines along the short-run market supply curve. B. The market price declines below the minimum LAC due to the short-run supply response. C. The market supply curve shifts leftward as some firms exit the market when the market price is below the minimum LAC. D. As firms exit, the market price rises and attracts other firms to enter the market. E. The LAC curve shifts downward as output falls.
D
Which of the following is true regarding the relationship between returns to scale and economies of scope? A. A firm experiencing increasing returns to scale must also experience economies of scope. B. Economies of scale and economies of scope must occur together. C. A firm experiencing economies of scope must also experience increasing returns to scale Cct! D. There is no definite relationship between returns to scale and economies of scope.
D
A price taker is: A a firm that accepts different prices from different customers. B a consumer who accepts different prices from different firms. C a perfectly competitive firm. D a firm that cannot influence the market price. E both C and D
E
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? A. They cannot be tangent to each other. B. They must intersect, with TC cutting TR from below. C. They must intersect, with TC cutting TR from above. D. They must be tangent to each other. E. They must have the same slope.
E
Higher input prices result in: A. downward shifts of MC and increases in output. B. increased demand for the good the input is used for. C. upward shifts of MC and increases in output. D. downward shifts of MC and reductions in output. E. upward shifts of MC and reductions in output.
E
If current output is less than the profit-maximizing output, which must be true? A. Total revenue is less than total cost. B. Average revenue is less than average cost. C. Average revenue is greater than average cost. D. Marginal revenue is less than marginal cost. E. Marginal revenue is greater than marginal cost.
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. D. A and B are correct. B. average total cost equals marginal cost. C. average total cost is positive and constant. E. B and C are correct.
E
Short-run supply curves for perfectly competitive firms tend to be upward sloping because: A. marginal fixed costs equal zero. B. marginal costs increase as output increases. D. B and C are correct. C. there is diminishing marginal product for one or more variable inputs. E. A and B are correct.
E
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 marginal cost. D. the slope of long-run average cost. E. economies of scale.
E
The difference between the economic and accounting costs of a firm are: A. the sunk costs incurred by the firm. B. the accountant's fees. C. the explicit costs of the firm. D. the corporate taxes on profits . E. the opportunity costs of the factors of production that the firm owns.
E
The production function is: Q = 4L1/2K1/2. What is the total cost of producing 200 units of output? A. 2000 B. 100 C. 1500 D. none of the above E. 1000
E
When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer that: A. the firm's marginal cost curve must be flat. B. the firm's marginal costs of production never fall below $5. C. the firm's average cost of production was less than $10. D. the firm's total cost of producing 100 tons is less than $1000. E. the minimum value of the firm's average variable cost lies between $5 and $10.
E
Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition? A. Each firm earns zero economic profit. B. No firm has an incentive to enter the market. C. No firm has an incentive to exit the market. D. Each firm is maximizing profit. E. Prices are relatively low.
E
If current output is less than the profit-maximizing output, then the next unit produced A. will increase revenue without increasing cost. B. will increase cost more than it increases revenue. C. may or may not increase profit. D. will decrease profit. E. will increase revenue more than it increases cost.
E.
