Chapter 5

55. Costs that are forever lost after they have been paid are:

C. Sunk costs.

4. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 10 units of capital and 10 units of labor are employed?

A. 3.

7. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 5 units of capital and 10 units of labor are employed?

A. 3.

67. Which of the following cost functions exhibits cost complementarity?

A. -4Q1Q2 + 8Q1.

21. For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of output is

A. 10.

15. The production function Q = L.5K.5 is called

A. Cobb Douglas.

24. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit. The profit-maximizing quantity of labor is

B. 1.

60. What is the marginal cost of producing 90 units of output?

B. 8.75.

25. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit. The maximum profits are

A. 5.

69. Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced?

A. C = 50 - 5Q1Q2 + 0.5Q12 + Q22.

70. The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:

A. Long run average total cost curve.

Which of the following sets of economic data is minimizing the cost of producing a given level of output?

A. MPL = 20, MPK = 40, w = $16, r = $32.

27. The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:

A. Production function.

33. If the last unit of input increases total product we know that the marginal product is:

A. positive.

17. You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm:

C. should use more K and less L to cost minimize.

12. If a firm's production function is Leontief and the wage rate goes up the

. D. cost minimizing combination of capital and labor does not change.

11. For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is

A. 16.

54. Costs that change as output changes are:

A. Variable costs.

18. If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is

B. 1/5.

6. Suppose the production function is given by Q = min {K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

B. 4.

10. For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is

B. 50.

52. In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

B. Its price falls.

68. For the multiproduct cost function C(Q1,Q2) = 100 + 2Q1Q2 + 4Q12, what is the marginal cost function for good one?

B. MC1 = 2Q2 + 8Q1.

56. Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

C. $3.4 million.

8. Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?

C. 11.

58. What is the average variable cost of producing 50 units of output?

C. 14.

20. For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is

C. 30.

5. Suppose the production function is given by Q = min{K, L}. How much output is produced when 10 units of labor and 9 units of capital are employed?

C. 9.

13. Which of the following statements is incorrect?

C. Fixed costs are always greater than sunk costs.

. The change in total output attributable to the last unit of an input is the:

C. Marginal product.

28. The creation of a new product is referred to as:

C. Product innovation.

53. Fixed costs exist only in:

C. The short run.

35. What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40?

D. $250.

39. Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized?

D. 1000 units.

9. For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is

D. 14.

59. What is the average total cost of producing 160 units of output?

D. 19.38.

38. Firm managers should use inputs at levels where the:

D. Marginal benefit equals marginal cost and value marginal product of labor equals wage.

34. Total product begins to fall when:

D. Marginal product is zero.

26. The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by:

D. Technology.

22. Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

D. The MRTS is equal to the ratio of input prices and the marginal product per dollar spent on all inputs is equal.

36. It is profitable to hire units of labor as long as the value of marginal product

D. exceeds wage.

14. You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm:

C. should use more L and less K to cost minimize.

16. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at 25 units. The profit-maximizing quantity of labor is

D. none of the statements associated with this question are correct.

19. For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is

D. none of the statements associated with this question are correct.

23. If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is

D. none of the statements associated with this question are correct.