ECO Exam 2

The firm's profit it represented by what area?

ABCD

The firm is producing Q units. Which area represents producer surplus?

ABHF

What is the average product of 20 workers?

1.1 units of output

What is the marginal product of the 25th worker?

1.6 units of output

Suppose a firm has a weekly cost function of C(Q)=8Q+(Q62/100) and a marginal cost function of MC=8+(Q/50). What is the efficient scale of production, and what is the minimum average cost?

Q=8; AC=$8

Suppose that a firm uses both labor and capital as inputs. The Firm's long-run production function is Q=F(L,K)=5sqrt(L)sqrt(K). If the firm has 100 units of capital what is its short run production function?

Q=F(L,K)=50sqrt(L)

Suppose a firm's short-run production function is given by Q=F(L)=4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's variable cost function is:

VC(Q)=$12Q

If marginal cost is_____ average cost, then average cost will_____.

greater than; increase

A firm that is a price taker faces a perfectly _____ demand curve.

horizontal

According to the Law of Diminishing Marginal Returns, as additional units of one input are employed as all other inputs are held constant, total output will eventually

increase at a increasing rate

Suppose the MPl=100 MPk=80. If W=25 and R=20, then a firm:

is producing its output at the lowest possible cost

As any firm with decreasing returns to scale increases its output:

its marginal cost of production must rise.

Which diagram represents isoquants for inputs that are perfect substitutes?

C

Jessica owns a company that pre-packaged sandwiched for convenience stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily cost for making sandwiches is C(Q)=2.5Q =(Q^2/40) and her marginal cost is MC=2.5+(Q/20). What is the average cost of a sandwich at the quantity of sandwiches Jessica should be selling each day?

$3.75

Suppose a firm has a Cobb-Douglas weekly production function Q=F(L,K)=25L^.5K^.5, where L is the number of workers and K is units of capital. MRTSlk is K/L. The wage rate is $900 per week, and a unit of capital costs $400 per week. Assuming no fixed costs, what is the firm's total cost of production if it uses least-cost input combination to produce 675 units of output?

$48,600

What is the marginal cost when output is 200 units?

$9

The slope of an isocost line is equal to

-(wage rate/rental rate of capital)

Suppose a firm moves along the isoquant from point a to point b. The rate of substitution for labor with capital is:

-2

Which of the following formulas represents the marginal rate of technical substitution of labor for capital?

-change in K/change in L

A price taking firm's variable cost function is C=Q^3, where Q is the output per week. It has an avoidable fixed cost of $2,000 per week. Its marginal cost is MC=3Q^2. What is the profit maximizing output if the price is P=$192.

0

Suppose the MPl=200 MPk=240. If R=30, then at which of the following wages would the firm want to hire fewer workers and more capital?

25

Suppose that a firm uses both labor and capital as inputs. The Firm's long-run production function is Q=F(L,K)=5sqrt(L)sqrt(K). The firm has 100 units of capital. If the firm uses an efficient production method, how much output does it produce in the short run if it hires 25 workers?

250

What is the marginal product of the 3rd worker?

4 units of output

Jessica owns a company that pre-packaged sandwiched for convenience stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily cost for making sandwiches is C(Q)=2.5Q =(Q^2/40) and her marginal cost is MC=2.5+(Q/20). How many sandwiches should Jessica produce each day?

50

A price taking firm's variable cost function is C=Q^3, where Q is the output per week. It was a sunk fixed cost of $2,000 per week. Its marginal cost is MC=3Q^2. What is the profit maximizing output if the price is P=$192.

8

The Cobb-Douglas production function F(L,K)=AL<K> will exhibit decreasing returns to scale when:

<+> is less than 1

Suppose a firm's short-run production function is given by Q=F(L)=4L. If the wage rate is $12 and the firm has sunk costs of $300, then the firm's cost function is:

C(Q)=$300+$12Q

If Q represents a firm's level of output, W represents the wage paid to labor )L) and R is the cost of capital (K), then which of the following represents the firm's cost function?

C(Q)=WL+RK

If Q represents a firm's level of output, W represents the wage paid to labor (L) and R is the cost of capital (K), then which of the following represents the firm's isocost line?

C=(W+R)Q

The firm is producing Q units. Which area represents avoidable cost?

CHGD

Which graph best represents a variable cost function?

Graph B

Which graph represents deceasing returns to scale?

Graph B

Suppose a firm's total cost of production is $40,000 per week, the wage rate is $1,000 per week and the cost of capital is $2,000. Which of the following gives the equation for the firm's isocost line?

K=20-.5L

Suppose a firm has a Cobb-Douglas weekly production function Q=F(L,K)=25L^.5K^.5, where L is the number of workers and K is units of capital. MRTSlk is K/L. The wage rate is $900 per week, and a unit of capital costs $400 per week. What is the least-cost input combination for producing 675 units of output?

L=18; K=40.5

How would a $10 increase in per-unit input costs affect a price-taking firm's supply curve?

MC and AC would both increase by $10.

Whenever a firm uses input X but not input Y, then at the chosen input combination:

MRTSxy=-Px/Py

Jessica owns a company that pre-packaged sandwiched for convenience stores. The market price for a sandwich is $5 and Jessica is a price-taker. Her daily variable cost for making sandwiches is C(Q)=2.5Q =(Q^2/40) and her marginal cost is MC=2.5+(Q/20). She is currently producing sandwiches according to the quantity rule. What should Jessica do if she has an avoidable fixed cost of $50 a day?

She should keep producing sandwiches because she is maximizing profit at the current quantity.

What type of cost has NO impact on determining the profit-maximizing sales quantity>

Sunk fixed costs

Two inputs ______ when they must be combined in a fixed ratio.

are perfect complements

Diminishing returns set in with the ______ worker.

fourth

Suppose the MPl=50 MPk=30. If W=25 and R=10, then a firm:

could reduce costs by employing more labor and less capital

Suppose a firm uses only capital and labor to produce output. When the firm doubles the amount of both inputs. output increases by less than double. The firm exhibits:

decreasing returns to scale

A price-taking fir's marginal revenue is _____ the price of its output.

equal to

When a firm's profit maximizing sales level is positive, its marginal revenue is_____ its marginal cost at that quantity.

equal to

A _____ cost is _____ if the firm doesn't incur the cost if it produces no output.

fixed; avoidable

When the marginal product of an input is _________ than the average product, the marginal units of the input ________ the average product.

larger, raise

Returns to scale is a ______ concept because _______.

long-run; it refers to changes in all of the firm's inputs

If labor is measured along the horizontal axis and capital is measured along the vertical axis, and increase in the wage rate will cause the isocost line to:

rotate clockwise, causing the firm to use less labor and more capital.

The marginal product of labor is defined as

the additional output produced by the last change in units of labor hired.

Suppose the firm increases output from 20 to 30 units. In the short run:

the firm will employ the same amounts of labor and capital as it would in the long run.