ECON 140
f the interest rate is 10% and cash flows are $1000 at the end of year one and $2000 at the end of year two, what is the present value of these cash flows? (Show your calculations).
$2562
Suppose all individuals are identical, and their monthly demand for Internet access from a certain leading provider can be represented as p = 5 - (1/2)q where p is price in $ per hour and q is hours per month. The firm faces a constant marginal cost of $1. If the firm follows the 2-part pricing, find the number of hours sold, and the monthly access fee.
8 hours, $16
A firm has three different production facilities, all of which produce the same product. While reviewing the firm's cost data, Jasmin, a manager, discovers that one of the plants has a higher average cost than the other plants and suggests closing that plant. Another manager, Joshua, notes that the high-cost plant has high fixed costs but that the marginal cost for that plant is lower than in the other plants. He says that the high-cost plant should not be shut down but should expand its operations. Who is right? Just considering the short run time frame, the manager who is correct is A. Joshua because fixed costs are unavoidable but marginal costs are not. B. Joshua because fixed costs are not sunk costs but marginal costs are. C. Joshua because fixed costs are opportunity costs but marginal costs are not. D. Jasmin because fixed costs affect marginal profit but marginal costs do not. E. Jasmin because fixed costs reduce profit but marginal costs do not.
A
A firm produces two products: q1 and q2. The firm's total cost curve is given by: TC=$6,000+4q1q2+40q1+90q2. If q1=50 and q2=60, does this firm have economies of scopeLOADING...? A. No. B. Yes.
A
A production function tells the firm A) the maximum output it can expect to produce with a given mix of inputs. B) the average output it can expect to produce with a given mix of inputs. C) the minimum output it can expect to produce with a given mix of inputs. D) the average level of production for other firms in the industry.
A
Airline manufacturing is A. an oligopoly because there are only a few airline manufacturers. B. monopolistically competitive because airplanes are a homogeneous product. C. perfectly competitive because airline manufacturers are price takers. D. a monopoly because there are no entry barriers to airline manufacturing. E. a monopoly because airplanes have no close substitutes.
A
Big Oranges produces orange juice. To make its juice, Big Oranges harvests oranges from its own farms in addition to purchasing oranges from other locally owned farms. Big Oranges is ________.
A
During a hot summer weekend, the only supermarket near the beach decides to charge consumers $6.50 for the first 12-pack of soda pop, $5.50 for the second and third 12-packs, and $5.25 for all subsequent purchases during the same shopping trip. This would be considered A) an example of declining-block pricing. B) not very smart since consumers will buy soda pop regardless of the price. C) an example of monopoly pricing. D) an example of an inelastic demand curve.
A
From what you know, what is the effect of this invention on the marginal product of labor (MPL) A. The technological change increases MPL. B. The technological change has no effect on MPL. C. To determine the effect of the technological change on MPL, you would need to know its effect on capital's productivity. D. The technological change decreases MPL. E. To determine the effect of the technological change on MPL, you would need to know its effect on the marginal rate of technical substitution.
A
If a firm doubles its inputs, and output more than doubles, then there are A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) decreasing marginal returns.
A
In what types of industries would you expect to see substantial learning by doing? You would expect to see the strongest effect of "learning by doing" in industries A. producing new products. B. benefiting from increasing returns to scale. C. without economies of scope. D. that are capital-intensive. E. with stable technologies.
A
Managerial economics A. helps managers make decisions in the face of scarcity. B. describes how pay for managers is set. C. explains which products consumers will buy. D. ensures managers always make good decisions.
A
Society faces trade-offs because of A. scarcity. B. the profit motive. C. government regulations. D. price setting by firms.
A
Suppose the cost (C) of producing two goods, x and y, can be represented as C(x,y)=ax+by+cxy. Consider whether the firm experiences economies of scopeLOADING.... If economies of scope are zero, then which of the following must be true? A. c = 0 B. c < 0 C. a+b=−c D. c>0 E. a=-c
A
Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production? A) MC = AVC B) MC = AC C) MC > AFC D) All of the above.
A
The United Kingdom started regulating the size of grocery stores in the early 1990s, and today, the average size of a typical UK grocery store is roughly half the size of a typical U.S. store and two-thirds the size of a typical French store (Haskel and Sadun, 2011). What implications would such a restriction on size have on a store's average costs. Discuss in terms of economics of scale and scope. Assume smaller grocery stores produce fewer goods jointly. A. The long-run average cost of production for U.K. grocery stores is lower if there are diseconomics of scope. B. The long-run average cost of production for U.K. grocery stores is lower if there are economies of scope. C. The long-run average cost of production for U.K. grocery stores is higher if there are no economies of scope. D. Grocery store size does not affect the long-run average cost of production if there are economies of scope. E. Grocery store size does not affect the long-run average cost of production if there are diseconomies of scope.
A
The market for cable television in a city is A. a monopoly because there is only one cable supplier. B. an oligopoly because cable television has no close substitutes. C. an oligopoly because entry into the cable market is easy. D. monopolistically competitive because cable companies sell a differentiated product. E. perfectly competitive because cable companies are price takers.
A
What is the present value of a payment of $5,000 at the end of one year and a second payment of $7,000 at the end of two years if the interest rate is 5 percent? A. $11,111.11 B. $10,985.14 C. $12,250.32 D. $11,201.84
A
Which of the following statements is true? A. Human resource managers design compensation systems to encourage employees to work hard. B. A production manager's objective is normally to achieve a production target at the highest possible cost. C. Managers are not constrained by resource scarcity. D. A marketing manager must allocate an advertising budget to promote the product least effectively.
A
Why must isoquants be thin? Isoquants must be thin because we assume the production A. is efficient. B. is in the short run. C. is comprised of fixed inputs. D. exhibits diminishing returns. E. occurs with technology.
A
You work for a large mineral exploration company and propose buying new state-of-the-art equipment. The equipment is expensive and so is training employees to use it, but it will increase the yield of exploration activities in the future. The CEO of the company says that because your plan has high current costs it will depress the stock market value of the company. Does an investment that lowers current profit but increases future profit necessarily lower current stock prices? Explain briefly. An investment that lowers current profit but increases future profit A. may increase stock price if investors are well informed. B. may decrease stock price if investors behave rationally. C. may increase stock price if investors have myopic preferences. D. may decrease stock price if investors plan to hold the stock long-term.
A
A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MPK) is an additional 112 bottles per day, and the marginal product of labor (MPL) is 99 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company A. is not minimizing the cost of production because MPK/MPL=r/w and should use more labor and fewer machines. B. is not minimizing the cost of production because MPK/r<MPL/w and should use more labor and fewer machines. C. is not minimizing the cost of production because MPK/r<MPL/w and should use less labor and more machines. D. is minimizing the cost of production because MPK/r=MPL/w. E. is not minimizing the cost of production because MPK/r>MPL/w and should use less labor and more machines.
B
A competitive firm observing a rival firm raising its price will: A. increase its profits by also raising its price. B. ignore its rival's action. C. lower its price and capture the entire market. D. increase production because it knows that consumers will substitute toward its relatively less expensive product.
B
CEOs should focus on A. getting the best pay package for the senior management team. B. maximizing firm profits. C. beating their competitors. D. minimizing costs.
B
CEOs should focus on A) beating their competitors. B) maximizing firm profits. C) getting the best pay package for the senior management team. D) minimizing costs.
B
Economic theory is: A. a prediction about cause and effect. B. the development and use of a model to test hypotheses. C. the specification of a set of assumptions. D. None of the above.
B
Economies of scope exist between book publishing and magazine publishing if A. the cost of publishing a book falls over time as the publisher acquires more experience. B. the cost of producing the magazines and books together is less than producing them separately. C. the cost of publishing a book is not subject to diminishing marginal returns. D. the cost of publishing a magazine is lower for firms that publish many magazines than for firms that publish only one magazine.
B
Economists make many assumptions to simplify their models because: A. no one would understand complex models. B. the real world is too complex to analyze fully. C. they are lazy. D. None of the above.
B
Given the production function q = 4L + K, what is the marginal product of labor when capital is fixed at 50? A) 54 B) 4 C) 50 D) 250
B
If you are running a winery and you need one bottle for every 750ml of wine, then your production function A) is inefficient. B) is considered "fixed-proportion." C) will have a diminishing marginal rate of technical substitution. D) has downward-sloping, straight line isoquants.
B
Joey's snow shoveling service, with Joey being the only employee, recently traded in his snow shovel for a gasoline-powered snow blower. Joey still requires one worker per blower; however, more snow is now moved in the same amount of time as before. This is an example of A. labor saving technical change. B. neutral technical change. C. nonneutral technical change. D. organizational change.
B
Labor saving nonneutral technical progress allows a firm to A) produce more output with the same inputs. B) use less labor and the same amount of other inputs to produce the same level of output. C) use more labor to produce the same level of output. D) use less labor and more of other inputs to produce the same level of output.
B
Many hospitals have regularly scheduled surgery and active emergency departments. Based on the information in the Mini-Case "Medical Economies of Scope," could it be cost effective to have separate emergency centers? What do you think are the reasons for these economies or diseconomies of scope? According to the information in the Mini-Case, having emergency centers separate from non-emergency services A reason for these diseconomies of scope is that emergency and non-emergency centers A. supply a homogeneous product. B. provide distinct types of medical services. C. use the same pieces of medical equipment. D. can easily provide both types of medical services.
B
Market structure has implications for a firm's profitability. Which of the following statements is true? A. Because it possesses significant market power, an oligopoly firm will always earn positive economic profits in the long-run. B. A competitive firm maximizes profits by producing at the quantity where marginal revenue equals marginal cost. C. A monopolist maximizes profit by producing at the quantity where marginal revenue equals marginal cost, but a competitive firm, being a price taker, must maximize revenue. D. A monopolistic firm, since it faces a downward-sloping demand curve, can earn positive economic profits in the long-run.
B
Over the past 10 years, cloud storage services such as Dropbox, Google Drive, Apple's iCloud, and Microsoft's OneDrive have taken over computer storage. In addition, many major corporations have adopted "flatter" organizational structures, with fewer layers of middle management. At the same time, major corporations have greatly increased their use of online meeting technologies such as Cisco's WebEx, GoToMeeting, Google+ Hangouts, and others. Which of these innovations is a new product innovation, which is a process innovation, and which is an organizational innovation. Explain. An organizational innovation is A. online meeting technology because it is a new way of organizing firms. B. flatter organizational structures because it is a new way of organizing firms. C. online meeting technology because it is an improved method of producing an existing product. D. flatter organizational structures because it is an improved method of producing an existing product. E. cloud storage because it changes the way we live.
B
Platinum Pipeline Inc. needs a Caterpillar D6T dozer to install water and sewer lines. How does its fixed cost change if it can rent a dozer rather than buy one? If Platinum Pipeline can rent a dozer (instead of having to buy one), then it is likely that its fixed cost of production will A. remain unchanged because the dozer will remain a fixed cost. B. decrease because the dozer will become a variable cost. C. increase because the dozer will likely become an opportunity cost. D. decrease because the dozer will become a sunk cost.
B
The profit−maximizing manager of Big Farms wants to purchase a large piece of farm equipment. The manager has two financing options from two different banks. Big Bank will allow the manager to make five equal payments of $22,000 at the end of each of the next five years. Best Bank will allow the manager to make a payment of $10,000 at the end of the next four years and then make a balloon payment of $72,000 at the end of the fifth year. If the interest rate is 4 percent, which of the following statements is true? A. The manager of Big Farms should select Big Bank's offer as the present value of the payment plan is $97,939.60, which is lower than the payment plan offered by Best Bank. B. The manager of Big Farms should select Best Bank's offer as the present value of the payment plan is $95,477.75, which is lower than the payment plan offered by Big Bank. C. The present value of the two payment plans is exactly the same, so the manager of Big Farms is indifferent between the two payment plans. D. The manager of Big Farms should select Big Bank's offer because the total repayment is less than the total repayment at Best Bank.
B
Which of the following is a consequence of "going public?" Selling shares in an initial public offering results in A. no longer seeking to maximize profit. B. ownership becoming broadly distributed. C. original owners gaining control of the firm. D. the inability to raise money. E. unlimited liability.
B
A bottling company uses two inputs to produce bottles of the soft drink Sludge: bottling machines (K) and workers (L). The isoquants have the usual smooth shape. The machines cost $1,000 per day to run (r), and the workers earn $200 per day (w). At the current level of production, the marginal product of machines (MPK) is an additional 162 bottles per day, and the marginal product of labor (MPL) is 98 more bottles per day. Is this firm producing at minimum cost? If it is minimizing cost, explain why. If it is not minimizing cost, explain how the firm should change the ratio of inputs it uses to lower its cost. The bottling company A. is not minimizing the cost of production because MPK/MPL=r/w and should use more labor and fewer machines. B. is minimizing the cost of production because MPK/r=MPL/w. C. is not minimizing the cost of production because MPK/r<MPL/w and should use more labor and fewer machines. D. is not minimizing the cost of production because MPK/r<MPL/w and should use less labor and more machines. E. is not minimizing the cost of production because MPK/r>MPL/w and should use less labor and more machines.
C
A cost function has economies of scale if A) average fixed costs fall as production increases. B) total costs fall as production increases. C) the average total cost falls as production increases. D) it is less expensive to produce goods jointly rather than separately.
C
A production possibilities frontier that is a downward-sloping straight line implies A. economies of scale. B. diseconomies of scale. C. no economies of scope. D. economies of scope.
C
A type of firm that would not normally maximize profit is A. a partnership. B. a firm owned by shareholders. C. an organization pursuing the public interest. D. a corporation. E. a sole proprietorship.
C
During recessions, American firms lay off a larger proportion of their workers than Japanese firms do. (It has been claimed that Japanese firms continue to produce at high levels and store the output or sell it at relatively low prices during the recession.) Would you expect the average product of labor to be higher in Japan or the United States? Why? Assume that the production function remains unchanged over a period that is long enough to include many recessions and expansions, that Japanese and American firms have identical production functions, and that Japan and the U.S. produce using the same ratio of factors during good times. A. With diminishing marginal returns, the average product of labor is higher in Japan because the marginal product of labor rises when workers are laid off. B. With decreasing returns to scale, the average product of labor is higher in the U.S. because the marginal product of labor rises when workers are laid off. C. With diminishing marginal returns, the average product of labor is higher in the U.S. because the marginal product of labor rises when workers are laid off. D. With diminishing marginal returns, the average product of labor is lower in the U.S. because the marginal product of labor decreases when workers are laid off. E. With constant returns to scale, the average product of labor is equal in the U.S. and Japan because the marginal product of labor does not change when workers are laid off.
C
Fast Prints has a contract with local couriers to deliver their products to customers located throughout the city and it cost Fast Prints $5,000 in legal fees to establish the contracts. Fast Prints charges $25 for each set of 500 copies delivered in the city. What are Fast Prints' transaction costs? A. $25 B. $4,975 C. $5,000 D. $5,025
C
If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as A. the monthly mortgage payment the firm must pay. B. the price the firm paid divided by twelve. C. the rent the firm could earn if it rented the building to another firm. D. zero.
C
If both the price of labor and capital rise in the same proportion, which of the following will occur (holding production costs constant)? A. The isoquant makes a parallel shift outward. B. The isocost line becomes flatter. C. The isocost line makes a parallel shift inward. D. The isocost line becomes steeper. E. The isocost line shifts outward.
C
Many hospitals have regularly scheduled surgery and active emergency departments. Based on the information in the Mini-Case "Medical Economies of Scope," could it be cost effective to have separate emergency centers? What do you think are the reasons for these economies or diseconomies of scope? According to the information in the Mini-Case, having emergency centers separate from non-emergency services A. would not be cost effective due to diseconomies of scope. B. would not be cost effective due to economies of scope. C. would be cost effective due to diseconomies of scope. D. would be cost effective due to economies of scope.
C
Most private sector firms want to maximize A. cost. B. revenue. C. profit. D. All of the above.
C
Over the past 10 years, cloud storage services such as Dropbox, Google Drive, Apple's iCloud, and Microsoft's OneDrive have taken over computer storage. In addition, many major corporations have adopted "flatter" organizational structures, with fewer layers of middle management. At the same time, major corporations have greatly increased their use of online meeting technologies such as Cisco's WebEx, GoToMeeting, Google+ Hangouts, and others. Which of these innovations is a new product innovation, which is a process innovation, and which is an organizational innovation. Explain. A process innovation is A. flatter organizational structures because it is a new way of organizing firms. B. online meeting technology because it changes the way we live. C. online meeting technology because it is an improved method of producing an existing product. D. cloud storage because it is an improved method of producing an existing product. E. cloud storage because it changes the way we live.
C
Profit is A. used to beat a company's rivals. B. maximized when the marketing department coordinates with the production department. C. the difference between a firm's revenues and its costs. D. maximized when revenue is maximized.
C
Sue is taking an accounting job she was offered that pays $67,000 per year. She also had two other offers, a sales job paying $71,000 per year and a marketing job paying $65,000 per year. What is Sue's opportunity cost of taking the accounting job? A) $65,000 B) $67,000 C) $71,000 D) $136,000
C
Suppose that q=40, L=5, and K=15 is a point on the production function q=f(L,K). Is it possible for q=40, L=5, and K=16 to also be a point on this production function? Why or why not? The combination q=40, L=5, and K=16 A. cannot be a point because we assume production functions are comprised of fixed inputs. B. cannot be a point because we assume production functions represent the short run. C. cannot be a point because we assume production functions are efficient. D. can be a point because we assume production functions exhibit diminishing returns. E. can be a point because we assume production functions hold technology constant.
C
Suppose the firm faces a price of $37, an average variable cost of $25, and has an average fixed cost of $5. In the short-run, the firm A. will be unable to determine what to do. B. will just cover costs. C. will earn an economic profit. D. None of the above.
C
Suppose there is a relatively large number of firms, a high degree of product differentiation, and free entry. What market structure is most likely to form? A. Either a monopolistic or competitive market B. A competitive market C. A monopolistically competitive market D. An oligopolistic market
C
The primary participants in a market are A. firms and their rivals, with government playing a minimal role. B. customers who buy products and CEOs who make all of the decisions for a firm, with government having no influence on the market. C. firms who supply the product and consumers who buy it, but government policies such as taxes also play an important role in the operation of markets. D. None of the above.
C
What are some of the major reasons why firms vertically integrate? One reason why firms vertically integrate is A. to promote opportunistic behavior. B. to take on more government regulations. C. to ensure the supply of inputs. D. to pay transation costs. E. to avoid varying the production process.
C
What is the principle distinction between explicit costs and implicit costs? A. Implicit costs are usually larger than explicit costs. B. There is no real difference between explicit and implicit costs. C. Explicit costs are direct, out-of-pocket payments, while implicit costs are all opportunity costs. D. Implicit costs must be paid immediately, but explicit costs need to be paid only in the long run.
C
What is the principle distinction between explicit costs and implicit costs? A. There is no real difference between explicit and implicit costs. B. Implicit costs must be paid immediately, but explicit costs need to be paid only in the long run. C. Explicit costs are direct, out-of-pocket payments, while implicit costs are all opportunity costs. D. Implicit costs are usually larger than explicit costs.
C
When interacting with a small number of rival firms, a manager uses a A. plan to maximize cost. B. macroeconomic model. C. strategy. D. All of the above.
C
Which of the following is an example of a positive statement? A. Since this good is bad for you, you should not consume it. B. If this good is bad for you, you should not consume it. C. If you consume this good, you will get sick. D. None of the above.
C
Which of the following is true? A. A positive statement concerns what somebody believes should happen; a normative statement concerns what will happen. B. A normative economic statement is a testable hypothesis about cause and effect. C. A normative statement concerns what somebody believes should happen; a positive statement concerns what will happen. D. None of the above are true.
C
A firm that backward vertically integrates A) moves downstream in the production process. B) requires that the production process be relatively simple. C) has to merge with another firm. D) is producing at least some of its own inputs.
D
A producer of ballpoint pens has been purchasing ink from an ink supplier and is considering acquiring the ink supplier. Would the pen company be more or less likely to vertically integrate by buying the ink manufacturer if the government imposes an ink sales tax? If the government taxes ink sales, then the ballpoint pen company A. will be more likely to vertically integrate to increase corporate governance. B. will be less likely to vertically integrate to avoid paying taxes. C. will be more likely to vertically integrate to increase revenue. D. will be more likely to vertically integrate to avoid paying ink sales taxes. E. will be more likely to vertically integrate to limit liability.
D
Assuming that capital is fixed in the short run, if a firm lays off workers during a recession how will the firm's marginal product of labor change? The firm's marginal product of labor will A. decrease. B. become negative. C. become zero. D. increase. E. remain unchanged.
D
Consider Boeing (a producer of jet aircraft), General Mills (a producer of breakfast cereals), and Wacky Jack's (which claims to be the largest U.S. provider of singing telegrams). For which of these firms is the short run the longest period of time? For which is the long run the shortest? Explain. The short run is longest for A. Boeing because aircraft production is labor-intensive and the long run is shortest for Wacky Jack's because providing singing telegrams is capital-intensive. B. Boeing because aircraft production is relatively expensive and the long run is shortest for Wacky Jack's because providing singing telegrams is relatively cheap. C. Boeing because it is the largest provider of aircraft and the long run is shortest for General Mills because it is a relatively small cereal producer. D. Boeing because aircraft production requires large, specialized machines and the long run is shortest for Wacky Jack's because providing singing telegrams requires primarily labor. E. Boeing because aircraft production is most profitable and the long run is shortest for Wacky Jack's because providing singing telegrams is least profitable.
D
If a competitive firm is producing a profit-maximizing level of output and chooses to continue operating at a loss, which of the following must be true? A. AC ≥ p≥AVC. B. p = MC. C. MR = MC. D. All of the above.
D
Over a five-year span, the Acme Company reduced the amount of labor it hired. At the same time, the marginal productivity of labor increased. Which of the following is a possible explanation for this observation? A. organizational innovation. B. labor saving technical change. C. the law of diminishing marginal returns. D. All of the above.
D
Over the past 10 years, cloud storage services such as Dropbox, Google Drive, Apple's iCloud, and Microsoft's OneDrive have taken over computer storage. In addition, many major corporations have adopted "flatter" organizational structures, with fewer layers of middle management. At the same time, major corporations have greatly increased their use of online meeting technologies such as Cisco's WebEx, GoToMeeting, Google+ Hangouts, and others. Which of these innovations is a new product innovation, which is a process innovation, and which is an organizational innovation. Explain. A new product innovation is A. online meeting technology because it changes the way we live. B. online meeting technology because it is an improved method of producing an existing product. C. cloud storage because it is an improved method of producing an existing product. D. cloud storage because it changes the way we live. E. flatter organizational structures because it is a new way of organizing firms.
D
Should a competitive firm ever produce when it is losing money? Why or why not? A. No, the firm should shutdown if it is making an accounting loss. B. Yes, as long as revenue can cover some portion of total variable costs. C. No, the firm should shutdown if it is making an economic loss. D. Yes, as long as revenue can cover total variable costs plus any portion of fixed costs.
D
Should a firm shut down if its weekly revenue is $1,000, its variable cost is $600, and its fixed cost is $1,300, of which $550 is avoidable if it shuts down? Why? The firm should A. produce because revenue of $1,000 is greater than variable costs. B. shut down because variable costs are less than fixed costs. C. shut down because revenue of $1,000 is less than fixed costs. D. shut down because revenue of $1,000 is less than avoidable costs. E. produce because revenue is positive.
D
Suppose that q=20, L=3, and K=20 is a point on the production function q=f(L, K). Is it posssible for q=20, L=3, and K=21 to also be a point on this production function? Why or why not? The combination q=20, L=3, and K=21 A. can be a point because we assume production functions exhibit diminishing returns. B. cannot be a point because we assume production functions are comprised of fixed inputs. C. cannot be a point because we assume production functions represent the short run. D. cannot be a point because we assume production functions are efficient. E. can be a point because we assume production functions hold technology constant.
D
Suppose that the government subsidizes the cost of workers by paying 25% of the wage (the rate offered by the U.S. government in the late 1970s under the New Jobs Tax Credit program). What effect will this subsidy have on the firm's choice of labor and capital to produce a given level of output? For a given level of output, the subsidy will prompt the firm to use A. less labor and more capital because the last dollar spent on labor adds more extra output than the last dollar spent on capital. B. more labor and more capital because the cost of production will decrease. C. the same quantities of labor and capital because the marginal rate of technical substitution has not changed. D. more labor and less capital because the marginal product of the last dollar spent on labor is greater than the marginal product of the last dollar spent on capital. E. more labor and less capital because labor becomes more productive.
D
The Shaffer Auto Company has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is A. equal to the cost of the factory that was planned to be built there. B. some amount greater than $0 but less than $1 million. C. $1 million. D. $0.
D
The agency problem can be avoided if A) the firm is not subject to regulation by a government agency. B) the manager and owner can manipulate reported profit. C) the firm has positive profits. D) the goals of the owner and manager are aligned.
D
The market for electrical work in a small town is A. a monopoly because electrical workers have market power. B. a monopoly because there are several electrical suppliers. C. an oligopoly because there are only a few electricians in a small city. D. perfectly competitive because electrical work is a homogeneous product. E. monopolistically competitive because electrical workers can easily enter and exit the market.
D
The steeper an isoquant is (labor measured on the horizontal axis): A. the greater is the need to keep capital and labor in fixed proportions. B. the greater is the level of output. C. the greater is the substitutability between capital and labor. D. the greater is the marginal productivity of labor relative to that of capital.
D
To say that isoquants are convex is to say that: A. there are constant returns to scale. B. labor, but not capital, is subject to the law of diminishing marginal returns. C. capital and labor are perfect substitutes. D. the marginal rate of technical substitution falls as labor increases and capital decreases.
D
Which of the following would NOT be considered part of a firm's strategy? A. which inputs to use B. production levels C. sales strategy D. None of the above − all are part of a firm's strategy.
D
You won a ticket to a hockey playoff game by having your name drawn from a hat at a charity event. You were excited about going, but on the day of the game, a major snowstorm has hit and conditions are miserable. Would you be more likely to go if you had bought the ticket yourself instead of winning it? Relate your answer to opportunity costs and sunk costs. Compared to if you had bought the ticket, the effect of the snowstorm on whether you use the ticket you won should be A. greater because a purchased ticket has a larger sunk cost. B. smaller because the ticket has no opportunity cost. C. the same because the opportunity cost of the free ticket is higher. D. the same because the cost of the ticket is a sunk cost.
D
Joey's snow shoveling service, with Joey being the only employee, recently traded in his snow shovel for a gasoline-powered snow blower. Joey still requires one worker per blower; however, more snow is now moved in the same amount of time as before. This is an example of A. nonneutral technical change. B. organizational change. C. labor saving technical change. D. neutral technical change.
D
From what you know, what is the effect of this invention on the returns to scale? A. The technological change increases returns to scale. B. The technological change decreases returns to scale. C. To determine the effect of the technological change on returns to scale, you would need to know its effect on the marginal rate of technical substitution. D. The technological change has no effect on returns to scale. E. To determine the effect of the technological change on returns to scale, you would need to know its effect on capital's productivity.
E
In a manufacturing plant, workers use a specialized machine to produce belts. A new machine is invented that is labor-saving. With the new machine, the firm can use fewer workers and still produce the same number of belts as it did using the old machine. In the long run, both labor and capital (the machine) are variable. From what you know, what is the effect of this invention on the average product of labor (APL) A. The technological change has no effect on APL. B. To determine the effect of the technological change on APL, you would need to know its effect on the marginal rate of technical substitution. C. To determine the effect of the technological change on APL, you would need to know its effect on capital's productivity. D. The technological change decreases APL. E. The technological change increases APL.
E
The United Kingdom started regulating the size of grocery stores in the early 1990s, and today, the average size of a typical UK grocery store is roughly half the size of a typical U.S. store and two-thirds the size of a typical French store (Haskel and Sadun, 2011). What implications would such a restriction on size have on a store's average costs. Discuss in terms of economics of scale and scope. A. The long-run average cost of production for U.K. grocery stores is higher if there are no economies of scale. B. Grocery store size does not affect the long-run average cost of production if there are economies of scale. C. Grocery store size does not affect the long-run average cost of production if there are diseconomies of scale. D. The long-run average cost of production for U.K. grocery stores is lower if there are economies of scale. E. The long-run average cost of production for U.K. grocery stores is lower if there are diseconomics of scale.
E
The market for tomatoes is A. an oligopoly because tomato farmers have market power. B. an oligopoly because each tomato farmer produces a large share of the output. C. monopolistically competitive because tomato farming has barriers to entry. D. a monopoly because tomatoes have no close substitutes. E. perfectly competitive because tomato farmers can easily enter and exit the market.
E
To speed relief to isolated South Asian communities that were devastated by the December 2004 tsunami, the U.S. government doubled the number of helicopters from 45 to 90 to deliver supplies in early 2005. Navy admiral Thomas Fargo, head of the U.S. Pacific Command, was asked if doubling the number of helicopters would "produce twice as much [relief]." He predicted, "Maybe pretty close to twice as much." (Vicky O'Hara, All Things Considered, National Public Radio, January 4, 2005). What phenomena would result in a less than doubling of relief even though the number of helicopters was doubled? This economic phenomenon is called A. constant returns to scale. B. long-run production. C. increasing returns to scale. D. decreasing returns to scale. E. diminishing marginal returns.
E
To speed relief to isolated South Asian communities that were devastated by the December 2004 tsunami, the U.S. government doubled the number of helicopters from 45 to 90 to deliver supplies in early 2005. Navy admiral Thomas Fargo, head of the U.S. Pacific Command, was asked if doubling the number of helicopters would "produce twice as much [relief]." He predicted, "Maybe pretty close to twice as much." (Vicky O'Hara, All Things Considered, National Public Radio, January 4, 2005). Identify the outputs and inputs and describe the production process. A. Relief is produced from helicopter transportation. B. Helicopter transportation is produced from relief. C. Relief is produced from donated supplies. D. Helicopter transportation is produced from relief and donated supplies. E. Relief is produced from donated supplies and helicopter transportation.
E
What are some of the major reasons why firms vertically integrate? Firms may not vertically integrate when their industry is A. stable with large fixed costs. B. shrinking with economies of scale. C. growing and flexibility is important. D. small with market power. E. large and specialization is profitable.
E
When the western part of the United States was sparsely populated there were many small towns with a single schoolhouse, where one teacher taught all subjects to all students. Nowadays, in large cities, teachers are often highly specialized, teaching a single subject, such as mathematics, to just one grade level. Explain why this change occurred by making reference to Adam Smith's famous description of a pin factory. Teachers are more likely specialize and teach only one subject because A. a generalist teacher will be more effective at teaching one subject. B. to decrease division of labor as the market for education has become more specialized. C. a larger student base justifies generalist teachers. D. a smaller student base justifies specialized teachers that are more effective at teaching one subject. E. a larger student base justifies specialized teachers that are more effective at teaching one subject.
E
Suppose the production function for T-shirts can be represented as q = L0.25K0.75. Show that the marginal productivity of labor diminishes in the short run.
In the short run, MPL = 0.25 ∗ (q/L). The change in MP with respect to L equals d(MPL)/dL = (-0.25)(0.75)(q/L2 ). Thus, for all levels of labor hired, MPL falls as L increases.
The cost of producing 600 small fiberglass sailboats per year, and the cost of producing sails and fittings necessary to make the boats seaworthy in a single plant, are together $780,000. If produced in separate plants, the boats would cost $540,000, and the sails and fittings would cost $180,000. From this information, what can be learned about (1) economies of scale and (2) economies of scope in the production of sailboats, sails, and fittings? Perform any necessary calculations and explain.
SC is negative but close to zero, there are slight diseconomies of scope.
Assume a bottled water company is trying to decide on a new pricing strategy. Sound decision making would require the firm's managers to consider not only how consumers will respond to the product's own price, but how they will react to the price for the firm's product relative to the prices of similar products offered by the firm's competitors. True False
True
