Econ - toets 3

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. What is the minimum value of AVC? A) $ 23.35 B) $ 52.75 C) $ 10.25 D) $111.55

A) $ 23.35

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. When the firm uses 100 units of labor, what is marginal cost at this level of output? A) $25 B) $33.33 C) $90 D) $180 E) $2000

A) $25

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. If the firm produces 10 units of output, what is estimated MC? A) $44.05 B) $26.05 C) $77.05 D) $270.05

A) $44.05

The price of capital (r) is $50. Why wouldn't the firm choose to produce 3,000 units of output with the combination at A? A) At A, MRTS > 3/2. B) At A, MPK / r > MPL / w. C) At A, MPL > MPK. D) both a and b E) none of the above

A) At A, MRTS > 3/2.

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. The estimated marginal cost function is: A) MC = 38.05 - 8.4Q + 0.9Q2 B) MC = 38.05 - 2.1Q + 0.6Q2 C) MC = 38.05Q - 8.4Q2 + 0.9Q3 D) MC = 38.05Q - 2.1Q2 + 0.1Q3

A) MC = 38.05 - 8.4Q + 0.9Q2

In the long run... A) a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio. B) the expansion path shows how the input marginal products change as the firm's output level changes. C) all inputs are fixed. D) both a and b E) both b and c

A) a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.

When estimating a short-run production function of the form Q = AL3 + BL2, it is necessary to specify in the computer routine that... A) the intercept term is forced to equal zero. B) A < 0. C) B > 0. D) b and c E) all of the above

A) the intercept term is forced to equal zero.

The marginal rate of technical substitution is... A) the rate at which the firm can substitute labor for capital while holding output constant. B) the rate at which the firm can substitute labor for capital while holding total cost constant. C) the slope of the isocost curve. D) both a and c E) both b and c

A) the rate at which the firm can substitute labor for capital while holding output constant.

A short-run production function assumes that... A) the usage of at least one input is fixed. B) the level of output is fixed. C) all inputs are fixed inputs. D) both a and b E) both b and c

A) the usage of at least one input is fixed

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. What is AVC at its minimum? A) $15 B) $25 C) $40 D) $80 E) $100

B) $25

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. When the firm uses 60 units of labor, what is AVC at this level of output? A) $22.22 B) $33.33 C) $60 D) $120 E) $2,000

B) $33.33

The price of capital (r) is $50. What is the lowest possible cost of producing 3,000 units of output? A) $6,000 B) $4,500 C) $3,000 D) $1,500 E) none of the above

B) $4,500

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. If the firm produces 20 units of output, what is estimated AVC? A) $48.05 B) $74.05 C) $230.05 D) $242.05

B) $74.05

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 At 10 units of labor, what is average product? A) 1.25 B) 1.5 C) 2.1 D) 4.8 E) 17.75

B) 1.5

A firm estimates its long-run production function to be Q = -0.0050 K^L^3 + 15 K^2L^2 Suppose the firm employs 10 units of capital. At ________ units of labor, average product of labor begins to diminish. A) 350 B) 150 C) 66.67 D) 100 E) 200

B) 150

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 At 10 units of labor, what is marginal product? A) 1.5 B) 2.7 C) 3.5 D) 4.5 E) 12.6

B) 2.7

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 At what level of labor usage does the maximum average product occur? A) 20 B) 30 C) 40 D) 50 E) 60

B) 30

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 What is average product when it is at its maximum level? A) 2.4 B) 4.7 C) 5.4 D) 8.1 E) 18.9

B) 4.7

Economies of scale exist when... A) fixed cost decreases as output increases. B) long-run average cost decreases as output increases. C) long-run marginal cost is greater than long-run average cost. D) both a and b E) both b and c

B) long-run average cost decreases as output increases.

If average product is decreasing, then marginal product... A) must be greater than average product. B) must be less than average product. C) must be increasing. D) cannot be decreasing. E) both a and c

B) must be less than average product.

If the marginal rate of technical substitution of labor for capital is 1.5, the price of labor is $20, and the price of capital is $10, then the firm... A) can substitute one unit of capital for 1.5 units of labor and keep output unchanged. B) should use more labor and less capital. C) should use more capital and less labor. D) both a and b E) both a and c

B) should use more labor and less capital.

A linear specification, Q = aK + bL, is not appropriate for estimating a production function because... A) it does not allow the firm to substitute capital for labor. B) the marginal products of the inputs are constant. C) the firm could produce positive levels of output at zero cost. D) both b and c E) all of the above

B) the marginal products of the inputs are constant.

If a firm is producing a given level of output in a technically-efficient manner, then it must be the case that... A) it is choosing the lowest-cost method of producing that output. B) this output level is the most that can be produced with the given levels of inputs. C) each input is producing its maximum marginal product. D) both a and b E) both a and c

B) this output level is the most that can be produced with the given levels of inputs.

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. When the firm uses 60 units of labor, what is average total cost at this output? A) $44.44 B) $60 C) $66.66 D) $120

C) $66.66

The price of capital (r) is $50. What is the price of labor (w)? A) $25 B) $50 C) $75 D) $100 E) none of the above

C) $75

The price of capital (r) is $50. At the optimal combination of inputs for producing 12,000 units of output, what is the marginal rate of technical substitution? A) 0.80 B) 0.67 C) 1.5 D) 2.5 E) impossible to tell from the graph

C) 1.5

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. When the firm uses 60 units of labor, how much output does it produce? A) 60 units B) 360 units C) 3,600 units D) 5,400 units E) none of the above

C) 3,600 units

The price of capital (r) is $50. What combination of labor (L) and capital (K) can produce 3,000 units of output at the lowest cost? A) 10K, 110L B) 42K, 52L C) 60K, 20L D) 90K, 60L E) 110K, 10L

C) 60K, 20L

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. At what level of output is AVC minimum? A) 0.14 B) 4.7 C) 7 D) 28

C) 7

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 What is total product when average product is at its maximum level? A) 30 B) 72 C) 81 D) 162 E) 243

C) 81

Suppose you operate a sandwich shop and currently have two employees. If you hire a third employee, your output of sandwiches per day rises from 75 to 90. If you hire a fourth employee, output rises to 110 per day. A fifth and sixth employee would cause output to rise to 120 and 125 per day, respectively. Choose the correct statement: A) Diminishing returns set have not yet set in because output is still increases. B) Diminishing returns set in with the hiring of the fourth worker. C) Diminishing returns set in with the hiring of the fifth worker. D) Diminishing returns set in with the hiring of the sixth worker.

C) Diminishing returns set in with the hiring of the fifth worker.

Which of the following statements is TRUE? A) A firm plans in the short run and operates in the long run. B) In the long run a firm can change all but one input. C) In the long run all inputs are variable. D) In the short run all inputs are fixed.

C) In the long run all inputs are variable.

heoretical restrictions on the parameters of the short-run cubic cost equation, TVC = aQ + bQ2 + cQ3, are: A) a > 0, b > 0, c > 0 B) a > 0, b > 0, c < 0 C) a > 0, b < 0, c > 0 D) a > 0, b <' 0, c < 0

C) a > 0, b < 0, c > 0

A cubic specification for a short-run production function is appropriate when the scatter diagram indicates A) total product is decreasing throughout the range of labor usage. B) marginal product of labor falls throughout the range of labor usage. C) an S-shaped total product curve. D) an S-shaped marginal product of labor curve. E) a U-shaped marginal product of labor curve.

C) an S-shaped total product curve.

A short-run cost function assumes that... A) the level of output is fixed. B) all inputs are fixed. C) at least one input is fixed. D) both a and c E) none of the above

C) at least one input is fixed.

Average fixed cost... A) increases if marginal cost is increasing. B) increases as output increases. C) decreases as output increases. D) increases if marginal cost is greater than average fixed cost.

C) decreases as output increases.

Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits... A) a decreasing marginal rate of technical substitution. B) diminishing marginal returns. C) decreasing returns to scale. D) both b and c E) none of the above

C) decreasing returns to scale.

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost, then... A) long-run total cost is at its minimum point. B) long-run marginal cost is at its minimum point. C) long-run average cost is at its minimum point. D) both b and c E) all of the above

C) long-run average cost is at its minimum point

A production function measures the relation between... A) input prices and output prices. B) input prices and the quantity of output. C) the quantity of inputs and the quantity of output. D) the quantity of inputs and input prices.

C) the quantity of inputs and the quantity of output.

A firm estimated its short-run costs using an average variable cost function of the form AVC = a + bQ + cQ^2 and obtained the following results. Total fixed cost is $1,500. If the firm produces 20 units of output, what is estimated total cost? A) $1,500 B) $6,101 C) $6,341 D) $2,981

D) $2,981

If the price of labor is $4 and the price of capital is $16, what is the marginal rate of technical substitution at the optimal input choice? A) 4.0 B) 2.0 C) 0.5 D) 0.25 E) none of the above

D) 0.25

A short-run production function was estimated as Q = -0.003L^3 + 0.18L^2 At 10 units of labor, what is total product? A) 21 B) 48 C) 27 D) 15 E) 45

D) 15

The price of capital (r) is $50. If, at the optimal combination of inputs for producing 12,000 units of output, the marginal product of capital is 60, what is the marginal product of labor? A) 30 B) 50 C) 62.5 D) 90 E) impossible to tell from the graph

D) 90

Average total cost... A) Decreases as output increases. B) Increases as output increases. C) Increases if marginal cost is increasing. D) Increases if marginal cost is greater than average total cost E) both b and d

D) Increases if marginal cost is greater than average total cost

A firm estimates its long-run production function to be Q = -0.0050 K^L^3 + 15 K^2L^2 Suppose the firm employs 10 units of capital. The product curve(s) in the short-run are: A) TP = -5 L3 + 1,500L2. B) AP = -5 L2 + 1,500L. C) MP = 15 L2 + 3,000L. D) both a and b E) both a and c

D) both a and b

Diminishing marginal productivity... A) occurs when the marginal product curve begins to slope downward. B) occurs eventually because each additional unit of the variable input has, on average, fewer units of the fixed input with which to work. C) occurs when adding one more unit of the variable input reduces total product. D) both a and b E) both a and c

D) both a and b

If a firm is producing a given level of output in an economically-efficient manner, then it must be the case that... A) it is choosing the lowest-cost method of producing that output. B) this output level is the most that can be produced with the given level of inputs. C) each input is producing its maximum marginal product. D) both a and b E) both a and c

D) both a and b

Marginal cost... A) is less than average cost when average cost is decreasing. B) measures how total cost changes when one more unit of output is produced. C) measures how total cost changes when input prices change. D) both a and b E) both b and c

D) both a and b

Which of the following is (are) characteristics of an isocost curve? A) The slope shows the rate at which the firm can substitute labor for capital while holding total cost constant. B) All input combinations that will produce a given amount of output lie on the isocost curve. C) As a firm moves down its isocost curve, the firm's output must be decreasing. D) both a and b E) all of the above

D) both a and b

The marginal product of labor... A) is less than the average product of labor when the average product of labor is decreasing. B) measures how output changes as the wage rate changes. C) is negative when adding another unit of labor decreases output. D) both a and c E) both b and c

D) both a and c

The slope of an isoquant is... A)the marginal rate of technical substitution. B) MPK / MPL . C) -ΔK/ ΔL. D) both a and c E) all of the above

D) both a and c

When estimating a short-run average variable cost function, A) the cost data must be adjusted for the effects of inflation or deflation. B) the intercept must be forced to equal zero. C) at least one input must have been fixed during the period in which the data were collected. D) both a and c E) both b and c

D) both a and c

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then... A) the firm has chosen the profit-maximizing level of output. B) with a fixed amount of capital, short-run average cost is greater than long-run average cost at all other levels of output. C) the firm has chosen the cost-minimizing combination of inputs to produce this level of output. D) both b and c E) all of the above

D) both b and c

A firm is using 400 units of capital and 200 units of labor to produce 20,000 units of output. Capital costs $80 per unit and labor $20 per unit. The last unit of capital added 100 units of output, while the last unit of labor added 30 units of output. The firm... A) is using the cost-minimizing combination of capital and labor. B) should use more of both inputs in equal proportions. C) should use less of both inputs in equal proportions. D) could produce the same level of output at a lower cost by using less capital and more labor. E) could produce the same level of output at a lower cost by using more capital and less labor.

D) could produce the same level of output at a lower cost by using less capital and more labor.

The expansion path shows... A) how input prices change as the firm's output level changes. B) how the marginal products change as the firm's output level changes. C) how the profit-maximizing input choices change as the firm's output level changes. D) how the cost-minimizing input choices change as the firm's output level changes. E) how the cost-minimizing input prices change as the firm's output level changes.

D) how the cost-minimizing input choices change as the firm's output level changes.

A firm estimates its long-run production function to be Q = -0.0050 K^L^3 + 15 K^2L^2 Suppose the firm employs 10 units of capital. At _______ units of labor, marginal product of labor begins to diminish. A) 600 B) 1000 C) 200 D) 66.67 E) 100

E) 100

The following graph shows the marginal and average product curves for labor, the firm's only variable input. The monthly wage for labor is $2,000. Fixed cost is $120,000. At what output does the firm reach minimum average variable cost? A) 80 B) 100 C) 600 D) 6,000 E) 8,000

E) 8,000

Which of the following are characteristics of a typical isoquant? A) All input combinations on the isoquant will produce the same level of output. B) A change in input prices shifts the isoquant map. C) The marginal rate of technical substitution decreases as labor is substituted for capital by moving down the isoquant. D) both a and b E) both a and c

E) both a and c

Diminishing returns refers to the decrease in... A) long-run average cost that results from increases in output. B) average total cost that results from decreases in input prices. C) profit that results from increases in output. D) average product that results from increases in the variable input. E) marginal product that results from increases in the variable input.

E) marginal product that results from increases in the variable input.

The price of capital (r) is $50. Why wouldn't the firm choose to produce 3,000 units of output with the combination at B? A) At B, MRTS > 3/2. B) At B, MPK / r < MPL / w. C) At B, MPL < MPK. D) both a and b E) none of the above

E) none of the above