Exam 2 practice questions

A plant with 100 workers hires two more and thereby increases output by five units. The plant's marginal product of labor is...

5/100

When the XYZ Corporation exactly doubles its usage of all inputs, its average costs decrease by 10%. The most reasonable conclusion is that

XYZ's average costs exceed its marginal costs.

sunk costs

are never avoided by shutting down

Suppose that at Q = 5 average cost is $10/unit. If doubling all inputs leads to exactly double the output, then at Q = 10 the average cost will be

$10/hr

At Q = 3, average cost is $10 per unit. At Q = 4, the average cost is $11 per unit. The marginal cost of the fourth unit is

$14

Suppose that a firm can produce 7 units of output at an average cost of $10 per unit and 8 units at an av cost of $11. The marginal cost of the firm's eighth unit is

$18

Suppose that you own a machine that can only be used to produce products A, B, or C. If you used the machine to produce A, your profits would be $20. If you used it for B, your profits would be $18. If for C, your profits would be $15. The opportunity cost of using the machine to produce A is

$18

A competitive firm gets $2/unit for its output, and its marginal product of labor is currently 3. The firm should reduce its labor usage only if the wage rate is over

$6/hr

If $120 is due to be received in two years and the interest rate is 20% (i.e., 0.20) per year, then to the nearest dollar the present discounted value today is...

$83

As the wage rate rises from $4 to $5 per hour, Ted increases his hours of work from 40 to 45 hours per week. The elasticity of Ted's labor supply with respect to the wage rate (arc method) is

9/17

Which of the following is NEVER characteristic of a perfectly competitive industry? a. Large number of firms. b. Homogeneous product. c. Free entry. d. Brand-name advertising. e. Zero profits.

Brand-name advertising

Manny, Moe, and Jack each start an auto parts business. For the three of them it is a Pareto improvement

If at least one makes one and the others break even

For an economy to find a Pareto optimal answer to the "For Whom?" question, which of the following must hold?

MRSA =MRSB,forallconsumersAandB.

For an economy to find a Pareto optimal answer to the "How?" question, which of the following must hold?

MRTSx =MRTSy,forallgoodsxandy.

With a particular input combination, a firm's marginal product of labor is 3 and its marginal product of capital is 5. If the wage rate is $10/hour and the rental rate of capital is $15/hour, then to produce that particular output level a cost-minimizing firm

Should be using more capital and less labor

In the budget line-indifference curve diagram we have used for the labor-supply problem, if the wage rate increases

The budget line's goods intercept shifts out

What is economic (opportunity) costs but not normally accounting costs?

The earnings of the owner of a sole proprietorship.

The amount of output that can be physically produced from any given combination of inputs is given by

The production function

an ascots line is to an isoquant as a budget line is to

a indifference curve

The price of product Q is $7. The wage rate is $4 and the marginal product of labor is 2. The rental rate of capital is $2 and its marginal product is 3. A competitive firm could increase profits the most by

a. increasing labor by one unit and increasing capital by one unit

What may allow the management of a large corporation to pursue goals other than the maximization of profits is...

an employee stock-option plan

The demand curve for apples is given by Q = 60 − 2 P , and apples are supplied by a competitive industry with constant returns to scale. If the average cost of producing apples is $15, the equilibrium quantity of apples will

be 30

In a general equilibrium,

demand equals supply in all markets.

Accounting costs differ from economic costs with regard to

forgone interest on money the owner invests in her own business

A firm with fixed costs in the long run

has increasing returns to scale, at least at low output levels

Mary derives all her income from labor. If her wage rate rises

her budget line rotates out with the leisure intercept fixed.

Suppose that, at a particular combination of inputs, a cost-minimizing firm's marginal product of labor is 3 while its marginal product of capital is the rental rate of capital is $10 per hour, the firm

should use more capital and less labor if the wage is $7.00/hr.

The process of "Marginal analysis"

starts with an arbitrary choice and then tries to improve by making small changes. AND operates by comparing marginal benefits and marginal costs.

$100 invested in a capital project would pay a return of $125 a year from now. Investing in this project is clearly in a firm's best interest ONLY if...

the interest rate is less than 25% per year

An economy will not be at a Pareto optimal pt, even when it is on its PPF, if...

the marginal rate of substitution for any consumer is not equal to the marginal rate of transformation

A perfectly competitive industry achieves the socially optimal market outcome if consumers are rational and

there are no externalities