ecn exam 2
b
What assumption implies that the average revenue (price) for a firm is equivalent to the marginal revenue they receive at each level of output? a) Firms sell identical products. b) Firm are price takers. c) Firms can freely enter and exit the marketplace. d) Firms possess economic rents. e) Firms produce where MR=MC.
c
What is true about points along the short-run average total cost curve? a) They always represent decisions where the MRTS equals the ratio of input prices. b) They necessarily rise at a decreasing rate. c) Rising average total costs imply rising average variable costs. d) (a) and (c) are correct. e) All of the above are correct.
d
Which of the following correctly completes the following statement? "The difference between the long run and the short run, is that in the long run _____________ while in the short run _____________. a. firms may enter or exit the market...firms may only enter the market. b. all inputs are flexible choices...all inputs choices are fixed. c. prices are ultimately determined by consumers...firms are price takers. d. there are no fixed costs...fixed costs may be positive. e. All of the above are correct statements
d
Which of the following is a contributing factor that helps explain why the shortrun ATC curve is U-shaped? a. Average fixed costs are falling as output increases. b. Firms enjoy economies of scale for low levels of output. c. The marginal cost of production is relatively low for low levels of output. d. (a) and (c) are both correct. e. All of the above.
a
Which of the following is not a necessary condition for long-run market equilibrium under perfect competition? a. Prices are relatively low. b. Each firm earns zero economic profit. c. No firm has an incentive to exit the market. d. No firm has an incentive to enter the market. e. Each firm is maximizing profit
c
Which of the following is not a way in which an economist would characterize a long-run problem? a. All costs to production are variable. b. All inputs to production are variable. c. The prices of inputs are variable. d. The number of firms in the market can be variable. e. (b), (c) and (d) are correct
A
Which of the following relationships is NOT valid? (a) Rising marginal cost implies that average total cost is also rising. (b) When marginal cost is below average total cost, the latter is falling. (c) When marginal cost is above average variable cost, AVC is rising. (d) none of the above
c
Which of the following statements about the slope of an isoquant curve is false? a) It is defined as the ratio of the marginal products of inputs. b) It is defined as the marginal rate of technical substitution. c) It represents the market tradeoff involved in forgoing labor in exchange for capital. d) It is diminishing for cases where the marginal products of labor and capital are also diminishing.
c
) In the short run, the supply curve for a competitive firm is: a. its entire marginal cost curve b. the upward sloping portion of its marginal cost curve c. its marginal cost curve above the minimum point of the average variable cost curve d. its marginal cost curve above the minimum point of the average total cost curve e. its marginal revenue curve
AVC<P<ATC
At which condition below, perfectly competitive firm make negative profit, but will not shut-down in the short-run?
B
. A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that (a) isoquants are relevant only in the long run (b) isoquants are downward sloping (c) isoquants are convex (bowed-in) shape (d) isoquants can become vertical or horizontal (e) none of the above
c
. A perfectly competitive firm will shut down in the short run when: (i) price is less than average total costs. (ii) price is less than average variable costs. (iii) total revenues are less than total variable costs. Which of the following is correct? (a) i only. (b) i and ii (c) ii and iii (d) i and iii (e) i, ii, and iii.
b
. Which of the following statements is false for Perfectly Competitive Market? a. At both short-run equilibrium and long-run equilibrium, market demand and market supply are supposed to be equal. b. Long-run market supply curve can be constructed by the horizontal summation of the individual supply curves. c. Firms may make positive, negative or zero economic profit at the Short-run equilibrium; but firms will make zero economic profit at the Long-run equilibrium. d. At both Short-run equilibrium and Long-run equilibrium, if the firm is producing, then it will produce at the quantity, q*, where P=MC(q*)
a
. Which of the following will be correct for one-variable input production function (short-run production function)? a. Average productivity of labor and marginal productivity of labor intersect at the maximum of average productivity of labor b. Average productivity of labor and marginal productivity of labor intersect at the minimum of average productivity of labor c. Average productivity of labor and marginal productivity of labor intersect at the maximum of marginal productivity of labor d. Average productivity of labor and marginal productivity of labor intersect at the minimum of marginal productivity of labor
b
10) If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will a) earn greater profits than if MR = MC. b) increase output. c) decrease output. d) shut down
c
10. Which of the followings will be correct for short-run production function? a. Total cost increases at an increasing rate when marginal productivity is increasing b. Production function increases at an increasing rate when marginal productivity is diminishing c. Production function increases at increasing rate when marginal cost is diminishing d. Total cost increases at increasing rate when marginal cost is diminishing
d
11) If a competitive firm is in short-run equilibrium, then a) profits equal zero. b) it will not operate at a loss. c) an increase in its fixed cost will have no effect on profit. d) an increase in its fixed cost will have no effect on output as long as revenue can cover its variable cost
b
13) In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve A) peaks. B) bottoms out. C) is upward sloping. D) is downward sloping.
e
4) When economists describe the short run, what do they mean? a) All inputs to production are fixed. b) All costs must be variable costs. c) Firms are forced to produce output, even if the market price is below their average variable costs at the optimal choice. 2 d) Firms have 2 weeks to decide what they want to do. e) None of the above is true.
a
7) In the short-run, if the marginal productivity of Labor is increasing, then total output is a) increasing at an increasing speed. b) increasing at a constant speed. c) increasing at a decreasing speed. d) decreasing at an increasing speed
e
A firm produces 20 units of output in 2010 and 2013. When input prices are w1, r1 in 2010, it uses 5 units of Labor and 3 units of Capital, and when the input prices are w2, r2 , in 2013 it uses 6 units of Labor and 2 units of Capital. Then, which one is precisely correct? A) The price change of Labor from 2010 to 2013 is not greater than the price change of Capital in the same time interval B) The price of Capital decreased from 2010 to 2013 C) The price of Labor decreased from 2010 to 2013 D) The ratio of the prices of the inputs did not change from 2010 to 2013 E) The ratio of the price of Labor to Capital decreased from 2010 to 2013
c
A firm uses input A and B to produce output. Neither input are fixed, and isoquant has bowed-in shape. The firm is currently using a combination of A and B at which the current isoquant is steeper than the current isocost line on a graph with A on the horizontal axis and B on the vertical axis. The firm could increase output while keeping costs the same by: a. Moving down and right along the isoquant b. Moving up and left along the isoquant c. Moving down and right along the isocost line d. Moving up and left along the isocost line
b
A firm's marginal product of labor is 5 and its marginal product of capital is 10. If the firm adds one unit of capital, but does not want its output quantity to change, the firm should (a) reduce its use of labor by 5 units. (b) reduce its use of labor by 2 units. (c) maintain the same level of labor utilization. (d) reduce labor by 0.5 units.
d
A firm's production function is given by f(L,K)=LK ; where K is the capital amount and L is the labor amount. The marginal productivity of labor for the firm is: a. Decreasing as L gets larger. b. Increasing as L gets larger. c. Decreasing as K gets larger. d. Increasing as K gets larger.
b
A production function is given by q = 2K + L, where K is capital and L is labor. Suppose initially that r = 2 and w = 1. If the price of labor, w, increase, then it follows that (a) the long run total cost of production will rise. (b) the long run total cost of production will not change. 1 (c) the long run total cost of production will fall. (d) more units of labor will be used in long run production. (e) fewer units of capital will be used in long run production
d
A profit maximizing firm in Perfectly Competitive market continues to operate even though it is losing money (i.e. profit is negative) in the Short-run. If the marginal cost is usual U-shaped curve and the market price is $100, which of the followings will be correct: i. Average total cost is less than $100 ii. Average variable cost is less than $100 iii. Marginal cost is increasing at $100. a. only i b. only ii c. i and ii d. ii and iii e. i, ii and iii
c
At the XYZ Co., a unit of capital costs three times as much as a unit of labor. Suppose that the isoquant has a convex shape. In the Lon-run, if MPK = 10,MPL = 5, then this firm a. is minimizing its cost at current output level. b. should use more capital and less labor to raise output at current cost. c. should use less capital and more labor to raise output at current cost. d. None of above
b
An isocost curve illustrates all the bundles of inputs which ________, while an isoquant depicts all the bundles of inputs which _________. a. have factors that share a common price... yield the same output b. share the same total cost...yield the same output c. yield the same output...divide an input-output map into quantiles d. yield the same output...produce a positive quantity e. divide reasonable and unreasonable costs...a producer has access to
b
Consider the following 2 statements and choose the correct response to these statements: I. A production process that has diminishing marginal products for every input necessarily has decreasing returns to scale. II. Firms have increasing returns to scale when profits are increasing as output rises. a) I and II are both correct. b) I and II are both incorrect. c) I is correct and II is incorrect d) I is incorrect and II is correct e) There is not enough information in these statement to judge correctness
c
Consider the following 2 statements and choose the correct response to these statements: I. For a firm using only one input, if the average product is constant, then the marginal product must be equal to the average product, and thus also constant. II. The average product is usually negative where the marginal product is diminishing. a. I and II are both correct. b. I and II are both incorrect. c. I is correct and II is incorrect d. I is incorrect and II is correct e. There is not enough information in these statement to judge correctness
b
Consider the following 2 statements and choose the correct response to these statements: I. If at some level of output the marginal product curve is rising, then the average product must also be increasing. II. If at some level of output total product is increasing, then average product must also be increasing. a. I and II are both true. b. I and II are both false. c. I is true and II is false d. I is false and II is true e. There is not enough information in these statement to judge correctness
c
Consider the following 2 statements and choose the correct response to these statements: I. If for some level of output the marginal cost of producing the last unit exceeds the marginal revenue it generated, the firm can increase profits by reducing their output. II. A firm's output choice such that marginal revenue equals marginal cost (MR = MC) is profit maximizing except where price exceeds average variable cost. a. I and II are both true. b. I and II are both false. c. I is true and II is false d. I is false and II is true e. There is not enough information in these statement to judge correctness
b
Consider the following 2 statements and choose the correct response to these statements: I. Whenever a firm's average variable costs are falling as output rises, marginal costs must be falling too. II. Whenever a firm's average total costs are rising as output rises, average variable costs must be rising too. a. I is correct and II is incorrect b. I is incorrect and II is correct c. I and II are both correct. d. I and II are both incorrect. e. There is not enough information in these statement to judge correctness
b
If a profit-maximizing firm finds that, at its current level of production, MR > MC, it will a. earn greater profits than if MR = MC. b. increase output. c. decrease output. d. shut down
d
If at the cost minimizing input allocation, the marginal rate of technical substitution does not equal the slope of the associated isocost, then a. inputs must be used in fixed-proportions. b. inputs are perfectly substitutable. c. no solution exists. d. either (a) or (b) could be true. e. All of the above are possible
e
If at the cost-minimizing input allocation, the marginal rate of technical substitution does no equal the ratio of input prices, then which of the following are plausible explanations? a. Inputs must be used in fixed proportions b. One of the inputs is completely unproductive (i.e. has a MP = 0) c. Inputs are perfectly substitutable d. (a) and (c) are possible. e. All of the above are possible.
d
If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE? a) AFC is rising. b) AVC is rising. 3 c) MC > AVC. d) MPL is falling
c
If the wage increases the isocost line will (a) stay the same. (b) shift outward in parallel fashion. (c) rotate inward around the point where only capital is employed in production. (d) shift inward in parallel fashion
c (and is perfectly elastic)
In a perfectly competitive market, the demand that the individual firm faces is (a) the same as the market demand. (b) downward sloping to the right. (c) horizontal. (d) upward sloping and then downward sloping as output is increased
a
In the Short-run, if the marginal productivity of labor is increasing, then total output is a. Increasing at an increasing rate b. Increasing at a constant rate c. Increasing at a decreasing rate d. Decreasing at an increasing rate
d
In the long run, profits will equal zero in a competitive market because of a) constant returns to scale. b) identical products being produced by all firms. c) the full information. d) free entry and exit
negative
MP(l) and Marginal cost have _______ relation (negative or positive)
b
One way to explain the convexity of isoquants is to say that A) as labor increases and capital decreases, MPL rises while MPK falls. B) as labor increases and capital decreases, MPL falls while MPK rises. C) as labor increases and capital decreases, MPL and MPK both fall. D) as labor increases and capital decreases, MPL and MPK both rise
a
Suppose that the wage rate for Labor rises while simultaneously the per unit cost (i.e. the price) of Capital falls. If Labor is plotted on the horizontal axis, and Capital is plotted on the vertical axis, then a. An isocost line will become steeper. b. An isocost line will become flatter. c. The slope of an isocost line could change, but in an indeterminate way. d. The slope of an isocost line will not change. e. Only an isoquant curve is affected by a change in the price of inputs
C
Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit? (a) Marginal revenue and marginal cost increase (b) Marginal revenue increases but marginal cost remains the same (c) Marginal cost may change but marginal revenue remains the same (d) Marginal revenue and marginal cost decrease
c
The slope of an isoquant tells us (assume that the L placed on horizontal axis and K placed on vertical axis) a) how much output increases when both inputs are increased. b) the increase in MPL when capital increases. c) the decrease in capital necessary to keep output constant when labor increases by one unit. d) the decrease in capital necessary to keep MPL constant when labor increases by one unit.
c
Which of the following statements must be true? a. If a firm's marginal cost is increasing, its average total cost must be increasing b. If a firm's marginal cost is increasing, its average variable costs must be increasing c. If a firm's marginal cost is above its average total cost, its average variable cost must be increasing d. If a firm's marginal cost is above its average variable cost, its average total cost must be increasing
d
Which of the followings about Perfectly Competitive Market will be false? a. At the long-run equilibrium, firms are maximizing their profit b. At the long-run equilibrium, individual firm makes zero economic profit c. At the long-run equilibrium, firm will produce at the minimum of average total cost. d. Long-run market supply can necessarily be calculated as the summation of longrun individual supplies
e
Which of the followings will be correct for the firm in Perfectly Competitive Market? i. Demand that the firm faces is a horizontal line due to smallness assumption ii. Marginal revenue will always be equal to price iii. If firm produces, then it would choose the quantity (in the upward sloping part of MC) at which MR=MC a. only i b. only ii c. i and ii d. ii and iii e. i, ii and iii
c
Which of the followings will be correct for the following production function, € f (L,K) = L2 +K2 ? a. € MRTSLK is diminishing in L b. Isoquant representing the production function does not touch any axis c. Marginal productivity of labor is increasing in L, and marginal productivity of capital is decreasing in K. d. Isoquant representing the production function has bowed-out (concave) shape
c
Which of the followings will be false for two-variable inputs production function (i.e. long-run production function)? a. Isocost closer to the origin shows the lower cost level b. Bowed-in (convex) isoquant shows diminishing MRTS c. Slope of the isocost will diminish as we move along to the right on the same isocost. d. The isoquant further away from the origin represents the higher output level
false (AFC can never be rising)
true or false: AFC can be rising
