ECON 315 (Exam 2 Concepts)

Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced? a) C = 50 - 5Q1Q2 + .5Q1^2 + Q2^2 b) C = 10 + 4Q1Q2 + Q1^2 + Q2^2 c) C = 15 + 5Q1Q2 + 2Q1 + 4Q2^2 d) C = 5 + Q1Q2 + Q1^2 Q2^2

C = 50 - 5Q1Q2 + .5Q1^2 + Q2^2

Which of the following mergers is an example of vertical integration?a) Bethlehem Steel purchases U. S. Steel b) IBM purchasing a California computer chip company c) AT&T purchases MCI d) GM purchases Ford

IBM purchasing a California computer chip company

The production function for the automotive and parts industry is L^0.28 K^0.41 M^0.59 ,where M is energy and materials (based loosely on Klein, 2003). What kind of returns to scale does this production function exhibit? a. Increasing returns to scale b. Decreasing returns to scale c. Constant returns to scale d. Diminishing marginal product of labor

Increasing returns to scale

Which of the following statements about the short-run production function is true? A) MP always equals AP at the maximum point of MP. B) MP always equals zero when TP is at its maximum point. C) TP starts to decline at the point of diminishing returns. D) When MP diminishes, AP is at its minimum point. E) None of the above is true.

MP always equals zero when TP is at its maximum point.

Which of the following statements best describes a production function? A. All levels of output that can be generated from given levels of inputs. B. The maximum profit generated from given levels of inputs. C. The maximum level of output generated from given levels of inputs. D. All levels of inputs that could produce a given level of output.

The maximum level of output generated from given levels of inputs.

Which of the following is an output of production? A. a haircut B. a U.S. savings bond C. a share of Acme Corporation stock D. None of the above.

a haircut

In the long run, a firm is said to be experiencing increasing returns to scale if a 100 percent increase in inputs results in A) an increase in output from 100 to 110. B) an increase in output from 100 to 250. C) an increase in output from 100 to 90. D) a decrease in output from 100 to 100.

an increase in output from 100 to 250.

Sunk costs are those costs that a) do not vary without output. b) are forever lost after they have been paid. c) can be collected even after they have been paid. d) do vary with output.

are forever lost after they have been paid.

One way to explain the convexity of isoquants is to say that A. as labor increases and capital decreases, MP L and MP K both rise. B. as labor increases and capital decreases, MP L rises while MP K falls. C. as labor increases and capital decreases, MP L and MP K both fall. D. as labor increases and capital decreases, MP L falls while MP K rises.

as labor increases and capital decreases, MP L falls while MP K rises.

A firm that engages in efficient production A. uses old technology to minimize costs. B. cannot produce the same output with fewer inputs. C. is not interested in profit maximization. D. could produce the same output with fewer inputs if it wanted to.

cannot produce the same output with fewer inputs.

When the law of diminishing returns takes effect A) firms must add increasingly more input if they are to maintain the same extra amount of output. B) firms must add decreasingly more input if they are to maintain the same extra amount of output. C) more input must be added in order to increase its output. D) a firm must always try to add the same amount of input to the production process.

firms must add decreasingly more input if they are to maintain the same extra amount of output.

When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC is A) $5. B) between $45 and $50. C) greater than $50. D) Cannot be determined from the above information

greater than $50.

Which of the following is the primary disadvantage of producing inputs within a firm? a) increases in transaction costs b) loss of specialization see vertical integration criticisms c) reductions in opportunism d) mitigation of hold-up problems

loss of specialization see vertical integration criticisms

Spot markets are an efficient way for the firm to purchase inputs if a) opportunism is not a problem b) suppliers engage in hold-up c) profit-sharing is used to compensate managers d) the supplier needs specialized investment to produce the input

opportunism is not a problem

Total cost (TC) A. rises as output falls. B. is always fixed across all output ranges for the given production function. C. rises as output rises. D. demonstrates a U-shaped pattern.

rises as output rises.

Which of the following institutions may result in hold-up? a) vertical integration b) piece rates c) long-term contracts d) spot markets see example

spot markets

Assume a firm employs 100 workers and pays each $25 per hour. Further assume that the MP of the 100th worker is 5 units of output and that the price of the output is $4. According to economic theory, in the short run A) the firm should hire additional workers. B) the firm should reduce the number of workers employed C) the firm should continue to employ 10 workers. D) More information is required to answer this question.

the firm should reduce the number of workers employed

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40: a) the firm is cost minimizing. b) the firm should use less L and more K to cost minimize. c) the firm should use more K and less L to cost minimize. d) the firm is profit maximizing but not cost minimizing.

the firm should use more K and less L to cost minimize.

The difference between the short-run and the long-run is A) three months, or one business quarter. B) the time it takes for firms to change all inputs in the production process. C) the time it takes for firms to change only their variable inputs. D) More information is required to answer this question.

the time it takes for firms to change all inputs in the production process.

If producing more output has no effect on average cost then A. there are economies of scope. B. there are no economies of scale. C. there are diseconomies of scale. D. there are diseconomies of scope

there are no economies of scale.