Econ 520 - Jin Wang - Homeworks 1-7 multiple choice questions

what is the equation for Price Elasticity of Demand

(Delta Q / Delta P) * (P/Q)

A consumer's demand for CDs can be represented by a line with slope -b and intercept a. If the current price of CDs is $P, then the ratio of consumer surplus to total expenditures on CDs equals

(a/b - P)/(2P).

At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because

there are at least as many possibilities for substitution between factors of production in the long run as in the short run

For any given level of output

no answers given were necessarily correct

If an Engel curve has a positive slope

the good on the horizontal axis is normal

Suppose that the demand for artichokes (Qa) is given as Qa = 200 - 4p What is the price elasticity of demand if the price of artichokes is $10?

-0.25

The price of coffee is always equal to one-half the price of tea. When we plot the budget line for coffee and tea, coffee is plotted on the horizontal axis. What is the slope of this budget line

-1/2

Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be

-4/5

Suppose the long-run cost function is C = 3q. What is the cost-output elasticity for this case

1

Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100?

100 = 10L + 20K

The demand curve for tickets to the George Winston concert (with special guest star, Kenny G) is given as follows: Q = 200 - 0.1P At a price of $30, what is the consumer surplus from concert tickets?

194,045

The price of lemonade is $0.50; the price of popcorn is $1.00. If Fred has maximized his utility by purchasing lemonade and popcorn, his marginal rate of substitution will be

2 lemonades for each popcorn

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the fixed cost?

200

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average fixed cost?

200/Q

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?

5

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average total cost?

5 + (200/Q)

Suppose that the demand for artichokes (Qa) is given as Qa = 200 - 4p At what price, if any, is the demand for artichokes completely elastic?

50

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the variable cost?

5Q

From 1970 to 2010, the real price of a college education increased, and total enrollment increased. Which of the following could have caused this increase in price and enrollment?

A shift to the left in the supply curve for college education and a shift to the right in the demand curve for college education

Which of the following would cause an unambiguous decrease in the real price of DVD players

A shift to the right in the supply curve for DVD players and a shift to the left in the demand curve for DVD players

Which of the following statements is true regarding the differences between economic and accounting costs?

Accounting costs include only explicit costs.

Which would not increase the productivity of labor

An increase in the size of the labor force

Which of the following events will cause a leftward shift in the supply curve of gasoline?

An increase in the wage rate of refinery workers

Which of the following costs always declines as output increases

Average fixed cost

Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale.

Both I and II are false

Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output.

Both I and II are true

The price of beef and quantity of beef traded are P and Q , respectively. Given this information, consumer surplus is the area:

CBP*

Consider the following statements when answering this question I. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too. II. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises

I and II are both true

Consider the following statements when answering this question. I. Increases in the rate of income tax decrease the opportunity cost of attending college. II. The introduction of distance learning, which enables students to watch lectures at home, decreases the opportunity cost of attending college.

I and II are both true

Consider the following statements when answering this question; I. A firm's marginal cost curve does not depend on the level of fixed costs. II. As output increases the difference between a firm's average total cost and average variable cost curves cannot rise

I and II are both true

Consider the following statements when answering this question 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.

I is false, and II is true

Use the following statements to answer this question: I. The long-run average cost (LAC) curve is the envelope of the short-run average cost (SAC) curves. II. The long-run marginal cost (LMC) curve is the envelope of the short-run marginal cost (SMC) curves.

I is true and II is false

Use the following two statements to answer this question: I. If the marginal product of labor is zero, the total product of labor is at its maximum. II If the marginal product of labor is at its maximum, the average product of labor is falling.

I is true, and II is false

Use the following two statements to answer this question: I. Production functions describe what is technically feasible when the firm operates efficiently. II. The production function shows the least cost method of producing a given level of output.

I is true, and II is false

Which of the following is true regarding income along a price-consumption curve

Income is constant

Which of the following is true about the demand for gasoline

It is probably more price elastic in the long run because it is easier to find substitutes for gasoline in the long run.

When Joe maximizes utility, he finds that his MRS of X for Y is greater than Px/Py. It is most likely that

Joe is not consuming good Y

Which of the following inputs are variable in the long run

Labor, Capital and Equipment, and Plant Size

Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"

Law of diminishing returns

When there are economies of scale

MC < AC, so cost-output elasticity is less than 1

The cost-output elasticity can be written and calculated as

MC/AC

What describes the graphical relationship between average product and marginal product

Marginal product cuts average product from above, at the maximum point of average product

Joe's Organic Cereal Company produces granola breakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change

Shift downward

Carolyn knows average total cost and average variable cost for a given level of output. Which of the following costs can she not determine given this information

TC, AFC, FC, and VC

Which of the following is NOT related to the slope of isoquants

The fact that input prices are positive

A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?

The short-run average cost curve reveals nothing regarding returns to scale

Which always increase(s) as output increases

Total Cost and Variable Cost

A firm's expansion path is

a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of

a fixed cost

To model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is

a horizontal line

As we move downward along a typical isoquant, the slope of the isoquant

becomes flatter

in L - Shaped Isoquants

capital and labor will be used in fixed proportions

A vertical demand curve is

completely inelastic

If input prices are constant, a firm with increasing returns to scale can expect

costs to go up less than double as output doubles

Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to

decline.

In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences

decreasing returns to scale

The cost-output elasticity is used to measure

economies of scale

When a product transformation curve is bowed outward, there are ________ in production

economies of scope

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must

equal zero

Which of the following describes the Giffen good case? When the price of the good

falls, the income effect is in the opposite direction to the substitution effect, and consumption falls

Due to capacity constraints, the price elasticity of supply for most products is

greater in the long run than the short run

Recently, Skooterville has experienced a large growth in population. As a result, the demand curve for telephone service in Skooterville

has shifted to the right

At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you

how increasing labor use alters the average product of labor

The principle of revealed preference would say that if Xavier chooses market basket A over market basket B then

if A is more expensive than B, then Xavier must prefer A over B

A production function defines the output that can be produced

if the firm is technically efficient

When a good is price inelastic, consumer expenditures on the good

increase when price increases

When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture

increases.

An isoquant

is a curve that shows all the combinations of inputs that yield the same total output

When the average product is decreasing, marginal product

is less than average product

The function which shows combinations of inputs that yield the same output is called a(n)

isoquant curve.

Generally, economies of scope are present when

joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).

Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good

less, less

Incremental cost is the same concept as ________ cost

marginal

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus

marginal cost is below average variable cost

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

marginal rate of technical substitution

The total cost of producing a given level of output is

minimized when the ratio of marginal product to input price is equal for all inputs

Economies of scope refer to

multiproduct firms

Gary Franklin is a movie critic. He invented the Franklin Scale with which he rates movies from 1 to 10 (10 being best). When asked about his scale, Mr. Franklin explained "that it is a subjective measure of movie quality. A movie with a ranking of 10 is not necessarily 10 times better than a movie with a ranking of 1, but it is better. A movie with a ranking of 5 is better than a movie with a ranking of 1, but is not as good a movie with a ranking of 10. That's all it really tells you." Based on Mr. Franklin's description, his scale is

ordinal but not cardinal

Fixed costs are fixed with respect to changes in

output

When an isocost line is just tangent to an isoquant, we know that

output is being produced at minimum cost

An individual demand curve can be derived from the ________ curve

price-consumption

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that:

production at this point is technically inefficient

Suppose that the demand for artichokes (Qa) is given as Qa = 200 - 4p Suppose that the price of artichokes is increased slightly from $10. The total expenditure by consumers on artichokes will ________ and the number of artichokes sold will ________.

rise, fall

Price elasticity of demand measures the...

sensitivity of quantity demanded to changes in price

To protect the cod fishery off the northeast coast of the U.S., the federal government may limit the amount of fish that each boat can catch in the fishery. The result of this public policy is to

shift the cod supply curve to the left

If the actual price were below the equilibrium price in the market for bread, a

shortage would develop, which market forces would eliminate over time

Good A is a normal good. The demand curve for good A

slopes downward.

A farmer uses L units of labor and K units of capital to produce Q units of corn using a production function F(K,L). A production plan that uses K' = L' = 10 to produce Q' units of corn where Q' < F(10, 10) is said to be

technically feasible and inefficient

A production function assumes a given

technology

The marginal rate of technical substitution is equal to

the absolute value of the slope of an isoquant & the ratio of the marginal products of the inputs

Marginal utility measures

the additional satisfaction from consuming one more unit of a good

If indifference curves cross, then

the assumption of transitivity is violated

When labor usage is at 12 units, output is 36 units. From this we may infer that

the average product of labor is 3. (36/12)

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that

the average product of labor is always equal to the marginal product of labor

Plastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect

the demand curve for steel to shift to the right

With its current levels of input use, a firm's MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies

the marginal product of labor is 3 times the marginal product of capital

If the isoquants are straight lines, then

the marginal rate of technical substitution of inputs is constant

As we move downward along a demand curve for apples

the marginal utility of apples decreases

The substitution effect of a price change for product X is the change in consumption of X associated with a change in

the price of X, with the level of utility held constant

The law of diminishing returns applies to

the short run only

Marginal product crosses the horizontal axis (is equal to zero) at the point where

total product is maximized

You are currently using three printing presses and five employees to print 100 sales manuals per hour. If the MRTS at this point is 0.5 (capital is on the vertical axis of the isoquant map), then you would be willing to exchange ________ employees for one more printing press in order to maintain current output

two

A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

use 0.8 fewer units of capital

The MRTS for isoquants in a fixed-proportion production function is

zero or undefined

Writing total output as Q, change in output as ΔQ, total labor employment as L, and change in labor employment as ΔL, the marginal product of labor can be written algebraically as

ΔQ / ΔL.