ECON Test 3

The marginal product is the incremental change in total output that can be obtained from the use of one more unit of an input in the production process, while varying all other inputs. a. True b. False

False

The marginal product is the incremental change in total output that can be obtained from the use of one more unit of an input in the production process, while holding constant all other inputs. a. True b. False

True

Fill in the missing data to solve this problem. Variable Total Average Marginal Input Product Product Product 4 ? 70 ---- 5 ? ? 40 6 350 ? ? What is the total product for 5 units of input, and what is the marginal product for 6 units of input? a. 320 and 30 b. 350 and 20 c. 360 and 15 d. 400 and 10 e. 430 and 8

a. 320 and 30

The combinations of inputs costing a constant C dollars is called: a. an isocost line b. an isoquant curve c. the MRTS d. an isorevenue line e. none of the above

a. an isocost line

Using the graphical method to demonstrate the break-even point, which of the following statements is NOT true? a. constant selling price per unit are represented by TR b. constant variable cost per unit is represented by TC c. variable costs increase at a constant rate of VC per unit of output d. below the point where TR and TC intersect, operating profits are realized e. all of these are true

a. constant selling price per unit are represented by TR

Regarding costs, which of the following statements is true? a. costs can be measured in different ways b. costs appropriate for financial reporting purposes are appropriate for decision-making purposes c. the relevant cost in economic decision making is the initial cost d. sunk costs should always be considered in making operating decisions e. none of these is true

a. costs can be measured in different ways

Marginal revenue product is: a. defined as the amount that an additional unit of the variable input adds to the total revenue b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained d. a and b e. a and c

a. defined as the amount that an additional unit of the variable input adds to the total revenue

Break-even analysis usually assumes all of the following except: a. in the short run, there is no distinction between variable and fixed costs. b. revenue and cost curves are straight-lines throughout the analysis. c. there appears to be perfect competition since the price is considered to remain the same regardless of quantity. d. the straight-line cost curve implies that marginal cost is constant. e. both c and d

a. in the short run, there is no distinction between variable and fixed costs.

The three concepts of optimal capacity utilization are: a. optimal plant size for a given output rate b. optimal cost of manufacturing c. optimal plant size d. optimal output for a given plant size e. all of these except b f. all of these except c

a. optimal plant size for a given output rate

The isoquants for inputs that are perfect complements for one another consist of a series of: a. right angles b. parallel lines c. concentric circles d. right triangles e. none of the above

a. right angles

Possible sources of economies of scale (size) within a production plant include: a. specialization in the use of capital and labor b. imperfections in the labor market c. transportation costs d. a and b e. a and c

a. specialization in the use of capital and labor

In production and cost analysis, the short run is the period of time in which one (or more) of the resources employed in the production process is fixed or incapable of being varied. a. true b. false

a. true

In the linear breakeven model, a firm incurs operating losses whenever output is less than the breakeven level. a. true b. false

a. true

In the linear breakeven model, the relevant range of output is that range where the linearity assumptions of the model are assumed to hold. a. true b. false

a. true

The relevant cost in economic decision-making is the opportunity cost of the resources rather than the outlay of funds required to obtain the resources. a. true b. false

a. true

A cottage industry exists in the home-manufacture of 'country crafts'. Especially treasured are handmade quilts. If the fourth completed quilt took 30 hours to make, and the eighth quilt took 28 hours. What is the percentage learning? Hint: Percentage learning = 100% - (c2/c1)•100%. a. 5% b. 6.7% c. 10% d. 100% e. 122%

b. 6.7%

If the marginal product of labor is 100 and the price of labor is 10, while the marginal product of capital is 200 and the price of capital is $30, then what should the firm? a. The firm should use relatively more capital b. The firm should use relatively more labor c. The firm should not make any changes - they are currently efficient d. Using the Equimarginal Criterion, we can't determine the firm's efficiency level e. Both c and d

b. The firm should use relatively more labor

The marginal product is defined as: a. The ratio of total output to the amount of the variable input used in producing the output b. The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. The percentage change in output resulting from a given percentage change in the amount d. The amount of fixed cost involved. e. None of the above

b. The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process

For a short-run cost function which of the following statements is (are) not true? a. The average fixed cost function is monotonically decreasing. b. The marginal cost function intersects the average fixed cost function where the average variable cost function is a minimum. c. The marginal cost function intersects the average variable cost function where the average variable cost function is a minimum. d. The marginal cost function intersects the average total cost function where the average total cost function is a minimum. e. b and c

b. The marginal cost function intersects the average fixed cost function where the average variable cost function is a minimum

The cost function is: a. a means for expressing output as a function of cost b. a schedule or mathematical relationship showing the total cost of producing various quantities of output c. similar to a profit and loss statement d. incapable in being developed from statistical regression analysis e. none of the above

b. a schedule or mathematical relationship showing the total cost of producing various quantities of output

Theoretically, in a long-run cost function: a. all inputs are fixed b. all inputs are considered variable c. some inputs are always fixed d. capital and labor are always combined in fixed proportions e. b and d

b. all inputs are considered variable

The primary purpose of the Cobb-Douglas power function is to: a. allow one to make estimates of cost-output relationships b. allow one to make predictions about a resulting increase in output for a given increase in the inputs c. aid one in gaining accurate empirical values for economic variables d. calculate a short-run linear total cost function e. a and b

b. allow one to make predictions about a resulting increase in output for a given increase in the inputs

Which of the following is never negative? a. marginal product b. average product c. production elasticity d. marginal rate of technical substitution e. slope of the isocost lines

b. average product

Which of the following is not an assumption of the linear breakeven model: a. constant selling price per unit b. decreasing variable cost per unit c. fixed costs are independent of the output level d. a single product (or a constant mix of products) is being produced and sold e. all costs can be classified as fixed or variable

b. decreasing variable cost per unit

The primary disadvantage of engineering methods for measuring cost functions is that they deal with the managerial and entrepreneurial aspects of the production process or plant. a. true b. false

b. false

According to the theory of cost, specialization in the use of variable resources in the short-run results initially in: a. decreasing returns and declining average and marginal costs b. increasing returns and declining average and marginal costs c. increasing returns and increasing average and marginal costs d. decreasing returns and increasing average and marginal costs e. none of the above

b. increasing returns and declining average and marginal costs

The Cobb-Douglas production function has which of the following properties? a. output is a linear increasing function of each of the inputs b. it provides a good fit to the traditional S-shaped production function c. the elasticity of production is constant and equal to 1 minus the exponent of the appropriate variable d. all of the above e. none of the above

b. it provides a good fit to the traditional S-shaped production function

The isoquants for inputs that are perfect substitutes for one another consist of a series of: a. right angles b. parallel lines c. concentric circles d. right triangles e. none of the above

b. parallel lines

A ____ total cost function implies that marginal costs ____ as output is increased. a. linear; increase linearly b. quadratic; increase linearly c. cubic; increase linearly d. a and b e. none of the above

b. quadratic; increase linearly

The short-run cost function is: a. where all inputs to the production process are variable b. relevant to decisions in which one or more inputs to the production process are fixed c. not relevant to optimal pricing and production output decisions d. crucial in making optimal investment decisions in new production facilities e. none of the above

b. relevant to decisions in which one or more inputs to the production process are fixed

The original Cobb-Douglas function was given as Q= aL^bL^1-a. It was subsequently rewritten as Q= aL^bK^a. What benefit was derived in the revision? a. the function becomes a non-linear relationship so it would fit to production curves having an "S" shape b. returns to scale can be shown in the revision c. returns to scale become constant d. a and b only e. a, b, and c

b. returns to scale can be shown in the revision

Which of the following is not a limitation of the survivor technique for measuring the optimum size of firms within an industry? a. since the technique does not employ actual cost data in the analysis, there is no way to assess the magnitude of the cost differentials between firms of varying size and efficiency. b. the managerial and entrepreneurial aspects of the production process are not included in the analysis c. because of legal factors, the long-run cost curve derived by this technique may be distorted and may not measure the cost curve postulated in economic theory d. a and b e. b and c

b. the managerial and entrepreneurial aspects of the production process are not included in the analysis

The Cobb-Douglas production function is: Q = 1.4*L0.6*K0.5. What would be the percentage change in output (%?Q) if labor grows by 3.0% and capital is cut by 5.0%? [HINT: %?Q = (EL * %?L) + (EK * %?K)] a. %?Q = + 3.0% b. %?Q = + 5.0% c. %?Q = - 0.70% d. %?Q = - 2.50% e. %?Q = - 5.0%

c. %?Q = - 0.70%

George Webb Restaurant collects on the average $5 per customer at its breakfast & lunch diner. Its variable cost per customer averages $3, and its annual fixed cost is $40,000. If George Webb wants to make a profit of $20,000 per year at the diner, it will have to serve__________ customers per year. a. 10,000 customers b. 20,000 customers c. 30,000 customers d. 40,000 customers e. 50,000 customers

c. 30,000 customers

If TC = 321 + 55Q - 5Q2, then average total cost at Q = 10 is: a. 10.2 b. 102 c. 37.1 d. 371 e. 321

c. 37.1

Economies of scale exist whenever long-run average costs: a. Increase as output is increased b. Remain constant as output is increased c. Decrease as output is increased d. Decline and then rise as output is increased e. None of the above

c. Decrease as output is increased

Which of the following statements concerning the short-run average cost curve of economic theory is true? a. It is L-shaped b. It is ∩-shaped c. It is ∪ -shaped d. It is ∧-shaped e. It is M-shaped

c. It is ∪ -shaped

Which of the following statements about cost functions is true? a. Variable costs will always increase in direct proportion to the quantity of output produced. b. The less capital equipment employed in the production process relative to labor and other inputs, the longer will be the period of time required to increase significantly the scale of operation. c. The shape of the firm's long-run cost function is important in decisions to expand the scale of operations. d. none of the above

c. The shape of the firm's long-run cost function is important in decisions to expand the scale of operations.

A linear total cost function implies that: a. marginal costs are constant as output increases b. average total costs are continually decreasing as output increases c. a and b d. none of the above

c. a and b

In the linear breakeven model, the difference between selling price per unit and variable cost per unit is referred to as: a. variable margin per unit b. variable cost ratio c. contribution margin per unit d. target margin per unit e. none of the above

c. contribution margin per unit

What method of inventory valuation should be used for economic decision-making problems? a. book value b. original cost c. current replacement cost d. cost or market, whichever is lower e. historical cost

c. current replacement cost

Given a Cobb-Douglas production function estimate of Q = 1.19L.72K.18 for a given industry, this industry would have: a. increasing returns to scale b. constant returns to scale c. decreasing returns to scale d. negative returns to scale e. none of the above

c. decreasing returns to scale

In the Cobb-Douglas production function ( Q=aL^a1Ka): a. the marginal product of labor (L) is equal to β1 b. the average product of labor (L) is equal to β2 c. if the amount of labor input (L) is increased by 1 percent, the output will increase by β1 percent d. a and b e. a and c

c. if the amount of labor input (L) is increased by 1 percent, the output will increase by β1 percent

In the linear breakeven model, the breakeven sales volume (in dollars) is equal to fixed costs divided by: a. unit selling price less unit variable cost b. contribution margin per unit c. one minus the variable cost ratio d. a and b only e. a, b, and c

c. one minus the variable cost ratio

The degree of operating leverage is equal to the ____ change in ____ divided by the ____ change in ____. a. percentage; sales; percentage; EBIT b. unit; sales; unit; EBIT c. percentage; EBIT; percentage; sales d. unit; EBIT; unit; sales e. none of the above

c. percentage; EBIT; percentage; sales

In the linear breakeven model, the breakeven sales volume (in dollars) can be found by multiplying the breakeven sales volume (in units) by: a. one minus the variable cost ratio b. contribution margin per unit c. selling price per unit d. standard deviation of unit sales e. none of the above

c. selling price per unit

In a study of banking by asset size over time, we can find which asset sizes are tending to become more prominent. The size that is becoming more predominant is presumed to be least cost. This is called: a. regression to the mean analysis. b. breakeven analysis. c. survivorship analysis. d. engineering cost analysis. e. a Willie Sutton analysis.

c. survivorship analysis.

The marginal rate of technical substitution may be defined as all of the following except: a. the rate at which one input may be substituted for another input in the production process, while total output remains constant b. equal to the negative slope of the isoquant at any point on the isoquant c. the rate at which all combinations of inputs have equal total costs d. equal to the ratio of the marginal products of X and Y e. b and c

c. the rate at which all combinations of inputs have equal total costs

Marginal revenue product is defined as the amount that an additional unit of the variable input adds to ____. a. marginal revenue b. total output c. total revenue d. marginal product e. none of the above

c. total revenue

In a relationship among total, average and marginal products, where TP is maximized: a. AP is maximized b. AP is equal to zero c. MP is maximized d. MP is equal to zero e. none of the above

d. MP is equal to zero

____ are defined as costs which are incurred regardless of the alternative action chosen in a decision-making problem. a. Opportunity costs b. Marginal costs c. Relevant costs d. Sunk costs e. None of the above

d. Sunk costs

The following is a Cobb-Douglas production function: Q = 1.75K0.5·L0.5. What is correct here? a. A one-percent change in L will cause Q to change by one percent b. A one-percent change in K will cause Q to change by two percent c. This production function displays increasing returns to scale d. This production function displays constant returns to scale e. This production function displays decreasing returns to scale

d. This production function displays constant returns to scale

A ____ total cost function yields a U-shaped average total cost function. a. cubic b. quadratic c. linear d. a and b only e. a, b, and c

d. a and b only

The linear breakeven model excludes ____ from the analysis. a. financing costs b. taxes c. contribution margin d. a and b only e. a, b, and c

d. a and b only

Concerning the maximization of output subject to a cost constraint, which of the following statements (if any) are true? a. At the optimal input combination, the slope of the isoquant must equal the slope of the isocost line. b. The optimal solution occurs at the boundary of the feasible region of input combinations. c. The optimal solution occurs at the point where the isoquant is tangent to the isocost lines. d. all of the above e. none of the above

d. all of the above

Holding the total output constant, the rate at which one input X may be substituted for another input Y in a production process is: a. the slope of the isoquant curve b. the marginal rate of technical substitution (MRTS) c. equal to MPx/MPy d. all of the above e. none of the above

d. all of the above

Evidence from empirical studies of long-run cost-output relationships lends support to the: a. existence of a non-linear cubic total cost function b. hypothesis that marginal costs first decrease, then gradually increase over the normal operating range of the firm c. hypothesis that total costs increase quadratically over the ranges of output examined d. hypothesis that total costs increase linearly over some considerable range of output examined e. none of the above

d. hypothesis that total costs increase linearly over some considerable range of output examined

A ____ total cost function implies that marginal costs ____ as output is increased. a. linear; increase linearly b. quadratic; are constant c. cubic; increase linearly d. linear; are constant e. none of the above

d. linear; are constant

The law of diminishing marginal returns: a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns b. is a mathematical theorem that can be logically proved or disproved c. is the rate at which one input may be substituted for another input in the production process d. none of the above

d. none of the above

The existence of diseconomies of scale (size) for the firm is hypothesized to result from: a. transportation costs b. imperfections in the labor market c. imperfections in the capital markets d. problems of coordination and control encountered by management e. All of the above

d. problems of coordination and control encountered by management

In a production process, an excessive amount of the variable input relative to the fixed input is being used to produce the desired output. This statement is true for: a. stage II b. stages I and II c. when Ep = 1 d. stage III e. none of the above

d. stage III

Marginal factor cost is defined as the amount that an additional unit of the variable input adds to ____. a. marginal cost b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above

d. total cost

Suppose you have a Cobb-Douglas function with a capital elasticity of output (á) of 0.28 and a labor elasticity of output (â) of 0.84. What statement is correct? a. There are increasing returns to scale b. If the amount of labor input (L) is increased by 1%, the output will increase by 0.84% c. If the amount of capital input (K) is decreased by 1%, the output will decrease by 0.28% d. The sum of the exponents in the Cobb-Douglas function is 1.12. e. All of the above

e. All of the above

What's true about both the short-run and long-run in terms of production and cost analysis? a. In the short-run, one or more of the resources are fixed b. In the long-run, all the factors are variable c. The time horizon determines whether or not an input variable is fixed or not d. The law of diminishing returns is based in part on some factors of production being fixed, as they are in the short run. e. All of the above

e. All of the above

Which of the following is true with regards to a long-run cost function? a. The shape of the firm's long-run cost function is important in decisions to expand the scale of operations b. The long-run average cost curve is U-shaped c. The long-run average cost curve is flatter than the short-run average cost curve. d. The curve consists of the lower boundary of all the short-run cost curves e. All of the above

e. All of the above

Suppose that total cost is given by TC = 200 + 5Q - 0.4Q2 + 0.001Q3 a. Fixed cost (FC) is $200 b. Variable cost (VC) is 5Q - 0.4Q2 + 0.001Q3 c. Average variable cost (AVC) is 5 - 0.4Q + 0.001Q2 d. Marginal cost (MC) is 5 - 0.8Q +.003Q2 e. All of the above are correct

e. All of the above are correct

What is another term meaning the degree of operating leverage? a. The measure of the importance of fixed cost. b. The operating profit elasticity. c. The measure of business risk. d. D.O.L. e. All of the above.

e. All of the above.

Regarding costs, accountants _____; economists _____. a. identify stable and predictable costs for decision-making purposes; measure costs for financial reporting purposes b. identify stable and predictable costs for financial reporting purposes; measure costs for decision making purposes c. do not include opportunity costs; include opportunity costs d. include opportunity costs; do not include opportunity costs e. both b and c f. both a and d

e. both b and c

The difference between economies of scale and economies of scope is: a. economies of scale occur whenever inputs can be shared in the production of different products b. economies of scope occur whenever inputs can be shared in the production of different products c. economies of scale can occur when two or more products are produced d. economies of scope can occur when two or more products are produced e. both b and d

e. both b and d