Microeconomics final (example questions)
A constant elasticity cost function a) takes a form such as TC = a Qb wc rd and is useful in empirical work because it can be converted into a linear form using logarithms. b) takes a form such as , where L and K are chosen to minimize cost, and w and r are input prices. c) takes a form such as TC = a Q2 + KL. d) is given by TC = AC x Q.
a.
Accounting costs include all ______. a. explicit costs b. explicit and implicit costs c. explicit and opportunity costs d. explicit and financial costs
a.
Identify the truthfulness of the following statements. I. Marginal cost can be measured as the slope of the total cost curve. II. Average total cost can be measured as the slope of the ray from the origin to the total cost curve. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true.
a.
The percentage change in average variable cost for every 1 percent increase in cumulative volume is referred to as a) experience elasticity b) experience curve c) experience output d) experience slope
a.
Which of the following statements correctly characterizes the solution to a cost minimization problem with an interior solution? a) The isoquant is tangent to the isocost line. b) The isoquant lies to the interior of the isocost line. c) The isocost line lies to the interior of the isoquant. d) The distance between the isoquant and the isocost line is maximized.
a.
Economies of ______ occur when a single firm can produce two products together for a lower total cost than two firms could produce those same products separately, one at each firm. a) scale. b) scope. c) efficiency. d) output.
b.
Marginal cost is a) the cost per unit of output. b) the increase in total cost from producing an additional unit of output. c) the same thing as total variable cost. d) is only relevant in the long-run.
b.
A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's a) Price-expansion curve b) Labor demand curve c) Capital demand curve d) Elasticity of demand curve
c.
Suppose that a firm uses only two inputs in its production process. The ratio of the marginal products of these inputs always exceeds the ratio of the prices of the inputs. What can you say about the cost-minimizing point of the firm? a) It is an interior solution. b) A cost-minimizing point must not exist. c) If a cost-minimizing point exists, it must be at a corner. d) Costs must be negative at the cost-minimizing point.
c.
When a firm seeks to find an input combination that minimizes the total costs of producing a particular level of output, this is defined as the ______. A. cost reduction problem B. production maximization problem C. cost minimization problem D. output optimization problem
c.
An example of an implicit cost would be ______. A. transportation expenses B. salaries C. rental costs D. leisure time
d.
Economic costs ______. A. only take into account implicit costs B. are not the same as opportunity costs C. consist of implicit costs D. include the total of both explicit and implicit costs
d.
Opportunity cost for a firm is a) Costs that involve a direct monetary outlay b) The sum of the firm's implicit costs c) The total of explicit costs that have been incurred in the past d) The value of the next best alternative that is forgone when another alternative is chosen
d.
Suppose a firm's total cost curve is given by the equation . The firm's marginal cost is . At what level of does the firm's average cost curve reach a minimum? a) 100 b) 2 c) 10 d) 20
c.
Suppose capital and labor are perfect complements for a particular production process. If the price of labor increases, holding the price of capital and the level of output constant, the firm should a) use more capital and less labor. b) use more labor and less capital. c) use the same amounts of capital and labor. d) eliminate all use of labor.
c.
A long-run total cost curve a) must be equal to zero when the level of output is zero. b) may be greater than or equal to zero when the level of output is zero. c) must be decreasing when the level of output is zero. d) will be equal to fixed cost, which is greater than zero, when the level of output is zero.
a.
Economies of scale exist when firms have a) increasing returns to scale. b) constant returns to scale. c) decreasing returns to scale. d) constant marginal cost.
a.
You have invested about $100,000 in a new (hopefully) trendy restaurant in an urban location. These costs have gone to purchase the restaurant, prepay insurance for the following year, and purchase supplies for the restaurant. It will cost you an additional $10,000 per year to hire each waiter and waitress. (They earn tips which they get to keep.) Which of the following statements is most accurate? a) The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, but do not include all of the possible economic costs of operating the business. b) The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, and also include all of the possible economic costs of operating the business c) The $100,000 sum represents sunk costs and the costs for waiters and waitresses are sunk as well. d) The $100,000 sum represents sunk costs and all of the possible accounting costs as well.
a.
The "equal bang per buck" condition refers to the firm equating a) marginal revenue with marginal cost. b) the marginal productivity of the last dollar spent on labor with the marginal productivity of the last dollar spent on capital. c) the marginal productivity of capital with the marginal productivity of labor. d) the cost of capital with the cost of labor.
b.
The output elasticity of total cost is equal to a) the slope of the isocost line. b) the ratio of marginal cost to average cost. c) the ratio of average cost to marginal cost. d) the ratio of average cost to total cost.
b.
The short-run total cost curve is the sum of two components a) Short-run and long-run b) Total variable cost curve and total fixed cost curve c) Average cost curve and marginal cost curve d) Economies of scale and economies of scope
b.
The short-run total cost curve a) shows the minimized total cost of producing a given quantity of output. b) shows the outputs that correspond to minimized total cost when at least one input is fixed. c) shows the minimized total cost of producing a given quantity of output when at least one input is fixed. d) shows the minimized total cost of producing a given quantity of output when all inputs are fixed.
c.
Suppose STC(Q) = 2Q + 20. Short run marginal cost is a) indeterminate, since we don't know the level of . b) 22 c) 20 d) 2
d.
Suppose capital and labor are perfect substitutes for a particular production process. If the price of labor increases, holding the price of capital and the level of output constant, the firm may a) use more capital and less labor. b) use more labor and less capital. c) use the same amounts of capital and labor. d) Either use more capital and less labor or use the same amounts of both inputs.
d.
Which of the following would be best considered a sunk cost: A. A $10 million dollar investment in a plant built 10 years ago. B. The cost of merchandise ordered for the upcoming holiday season. C. Insurance costs associated with a new international venture. D. Incremental fuel costs resulting from a new transportation route.
a
A firm notices that when it increases output beyond an initial level , average total cost decreases. For this firm, the region of output beyond is characterized by a) economies of scale. b) diseconomies of scale. c) constant economies of scale. d) the minimum efficient scale.
a.
A high elasticity of substitution between capital and labor implies that labor demand will be a) price elastic. b) unitary price elastic. c) price inelastic. d) more inelastic than capital demand.
a.
Additional costs associated with attending class such as lost income from work can be categorized as ______. a. opportunity costs b. explicit costs c. tuition costs d. none of the above
a.
Economies of experience are exhibited when a) it takes a professor a smaller quantity of time to prepare a lesson for a new class than for the first class he taught. b) an older professor is more intelligent than a younger professor. c) a professor goes into business as a consultant. d) a professor reaches age 65 and begins to get a senior citizen discount.
a.
Identify the truthfulness of the following statements. I. A firm decides to purchase a computer for $1,500 at the end of the month. The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes. The computer has no re-sale value. This is a fixed cost. At the beginning of the month, this cost is non-sunk. II. A firm decides to purchase a computer for $1,500 at the beginning of the month. The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes. The computer has no re-sale value. This is a fixed cost. At the end of the month, this cost is sunk. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true.
a.
If the output elasticity of total cost is less than one, then the long-run average cost curve experiences a) economies of scale. b) diseconomies of scale. c) decreasing returns to scale. d) the minimum efficient scale.
a.
Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficients of the log of the wage and the log of capital in this function should a) add up to one. b) be negative. c) be of opposite sign. d) of indeterminate sign.
a.
Suppose a firm's production function can be specified as Q = 10KL. This firm's cost function exhibits a) economies of scale b) diseconomies of scale c) neither diseconomies nor economies of scale. d) economies of scale for output levels less than some level, Q1= 1/4, and diseconomies of scale thereafter.
a.
The expansion path graphs a) the combinations of capital and labor that minimize total cost for various levels of output. b) the combinations of capital and labor that have the same total cost for various levels of output. c) the combinations of capital and labor that have the same level of output. d) how the firm can expand output while holding total cost constant.
a.
When a firm has limited opportunities to make substitutes among inputs, we would expect the firm to make ______. A. minimal changes in input selection with large price changes in the input B. large changes in input selection with large price changes in the input C. minimal changes in input selection with minimal price changes in the input D. large changes in input selection with minimal price changes in the input
a.
When the output elasticity of total cost is less than one, a) Marginal cost is less than average cost and average cost decreases as Q increases. b) Marginal cost is less than average cost and average cost increases as Q increases. c) Marginal cost is greater than average cost and average cost decreases as Q increases. d) Marginal cost is greater than average cost and average cost increases as Q increases.
a.
You decide to purchase a new car for $12,000. Upon driving the car off of the lot, the resale value of the car falls to $9,000. The opportunity cost of purchasing the car is __________ and the opportunity cost of using the car is __________ a) $12,000 and $9,000. b) $12,000 and $3,000. c) Unknown and $9,000. d) Unknown and $3,000.
a.
A difference between the short run and the long run is that a firm in the short run a) faces an unconstrained cost minimization problem, whereas the firm is constrained in the long run. b) faces a constrained cost minimization problem, whereas the firm is unconstrained in the long run. c) faces a constrained cost minimization problem in both the short run and the long run. d) faces an unconstrained cost minimization problem in both the short run and the long run.
b.
A firm's long-run average cost curve is comprised of a) the minimum points of each of the firm's short-run average cost curves. b) the lower envelope of the firm's short-run average cost curves. c) the minimum points of each of the firm's short-run marginal cost curves. d) the series of points where the short-run marginal cost curves intersect the short-run average cost curves.
b.
A firm's production function is given by . The marginal products of labor and capital are, respectively, and . Further, the wage rate is and the rental rate of capital is . Suppose that the firm wants to produce 27,000 units of output in the most efficient way possible. How much does the firm spend? a) $600 b) $900 c) $1,500 d) $2,100
b.
A firm's production function is given by . The marginal products of labor and capital are, respectively, and . Further, the wage rate is and the rental rate of capital is . Suppose the firm wants to produce 27,000 units of output. What is the most efficient combination of labor and capital ? a) (20, 20) b) (30, 30) c) (30, 90) d) (90, 30)
b.
An increase in the price of one input a) will always rotate the long-run total cost curve upward. b) may rotate the long-run total cost curve upward or may leave the long-run total cost unchanged. c) could actually rotate the long-run total cost downward. d) will have no effect on the long-run total cost curve as long as long as the firm is using positive amounts of both inputs.
b.
An increase in the quantity of output will cause the cost minimizing quantity of an input to go ________ if the input is a normal input and will cause the cost minimizing quantity of the input to go _________ if the input is an inferior input. a) up; up b) up; down c) down; up d) down; down
b.
An isocost line represents a) all combinations of inputs in which the firm produces the same level of output. b) all combinations of inputs in which the firm has the same level of total cost. c) for a given level of output, the various points that will produce that same level of output at the same cost. d) all combinations of output that yield the same total cost level.
b.
Cost driver is a) a mathematical relationship that shows how total costs vary with the factors that influence total costs b) a factor that influences or "drives" total or average costs c) a factor that influences quality of output and prices of inputs d) a cost level.
b.
Identify the truthfulness of the following statements. I. Economies of Experience imply that Economies of Scale must exist. II. Economies of Scale imply that Economies of Experience must exist. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true.
b.
If average cost is constant for all levels of output, a) the marginal cost curve will intersect the average cost at a single point, the minimum of average cost. b) marginal cost will be equal to average cost for all levels of output. c) marginal cost will be above average cost when average cost is increasing and marginal cost will be below average cost when average cost is decreasing. d) marginal cost will have a region of diminishing marginal cost.
b.
Let a firm use labor (L) and capital (K) as its only inputs to produce an output, Q. The cost of labor is w = $5 per labor hour and the cost of capital is r = $15 per machine hour. What is the equation of the $1.5-million isocost line? a) 1.5m = L + K. b) 1.5m = 5L + 15K. c) 1.5m = (5L)(15K). d) 1.5m = (5L + 15K)Q.
b.
Let the average variable cost of production be $20 when 10 units are produced in the first year. In the second year, after the second 10 units have been produced, the average variable cost of production is $12. The slope of the experience curve for this firm is: a) 85% b) 60% c) 175% d) 12%
b.
Opportunity costs can vary from person to person and a. can be calculated easily most of the time b. can even be different for the same person at different points in time c. are always known and predictable d. represent explicit costs only
b.
Sunk costs do not a) matter. b) affect business shutdown decisions. c) affect business start-up decisions. d) cost as much as marginal costs.
b.
Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital. If the price of capital is $4 per unit and the price of labor is $1 per unit, the firm should a) employ capital only. b) employ labor only. c) use three times as much capital as labor. d) use three times as much labor as capital.
b.
Suppose that a firm has a Cobb-Douglas production function for its inputs of capital and labor. The firm is currently paying $10 per labor hour and $5 per machine hour. The firm is currently at an efficient production level, employing an equal number of machines and workers. Suppose the cost of labor were to double and the cost of capital were to fall by half. If the firm wanted to produce the previous level of output for the previous cost, the firm would hire a) more labor and less capital. b) less labor and more capital. c) equal amounts of labor and capital. d) twice as much labor as capital.
b.
Suppose that a firm's production function of output Q is a function of only two inputs, labor (L) and capital (K) and can be written Q = 25LK with marginal products MPL = 25K and MPK = 25L. Let the wage rate for labor be w = 1 and the rental rate of capital be r= 1. If the firm produces 100 units of output, how many units of labor will it use? a) 1 b) 2 c) 3 d) 4
b.
The long-run total cost curve tends to a) rotate upward when input prices fall. b) rotate upward when input prices rise. c) shift vertically upward by a fixed amount. d) shift vertically downward by a fixed amount.
b.
When the elasticity of substitution between capital and labor is low, a) labor demand will be price elastic. b) labor demand will be price inelastic. c) the capital-labor ratio will be low. d) the labor demand curve will be a flat line.
b.
When the price of all inputs increase by the same percentage, a) the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits decreasing returns to scale. b) the firm's total cost curve will rotate upward by the same percentage. c) the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits increasing returns to scale. d) the firm's total cost curve will remain unchanged since the cost-minimizing combination of inputs is unchanged.
b.
Which of the following is not an accurate specification of a firm's long-run total cost curve? FC stands for fixed cost, VC stands for variable cost, and AC stands for average cost, below. a) , where FC = 0 b) TC=FC + VC, where FC > 0 c) , where L and K are chosen to minimize cost, and w and r are input prices. d) TC = AC x Q
b.
A firm has a Cobb-Douglas production function for its inputs of capital and labor. The firm is currently paying $10 per labor hour and $5 per machine hour. The firm is currently at an efficient production level, employing an equal number of machines and workers. What can we infer about the marginal productivities of capital and labor at this point? a) MPK = MPL b) MPK = 2MPL c) MPL = 2MPK d) MPL = .5MPK
c.
A firm uses capital and labor to produce an output. The absolute value of the slope of the isocost line equals: a) the ratio of the marginal productivities of the inputs. b) the ratio of the output prices. c) the ratio of the input prices. d) the ratio of capital to labor.
c.
A firm uses labor and capital, , to produce an output. The hourly cost of labor is $10, and the hourly cost of capital is $50. Which of the following combinations of labor and capital hours of use represent points on the firm's $100,000 isocost line? a) (10000, 2000) b) (2000, 10000) c) (1000, 1800) d) (1000, 1000)
c.
A firm's production function is given by Q = KL. The marginal products of labor and capital are, respectively, MPL = K and MPK = L. The wage rate of labor is w = $10 and the rental rate of capital is r = $20. The firm wants to produce 1,800 units of output in the most efficient way possible. How much does the firm spend? a) $2,000 b) $1,300 c) $1,200 d) $1,100
c.
A firm's production function is given by Q = KL. The marginal products of labor and capital are, respectively, MPL = K and MPK = L. The wage rate of labor is w = $10 and the rental rate of capital is r = $20. The firm wants to produce 1,800 units of output. What is the most efficient combination of labor and capital ? a) (10, 20) b) (20, 90) c) (60, 30) d) (90, 20)
c.
A firm's production function is given by Q = KL. The marginal products of labor and capital are, respectively, MPL = K and MPK = L. The wage rate of labor is w = $10 and the rental rate of capital is r = $20. What is the most efficient combination of labor and capital that also yields a cost of exactly $1000? a) (10, 45) b) (25, 50) c) (50, 25) d) (20, 40)
c.
A firm's production process uses labor, L, and capital, K, and materials, M, to produce an output, Q according to the function Q = KLM, where the marginal products of the three inputs are MPL = KM, MPK = LM, and MPM = KL. The wage rate for labor is w = 2, the rental rate of capital is r = 1, and the cost of materials is m = 4 per unit. What is the long run cost-minimizing level of capital that the firm must use to produce a target level of output, Q = 1000? a) K = 5 b) K = 10 c) K = 20 d) K = 40
c.
An indivisible input is a) an input that cannot be seen by the naked eye. b) an important input that the firm cannot identify. c) an input that can only be obtained in a certain minimum size. d) an input the firm cannot stop using.
c.
An input demand curve represents a) how the cost-minimizing amount of input varies with the level of output. b) how the cost-minimizing output varies with an input's price. c) how the cost minimizing amount of input changes with the input's price. d) how the cost minimizing output varies with the output price.
c.
Assume that capital is measured along the vertical axis, and labor is measured along the horizontal axis. The firm has an initial isocost line called . Now suppose that the price of labor trebles and the price of capital also trebles. Which statement accurately describes the movement of the isocost line from to ? a) The slope of the isocost line becomes flatter. b) The slope of the isocost line becomes steeper. c) The slope of the isocost line is unchanged. d) We cannot determine whether the slope becomes flatter or steeper.
c.
Diseconomies of scale exist when a) the firm's total cost falls as the level of output increases. b) the firm's total cost increases as the level of output increases. c) the firm's average cost decreases as the level of output decreases. d) the firm's average cost decreases as the level of output increases.
c.
Economic costs a) are the same as accounting costs. b) are the same as implicit costs. c) are the same as opportunity costs. d) are the same as the sum of all past explicit costs
c.
Explicit costs a. do not involve outlays of cash b. are greater than implicit costs c. involve outlays of cash d. are less than implicit costs
c.
For a firm, let total cost be TC(Q) = 160+10Q2 and marginal cost be MC(Q) = 20Q. What is the minimum efficient scale for this firm? a) 0 b) 2 c) 4 d) indeterminate
c.
For a production process with ten inputs, how many inputs could be inferior inputs? a) 5 b) 0 c) 9 d) 10
c.
If the quantity demanded of capital does not change by a large amount when the price of capital increases by a large amount, we say that the demand elasticity of capital is ______. A. elastic B. cross-elastic C. inelastic D. none of the above
c.
In a short run based decision, a firm would _______. A. face no constraints in terms of input selection B. minimize costs C. be subject to input constraints D. maximize production
c.
In order to solve graphically for an interior cost minimum of the firm, subject to the constraint of producing a particular target level of output, we a) shift in the isocost line as much as possible. b) shift out the isoquant as much as possible. c) shift the isocost line left as much as possible subject to the constraint that it touches the target isoquant at least once. d) shift the isoquant left as much as possible subject to the constraint that it touches the target isocost at least once.
c.
Isocost lines demonstrate ______. A. the set of combinations of labor and capital that yield different total costs B. labor costs in the short run C. the set of combinations of labor and capital that yield the same total costs D. the cost minimization process
c.
Isocost lines represent a) the same value for every firm in the industry. b) are the same as implicit costs. c) the same total expenditure on the inputs to the production process. d) the sum of all past explicit costs
c.
Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficient of the log of output in this function is interpreted as the a) average cost. b) marginal cost. c) output elasticity of total cost. d) cost driver.
c.
Opportunity costs ______. A. do not include explicit and implicit costs associated with an alternative B. only include explicit costs associated with an alternative C. depend on the decision being made D. are independent of choices
c.
Sunk costs are considered to be unavoidable because ______. A. these types of costs will occur in the future B. the costs are extremely high C. the costs are historical in nature D. these costs are associated with a particular decision
c.
Suppose a firm produces 50,000 units of output, and determines that its marginal cost is $0.72 and its average total cost is $0.72. At this quantity of output, what is the slope of this firm's long run average total cost curve? a) Upward-sloping. b) Downward-sloping. c) Horizontal. d) Vertical.
c.
Suppose that a firm uses only capital, K, and labor, L, in its production process. At the firm's current long-run combination of capital and labor, it uses positive amounts of both inputs and measures the marginal products as and . The rental rate of capital is r = 6 and the current wage rate for labor is w = 3. The firm a) is currently minimizing total cost in the long run. b) could lower cost by increasing the usage of capital and decreasing the usage of labor. c) could lower cost by increasing the usage of labor and decreasing the usage of capital. d) cannot lower cost without also lowering the level of output
c.
Suppose that capital and labor are perfect complements in a one-to-one ratio in a firm's production function. The firm is currently at an efficient production level, employing an equal number of machines and workers. Suppose the cost of labor were to double and the cost of capital were to fall by half. If the firm wanted to produce the previous level of output, the firm would hire a) more labor and less capital. b) less labor and more capital. c) the same amounts of labor and capital. d) twice as much labor as capital.
c.
The cost-minimization problem of the firm is to a) minimize total costs. b) minimize average costs. c) minimize total cost of producing a particular amount of output. d) maximize output subject to a cost constraint.
c.
The long-run total cost curve shows a) the various combinations of capital and labor that will produce different levels of output at the same cost. b) the various combinations of capital and labor that will produce the same level of output. c) the minimum total cost to produce any level of output, holding input prices fixed, and choosing all inputs to minimize cost. d) for a fixed level of capital, the minimum cost to produce a given level of output.
c.
To develop a solution to minimize costs in the long-run, a firm may want to adjust ______. A. short-run costs B. long-run input quantities C. input quantities D. long-run prices
c.
When evaluating alternative decisions, a decision maker should _____. A. consider all opportunity costs B. think about future trade-offs C. only consider non sunk costs D. include sunk costs in the decision
c.
When the prices of all inputs increase by a proportionate amount, a) the firm's total cost curve will remain unchanged since the cost-minimizing combination of inputs is unchanged. b) the firm's total cost curve may rotate upward or may leave the long-run total cost curve unchanged. c) will always rotate the long-run total cost curve upward. d) could actually rotate the long-run total cost downward if the firm chooses to produce a lower level of output.
c.
When the production function is given by Q = L, which of the following statements is true? a) TC = wQ2, L = Q2 and AC = w b) TC = w - Q, L = Q and AC = w c) TC = wQ, L = Q and AC = w d) TC = wQ, L = Q and AC = L
c.
A firm's production function is given by . The marginal products of labor and capital are, respectively, and . Further, the wage rate is and the rental rate of capital is . Suppose that the firm spends exactly $1200 in the most efficient way possible. How much output can the firm produce? a) 50,000 b) 56,406.25 c) 60,750 d) 64,000
d.
A firm's production function is given by . The marginal products of labor and capital are, respectively, and . Further, the wage rate is and the rental rate of capital is . What is the most efficient combination of labor and capital that also results in a total cost level of exactly $1,200? a) (20, 50) b) (25, 47.5) c) (30, 45) d) (40, 40)
d.
A firm's production function is given by Q = KL. The marginal products of labor and capital are, respectively, MPL = K and MPK = L. The wage rate of labor is w = $10 and the rental rate of capital is r = $20. The firm spends exactly $1000 in the most efficient way possible. How much output can the firm produce? a) 450 b) 800 c) 1000 d) 1250
d.
A firm's production process uses labor, L, and capital, K, and materials, M, to produce an output, Q according to the function Q = KLM, where the marginal products of the three inputs are MPL = KM, MPK = LM, and MPM = KL. The wage rate for labor is w = 2, the rental rate of capital is r = 1, and the cost of materials is m = 4 per unit. Let materials input be fixed now at M = 2. What is the cost minimizing level of capital that the firm must use to produce a target level of output, Q = 1600? a) K = 5 b) K = 10 c) K = 20 d) K = 40
d.
Consider a production process with two inputs and assume the level of one of the inputs is fixed in the short run. To determine the optimal level of the variable input you should a) solve the total cost equation for the level of the variable input. b) solve the total cost equation for the level of the fixed input and substitute that into the production function. c) solve the production function for the level of the fixed input. d) solve the production function for the level of the variable input.
d.
Economies of scope a) are related to the average cost of producing a good when you double the scale of output. b) are higher the more specialized a firm is in production. c) means the rotation of the long-run total cost curve in a downward direction. d) are a production characteristic in which the total cost of producing given quantities of two goods in the same firm is less than the total cost of producing those quantities in two single-product firms.
d.
Identify the truthfulness of the following statements. I. All fixed costs are sunk costs. II. All sunk costs are fixed costs. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true.
d.
Identify the truthfulness of the following statements. When marginal cost is rising, average total cost is rising. When marginal cost is below average total cost, average total cost is falling. a) Both I and II are true. b) Both I and II are false. c) I is true; II is false. d) I is false; II is true.
d.
Marginal cost a) is equal to average cost at the minimum point of the marginal cost curve. b) is equal to average cost at the maximum point of the average cost curve. c) is decreasing whenever average cost is decreasing. d) is equal to average cost at the minimum point of the average cost curve.
d.
Minimum efficient scale is a) the lowest level of efficiency the firm can achieve. b) the highest level of output the firm can achieve. c) the lowest level of long-run average cost. d) the smallest quantity at which the long-run average cost achieves a minimum.
d.
Suppose a firm's production technology exhibits constant returns to scale. The firm's long-run average cost curve will a) be U-shaped b) exhibit economies of scale. c) exhibit diseconomies of scale. d) be a horizontal straight line.
d.
Suppose a firm's total cost curve can be written TC(Q) = Q - .5Q2 + Q3, with marginal cost MC(Q) = 1 - Q + 3Q2. This cost function exhibits: a) economies of scale b) diseconomies of scale c) neither diseconomies nor economies of scale. d) economies of scale for output levels less than some level, Q1 = 1/4, and diseconomies of scale thereafter.
d.
Suppose the output elasticity of total cost is 1.5. This implies the average cost curve exhibits a) increasing returns to scale. b) economies of scale. c) neither economies nor diseconomies of scale. d) diseconomies of scale.
d.
The cost-minimization problem of the firm is to a) maximize output subject to a given cost constraint. b) minimize total cost. c) minimize average cost. d) minimize total cost of producing a particular level of output.
d.
The experience curve (also called the learning curve) shows the relationship between a) average total cost and output. b) average variable cost and returns to scale. c) output and marginal cost. d) average variable cost and cumulative production volume.
d.
The following is not a property of the translog cost function: a) The constant elasticity cost function is a special case of it. b) The average cost may be U-shaped. c) It is a good approximation for almost any production function. d) It only applies to long run total costs.
d.
The long-run is a) a time period in which all input levels are fixed. b) a time period in which at least one input level is fixed. c) one year. d) a time period in which no input levels are fixed.
d.
When average cost is "u-shaped" (neither always rising or always falling), the marginal cost curve will a) cross through (intersect) the average cost curve at its maximum. b) not intersect with the average cost curve at all. c) be a fixed distance above the average cost curve. d) cross through (intersect) the average cost curve at its minimum.
d.
Which of the following factors may explain diseconomies of scale? a) Increasing returns to scale of inputs. b) Specialization of labor. c) Indivisible inputs. d) Managerial diseconomies.
d.
Which of the following factors would not explain economies of scale? a) Increasing returns to scale of inputs. b) Specialization of labor. c) Indivisible inputs. d) Managerial diseconomies
d.