Buad

Which of the following claims is true at each point along a price-consumption curve?

Utility is maximized, and all income is spent.

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

total product is maximized.

When the income-consumption curve has a positive slope throughout its entire length, we can conclude that

both goods are normal.

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

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.

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 curve in the diagram below is called (curve that goes through other lines and curves up)

the price-consumption curve.

What is the average fixed cost of producing 2 units output?

$ 25

What is the average total cost of producing 3 units output?

$ 33.33

The aggregate demand for good X is Q = 20 - P. If the price rises from P = $4 to P = $5, what is the change in consumer surplus?

$15.50

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

What is the variable cost of producing 2 units output??

$25

What is the fixed cost of production?

$50

What is the marginal cost of producing the second unit of output?

$ 15

What is the marginal product of 2nd labor (190) (i.e. when L=2)?

90

What is the average product of labor when L=2?

95

Which would not increase the productivity of labor?

An increase in the size of the labor force

Which of the following costs always declines as output increases?

Average fixed cost

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

CBP

In the long run, which of the following is considered a variable cost?

Expenditures for wages Expenditures for research and development Expenditures for raw materials Expenditures for capital machinery and equipment

Why do firms tend to experience decreasing returns to scale at high levels of output?

Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.

Use the following two statements in answering this question: (I) All Giffen goods are inferior goods. (II) All inferior goods are Giffen goods.

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 concerning the substitution effect of a decrease in price?

It always will lead to an increase in consumption.

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

It changes from point to point.

Which of the following is true concerning the income effect of a decrease in price?

It will lead to an increase in consumption only for a normal good.

A firm's production function is given as: Q = 5LK, such that MPL=5K and MPK = 5L where Q = output, L = labor measured in person hours, and K = capital measured in machine hours. Labor cost, including fringe benefits, is $20 per hour, while the firm uses $80 per hour as an implicit machine rental charge per hour. Given the information above, determine Murray's optimal capital/labor ratio.

K = 1/4L

Which of the following is NOT an expression for the cost minimizing combination of inputs?

MRTS = MPL /MPK

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.

Does it make sense to consider the returns to scale of a production function in the short run?

No, we cannot change all of the production inputs in the short run.

Which of the following relationships is NOT valid?

Rising marginal cost implies that average total cost is also rising.

Which of the following is true of cost curves?

The MC curve goes through the minimum of both the AVC curve and the ATC curve.

As a group, U.S. consumers view hamburger as a normal good at low income levels and as an inferior good at high income levels. Based on this information, which of the following statements is NOT true?

The aggregate demand curve for hamburger in the U.S. is upward sloping at low prices.

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

A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called

a production function.

The short run is

a time period in which at least one input is fixed.

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

below average total cost.

An examination of the production isoquants in the diagram below reveals that

capital and labor will be used in fixed proportions

The area below the demand curve and above the price line measures

consumer surplus.

The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called

consumer surplus.

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

costs to go up less than double as output doubles.

A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm

could reduce the cost of producing its current output level by employing more labor and less capital

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.

Refer to the following figure. The situation pictured is one of

decreasing returns to scale, because doubling inputs results in less than double the amount of output.

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 income-consumption curve

illustrates the utility-maximizing combinations of goods associated with every income level.

An isocost line reveals the

input combinations that can be purchased with a given outlay of funds.

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.

A construction company builds roads with machinery (capital, K) and labor (L). If we plot the isoquants for the production function so that labor is on the horizontal axis, then a point on the isoquant with a small MRTS (in absolute value) is associated with high ________ use and low ________ use.

labor, capital

Which of the following inputs are variable in the long run?

labor, capital and equipment, plant size. all of these.

Increasing returns to scale in production means

less than twice as much of all inputs are required to double output.

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

The slope of the total product curve is the

marginal product.

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.

Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

more, less

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

output is being produced at minimum cost.

Fixed costs are fixed with respect to changes in

output.

An individual demand curve can be derived from the ________ curve.

price-consumption

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the

rate at which the firm can replace capital with labor without changing the output rate.

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

slopes downward.

The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the ________ effect.

substitution

The link between the productivity of labor and the standard of living is

that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.

The curve in the diagram below is called: (curve that has no other lines)

the Engel curve.

The marginal product of an input is

the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

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

the average product of labor is 3.

According to the law of diminishing returns

the marginal product of an input will eventually decline.

If the isoquants are straight lines, then

the marginal rate of technical substitution of inputs is constant.

Refer to the following figure. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the income effect of the price decrease?

the movement from point T to point S

The difference between the economic and accounting costs of a firm are

the opportunity costs of the factors of production that the firm owns.

The law of diminishing returns applies to

the short run only.

At the optimum combination of two inputs,

the slopes of the isoquant and isocost curves are equal. costs are minimized for the production of a given output. the marginal rate of technical substitution equals the ratio of input prices.

At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that:

there are economies of scale.

The law of diminishing returns assumes that

there is at least one fixed input.

For an inferior good, the income and substitution effects

work against each other.

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.