Econ 303 Test #2
1. If production is given by Q = KL, doubling both inputs a. more than doubles output. b. exactly doubles output. c. increases output but does not double it. d. leaves output unchanged.
A
13.The marginal physical product of labor is a. the slope of the total output curve at the relevant point. b. the negative of the slope of the total output curve at the relevant point. c. the slope of the line connecting the origin with the relevant point on the total output curve. d. the negative of the slope of the line connecting the origin with the relevant point on the total output curve.
A
15. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case, its marginal cost function is a. still MC = .2q + 2 b. MC = .2q + 50 c. MC = .2q + 52 d. MC = 50
A
16.As long as marginal cost is below average cost, average cost will be a. falling b. rising. c. constant. d. changing in a direction that cannot be determined without more information
A
17. The marginal rate of technical substitution of labor for capital measures a. the amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used. b. the amount by which labor input can be reduced while holding quantity produced constant when one more unit of capital is used. c. the ratio of total labor to total capital. d. the ratio of total capital to total labor.
A
19. If an unregulated electric company is a monopolist, faces demand of Q = 100 - 50P, and has constant total costs (Constant Total Cost implies marginal cost =0), then the profit-maximizing level of output is a. 50 b. 100 c. 25 d. 12.5
A
23. Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 100 MC = .2q + 2 The firm's supply curve is given by a. q = 5P - 10 b. q = .2P +2 c. q = 10P - 2 d. q = 2P - 5
A
23.With a quadratic production with fixed capital Q = A + BL + CL2 and the shape shown above, B is a. positive. b. zero. c. negative and less than C. d. negative and greater than C.
A
24. Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 If P = 6 the profit-maximizing level of profits is a. 10 b. 20 c. 30 d. −10
A
26. Technical progress will a. shift a firm's production function and its related cost curves. b. not affect the production function, but may shift cost curves. c. shift a firm's production function and alter its marginal revenue curve. d. shift a firm's production function and cause more capital (and less labor) to be hired.
A
27.Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run production function is a. q = 10L^(1/3) b. q = 100L^(1/3) c. q= (1/10) L^(1/3) d. q = 100
A
28. Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the fixed cost is a. $2,000 b. $200 c. $20,000 d. $0
A
29.Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run average cost is a. (2,000/q) + (q^2/100) b. (2,000/q) +10q^2 c. (2000/q) d.q^2
A
3. When isoquants get progressively closer together there is a. increasing returns to scale b. decreasing returns to scale c. constant returns to scale
A
37.If the Marginal Cost of Production is increasing and is below the Average Cost of Production, then a. The Average Cost of Production will decrease b. The Average Cost of Production will remain unchanged c. The Average Cost of Production will increase d. The impact on the Average Cost of Production can't be determined.
A
4. Suppose a cost function is TC = Aq3 + bq2 + cq + d. Then the average total cost is a. Aq2 + bq + c +d/q b. Aq2 + bq + c c. Aq3 + bq2 + cq d. d
A
7.The accountant's cost of producing a bicycle refers to a. the out-of-pocket payments made to produce the bicycle. b. the value of the goods that were given up to produce the bicycle. c. the bicycle's retail price. d. the marginal cost of the last bicycle produced.
A
8. If a firm is a price taker, its marginal revenue is a. equal to market price. b. less than market price. c. greater than market price. d. a multiple of market price that may be either greater than or less than one.
A
1. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P = 200? a. C = 100 b. S = 40 c. C = 50, S = 20 d. C = 20, S = 50
B
10. If the demand faced by a firm is inelastic, selling one more unit of output will a. increase revenues. b. decrease revenues. c. keep revenues constant. d. increase profits.
B
11. If the demand faced by a firm is elastic, selling one less unit of output will a. increase revenue. b. decrease revenue. c. keep revenues constant. d. decrease price.
B
12. If more and more labor is employed while keeping all other inputs constant, the marginal physical productivity of labor a. will eventually increase. b. will eventually decrease. c. will eventually remain constant. d. cannot tell from the information provided.
B
14. A firm whose production function displays increasing returns to scale will have a total cost curve that is a. a straight line through the origin. b. a curve with a positive and continually decreasing slope. c. a curve with a positive and continually increasing slope. d. a curve with a negative and continually decreasing slope.
B
14. Suppose a farmer is a price taker for soybean sales with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 If P = 6 , the profit-maximizing level of output is a. 10 b. 20 c. 40 d. 80
B
16. Suppose a farmer is a price taker in soybeans with cost functions given by TC = .1q2 + 2q + 30 MC = .2q + 2 Suppose the farmer has to purchase a license for $50 per period in order to stay in business. In this case, its new total cost function is a. still TC = .1q2 + 2 b. TC = .1q2 + .2q + 80 c. TC = .1q2 + 2q + 50 d. TC = 50
B
18. In the long run a. all inputs are fixed. b. all inputs are variable. c. some inputs are fixed. d. production levels never change.
B
19.For a fixed proportion production function, at the vertex of any of the (L-shaped) isoquants the marginal productivity of either input is a. constant b. zero. c. negative. d. a value that cannot be determined.
B
19.The shape of a firm's long-run average cost curve is determined by a. the degree to which each input encounters diminishing marginal productivity. b. the underlying nature of the firm's production function when all inputs are able to be varied. c. how much the firm decides to produce. d. the way in which the firm's expansion path reacts to changes in the rental rate on capital.
B
2. A firm's total revenue is equal to a. total quantity produced times marginal cost. b. total quantity produced times market price. c. marginal revenue times total quantity produced. d. market price divided by total quantity produced.
B
2.When isoquants get progressively further apart there is a. increasing returns to scale b. decreasing returns to scale c. constant returns to scale
B
20.If, as a result of doubling all its inputs, a firm can more than double its output, the firm's production function exhibits a. constant returns to scale. b. increasing returns to scale. c. decreasing returns to scale. d. increasing marginal productivity to at least one input.
B
21.A fixed-proportion production function has isoquants that are a. almost flat (i.e., the isoquants are almost straight lines). b. L-shaped. c. normally shaped (rectangular hyperbolas). d. None of the above.
B
21.For a constant-returns-to-scale production function, a. marginal costs are constant but the average cost curve has a U-shape. b. both average and marginal costs are constant. c. marginal cost has a U-shape; average costs are constant. d. both average and marginal cost curves are U-shaped.
B
23. A firm's short-run average cost is defined as a. the ratio of total output to short-run total cost. b. the ratio of short-run total cost to total output. c. the additional cost of producing one more unit of output while some input is fixed. d. the additional cost of producing one more unit of output while all inputs are fixed.
B
24.Suppose Q = K^a L^b, if a + b > 1 the isoquants will be a. upward sloping. b. progressively closer together at higher quantities. c. progressively further apart at higher quantities. d. equally spaced.
B
25. If an unregulated electric company is a monopolist, faces demand of Q = 100 - 50P, and has a constant marginal cost of 1, the profit-maximizing price is a. 0 b. 1 c. 1.5 d. 2
B
25.An increase in the wage rate will have a greater effect on average costs a. the larger the proportion labor costs are of total costs and the easier it is to substitute capital for labor. b. the larger the proportion labor costs are of total costs and the harder it is to substitute capital for labor. c. the greater is the diminishing marginal product of labor. d. the greater are returns to scale.
B
26.If Q = K^(1/2) L^(1/2) the MPK is a. constant b. diminishing c. increasing
B
27. In the economic short-run, a firm's profits are equal to a. Price minus short-run Total Cost b. Price minus short-run Average Cost (multiplied by quantity) c. Price minus short-run Average Variable d. Price minus short-run Marginal Cost
B
30.If Q = K^(1/3) L^2 the MPK is a. constant b. diminishing c. increasing
B
30.Suppose a production function is q = K1/2L1/3 and in the short run capital (K) is fixed at 100. If the wage is $10 and the rental rate on capital is $20, the short run marginal cost is a. 1000 + q3 b. (3q^2)/100 c. q3 d. 2q3
B
31. Suppose MPL = 20 and MPK = 40 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be a. $10 b. $5 c. $20 d. $40
B
35.The Total Cost of Production for a given level of output q is minimized when a. An Isoquant is tangent to the expansion path b. An Isoquant is tangent to the total cost curve c. An Isoquant is tangent to the marginal product of labor curve d. An Isoquant is tangent to the marginal product of capital curve.
B
38.If the wage rate for Labor, w, increases relative to the rental cost of Capital, v, what is the likeliest outcome if Labor and Capital may be substituted for each other in the production function? a. Labor will be substituted for Capital to produce a fixed level of output, q b. Capital will be substituted for Labor to produce a fixed level of output, q c. The proportion of Labor and Capital in the production process will remain unchanged d. Labor will be substituted for Capital only if the increase in w is small.
B
4. In order to maximize profits, a firm should produce at the output level for which a. average cost is minimized. b. marginal revenue equals marginal cost. c. marginal cost is minimized. d. price minus average cost is as large as possible.
B
5.Suppose a cost function is TC = Aq3 + bq2 + cq + d. Then the average variable cost is a. Aq2 + bq + cq +d/q b. Aq2 + bq + c c. Aq3 + bq2 + cq d. d
B
6. If a firm wished to maximize total revenues it should produce where a. marginal cost is zero. b. marginal revenue is zero. c. marginal revenue is equal to marginal cost. d. marginal revenue is equal to price.
B
6.The opportunity cost of producing a bicycle refers to a. the out-of-pocket payments made to produce the bicycle. b. the value of the goods that were given up to produce the bicycle. c. the bicycle's retail price. d. the marginal cost of the last bicycle produced.
B
8. A technical innovation in the production of automobiles by Ford Motor Company's for 1 million cars per year would necessarily a. shift the "1 million car" isoquant away from the origin. b. shift the "1 million car" isoquant toward the origin. c. cause 1 million cars to be produced with more capital and less labor. d. cause 1 million cars to be produced with more labor and less capital.
B
9.A rise in the average productivity of labor a. always reflects technical progress. b. reflects technical progress if other input usage hasn't changed. c. reflects technical progress only if labor input hasn't changed. d. reflects technical progress only if the quantity of output is increased.
B
1. In general, microeconomic theory assumes that firms attempt to maximize the difference between a. total revenue and accounting costs. b. price and marginal cost. c. total revenues and economic costs. d. economic costs and average cost.
C
10. A production function measures how a. an individual maximizes utility. b. a firm transforms output into input. c. a firm transforms inputs into output. d. a firm minimizes cost.
C
10.The firm's expansion path records a. profit-maximizing output choices for every possible price. b. cost-minimizing input choices for all possible output levels for when input prices expand along with production. c. cost-minimizing input choices for all possible output levels for a fixed set of input prices. d. cost-minimizing input choices for profit-maximizing output levels.
C
11. The marginal physical product of labor is defined as a. a firm's total output divided by total labor input. b. the extra output produced by employing one more unit of labor while allowing other inputs to vary. c. the extra output produced by employing one more unit of labor while holding other inputs constant. d. the extra output produced by employing one more unit of capital while holding labor input constant.
C
12. If the demand curve a firm faces shifts to the right, usually a. it would be impossible to tell whether the marginal revenue curve shifts. b. the marginal revenue curve would shift to the left. c. the marginal revenue curve would shift to the right. d. the marginal revenue curve would not shift.
C
12.The expansion path for a constant-returns-to-scale production function a. is a straight line through the origin with a slope greater than 1 if w > v. b. is a straight line through the origin with a slope greater than 1 if w < v. c. is a straight line through the origin, though its slope cannot be determined by w and v alone. d. has a positive slope but is not necessarily a straight line.
C
13.A firm's marginal cost is defined as a. the ratio of total cost to total output. b. the ratio of total output to total cost. c. the additional cost of producing one more unit of output. d. the reciprocal of total average cost.
C
14.With a cubic production with fixed capital Q = A + BL + CL2 + DL3 and a shape shown above, A is a. positive and greater than B. b. positive and less than B. c. zero. d. negative.
C
15. In a two-input model you can tell that a non-optimal short-run production decision is being made if a. all decisions in the short run are non-optimal b. the rate of technical substitution is equal to the ratio of the input prices c. the rate of technical substitution is not equal to the ratio of the input prices
C
15.A linear total cost curve which passes through the origin implies that a. average cost is constant and marginal cost is variable. b. average cost is variable and marginal cost is constant. c. average and marginal costs are constant and equal. d. need more information to answer question.
C
17.In the short run, a. all inputs are fixed. b. all inputs are variable. c. some inputs are fixed. d. no production occurs.
C
21. Which of the following conditions would result in the short run marginal cost curve not correctly reflecting the supply behavior of a profit maximizing firm? a. The firm is a price taker. b. Price exceeds average total cost. c. The elasticity of demand facing the firm is −3. d. the firm can vary several inputs in the short run.
C
22. If Q = K1/2L1/2 the MPL is a. constant b. increasing c. diminishing
C
22. If price is equal to short-run average variable cost, this price is known as a. the break-even price. b. the profit-maximizing price. c. the shutdown price. d. the revenue-maximizing price.
C
24. For any given output level, a firm's long-run costs a. are always greater than or equal to its short-run costs. b. are usually greater than or equal to its short-run costs except in the case of diminishing returns to scale. c. are always less than or equal to its short-run costs. d. are usually less than or equal to its short-run costs except in the case of diminishing returns to scale.
C
25. Suppose Q = K^a L^b, if a + b < 1 the isoquants will be a. upward sloping. b. progressively closer together at higher quantities. c. progressively further apart at higher quantities. d. equally spaced.
C
27. If Q = K^2 L^2 the MPK is a. constant b. diminishing c. increasing
C
28.If production is given by Q = K^a L^b, (a + b < 1) doubling both inputs a. more than doubles output. b. exactly doubles output. c. increases output but does not double it.
C
29. If Q = K^2 L^2 the MPL is a. constant b. diminishing c. increasing
C
31.If Q = K^(1/3) L^2 the MPL is a. constant b. diminishing c. increasing
C
32. Suppose MPL = 40 and MPK = 20 and the rental rate on capital is $10. If the level of production is currently efficient, the wage rate must be a. $10 b. $5 c. $20 d. $40
C
32. Suppose electricity (E) can be produced with coal (C) or gas (G) to operate steam turbines (T). Suppose gas is more efficiently burned than coal but that they are otherwise perfect substitutes. E = min((G + .5C), T). The isoquants between gas and coal will be a. hyperbolas b. quarter circles c. straight lines
C
33. Suppose that a lawn mowing services production function for lawns mowed in a week is M = (LK)1/2, where L is labor hours and K is the amount of capital (mowers and trimmers). The expansion path depends on a. the wage rate only. b. the rental rate only. c. both the wage and rental rates. d. neither the wage nor rental rates.
C
36.If the Marginal Cost of Production is increasing and is also above the Average Cost of Production, then a. The Average Cost of Production will decrease b. The Average Cost of Production will remain unchanged c. The Average Cost of Production will increase d. The impact on the Average Cost of Production can't be determined.
C
39.If the wage rate for Labor increases relative to the rental cost of Capital, how will the slope of the TC curve change? a. The slope will remain unchanged, but the TC will shift inward b. The slope will decrease, i.e. become flatter c. The slope will increase, i.e. will steepen d. The slope will remain unchanged, but the TC will shift outward.
C
5. If demand is inelastic, marginal revenue will be a. positive. b. zero. c. negative. d. constant.
C
5.A firm's isoquant shows a. the amount of labor needed to produce a given level of output with capital held constant. b. the amount of capital needed to produce a given level of output with labor held constant. c. the various combinations of capital and labor that will produce a given amount of output. d. None of the above.
C
7. In order to maximize profits, a firm that can sell all it wants without affecting price should produce a. where average variable costs are minimized. b. where marginal cost is equal to average variable costs. c. where marginal cost is equal to price. d. where marginal cost is a minimum.
C
7.The production function q= sqrtKL a. exhibits constant returns to scale and constant marginal productivities for K and L. b. exhibits diminishing returns to scale and diminishing marginal productivities for K and L. c. exhibits constant returns to scale and diminishing marginal productivities for K and L. d. exhibits diminishing returns to scale and constant marginal productivities for K and L..
C
8. A firm's economic profits are given by a. total revenue minus total accounting cost. b. the owner's opportunity cost. c. total revenue minus total economic cost. d. total revenue minus the cost of capital.
C
9. If a firm's marginal revenue is below its marginal cost, an increase in production will usually a. increase profits. b. leave profits unchanged. c. decrease profits. d. increase marginal revenue.
C
9. In order to minimize the cost of a particular level of output, a firm should produce where a. labor input equals capital input b. the RTS (of L for K) = v/w c. the RTS (of L for K) = w/v d. the MRS = v/w
C
11.The shape of a firm's expansion path depends upon a. the price of the labor input. b. the price of the capital input. c. the shape of the firm's production function. d. all of these factors.
D
13. A firm that sought to "maximize market share" would choose to produce an output level for which marginal revenue was equal to a. marginal cost b. average cost. c. price. d. zero.
D
16. Graphically, the average productivity of labor would be illustrated by: a. the slope of the total product curve at the relevant point. b. the slope of the marginal productivity curve at the relevant point c. the negative of the slope of the marginal productivity curve at the relevant point. d. the slope of the chord connecting the origin with the relevant point on the total output curve.
D
17. Suppose that a firm has to pay a 10% tax on its total revenue. This has the effect of a. flattening marginal cost. b. increasing marginal revenue. c. decreasing marginal cost. d. decreasing marginal revenue.
D
18. If an unregulated electric company is a monopolist and faces demand of Q = 50 - 10P, its marginal revenue function is given by: (remember to solve for P) a. 5 - (1/10)q b. 1 - (1/10)q c.5 - (1/20)q d.5 - (1/5)q
D
18.A firm's rate of technical substitution is represented graphically by a. the slope of the line connecting the origin with the relevant point on the isoquant. b. the negative of the slope of the line connecting the origin with the relevant point on the isoquant. c. the slope of the isoquant at the relevant point. d. the negative of the slope of the isoquant at the relevant point.
D
20.Short-run total cost is the sum of a. short-run fixed cost, short-run variable cost, and short-run marginal costs. b. short-run fixed cost and short-run marginal costs. c. short-run variable cost and short-run costs. d. short-run fixed cost and short-run variable cost.
D
22.A firm's marginal cost curve a. is always U-shaped. b. always has a positive slope. c. is always below its average cost curve. d. always intersects its average cost curve at its minimum point.
D
26. In the economic short-run, a firm will shut down if the its price is less than a. Average Total Cost b. Average Marginal Cost c. Average Fixed Cost d. Average Variable Cost
D
3. A firm's marginal revenue is defined as a. the ratio of total revenue to total quantity produced. b. the additional output produced by lowering price. c. the additional revenue received due to technical innovation. d. the additional revenue received when selling one more unit of output.
D
34. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. If the price of corn feed is $2 and the price of soybean feed is $5, what is the cost-minimizing feed combination producing P = 100? a. C = 50 b. S = 20 c. C = 25, S = 10 d. All points on the P = 100 isoquant, including those listed in a-c would cost the same.
D
Suppose a cost function is TC=Aq3 + bq2 + cq +d. Then the total fixed cost is a. Aq2 + bq + cq +d/q b. Aq2 + bq + c c. Aq3 + bq2 + cq d. d
D
Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the production function is P = 2C + 5S. The expansion path depends a. on the price of corn-based feed only. b. on the price of soybean-based feed only. c. on neither the price of corn-based or soybean-based feed. d. on whether the price of corn-based feed is greater than or less than 2/5 the price of soybean-based feed.
D
20. It is usually assumed that a perfectly competitive firm's supply curve is given by its marginal cost curve. In order for this to be true, which of the following additional assumptions are necessary? I. That the firm seek to maximize profits. II. That the marginal cost curve be positively sloped. III. That price exceeds average variable cost. IV. That price exceeds average total cost. a. All of the above. b. I and II but not III and IV. c. I and III but not II and IV. d. I and II only. e. I, II and III, but not IV.
E
6.Suppose the production function for good q is given by q = 3K + 2 L where K and L are capital and labor inputs. Consider three statements about this function: I. The function exhibits constant returns to scale. II. The function exhibits diminishing marginal productivities to all inputs. III. The function has a constant rate of technical substitution. Which of these statements is true? a. All of them. b. None of them. c. I and II but not III. d. I and III but not II. e. only I.
E
4. The average productivity of capital is defined as a. the ratio of total capital employed to the total output produced. b. the extra output produced by employing one more unit of capital while holding other inputs constant. c. the extra output produced by employing one more unit of capital while allowing other inputs to vary. d. the ratio of total output produced to the quantity of capital employed.
b