Econ Final Exam
Barbara is a producer in a monopoly industry. Her demand curve, and total cost curve are given as follows:Q = 160 - 4P, TC = 4Q Refer to Scenario 10.1. How much profit will she make?
1,296 TR=p*q=22*72 TC=4Q=4*72
The market demand is D=1600-20p, and the market supply is S=1000+10p A firm has cost function C =2q2+50. What's the firm's highest profit in this market?
0
Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100?
100 = 10L + 20K
The production function of producing computer software diskettes (Q) is given as: q=LK^(1/2). The input K is fixed at 100. The price of K is $2 and the price of L is $50. What is the fixed cost?
200 Cost=2*100+50*q/10
The law of diminishing returns assumes that
there is at least one fixed input.
If current output is less than the profit-maximizing output, then the next unit produced
will increase revenue more than it increases cost.
A straight-line isoquant
would indicate that capital and labor are perfect substitutes in production.
Writing total output as Q, change in output as △Q, total labor employment as L, and change in labor employment as △L, the marginal product of labor can be written algebraically as
△Q/△L
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: P=100-0.5Q TC = 5Q Refer to Scenario 10.2. How much profit does the monopolist earn?
$4512.50 Price =100-0.5*95=52.5. Profit=52.5*95-5*95=4512.5
The market demand is D=1300-20p now, and the market supply is still S=1000+10p. A firm has cost function C =2q^2+50. What's the firm's highest profit in this market?
-37.5
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 Slope=-p1/p2 as 1 stands for the input on the horizontal axis.
Barbara is a producer in a monopoly industry. Her demand curve, and total cost curve are given as follows:Q = 160 - 4P, TC = 4Q Refer to Scenario 10.1. The price of her product will be ________.
22 Plug the optimal Q into the demand function, you can calculate the market price
The market demand is D=1600-20p, and the market supply is S=1000+10p . A firm has cost function C =2q2+50. How many outputs the firm should produce?
5
The production function of producing computer software diskettes (Q) is given as: q=LK^(1/2). The input K is fixed at 100. The price of K is $2 and the price of L is $50. What is the marginal cost?
5
The production function of producing computer software diskettes (Q) is given as: q=LK^(1/2). The input K is fixed at 100. The price of K is $2 and the price of L is $50. What is the average total cost?
5 + (200/Q) Cost=2*100+50*q/10 Average cost=Cost/q
The production function of producing computer software diskettes (Q) is given as: q=LK^(1/2). The input K is fixed at 100. The price of K is $2 and the price of L is $50. What is the variable cost?
5Q Sub K=100 in the function, q=L*10, L=q/10. Cost=2*100+50*q/10
Barbara is a producer in a monopoly industry. Her demand curve, and total cost curve are given as follows:Q = 160 - 4P, TC = 4Q Refer to Scenario 10.1. How much output will Barbara produce?
72 Please rewrite the demand curve from Q=160-4p to p=40-0.25Q. Therefore, the TR=p*q=40Q-0.25Q^2., then you can calculate MR Set MR=MC, solve it we get Q
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: P=100-0.5Q TC = 5Q Refer to Scenario 10.2. Suppose that a tax of $5 for each unit produced is imposed by state government. What is the profit maximizing level of output?
90 Total cost will be TC=(5+5)*Q=10Q, calculate MC Set MR=MC, you can get Q
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: P=100-0.5Q TC = 5Q Refer to Scenario 10.2. What is the profit maximizing level of output?
95 MR = 100 - Q set MR=MC, you can get Q
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the average product of labor?
AP=5K Average product of labor = q/L
Which of the following statements is true regarding the differences between economic and accounting costs?
Accounting costs include only explicit costs.
Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen,
Average product is rising. MP is bigger than AP, AP will increase
Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale.
Both I and II are false
Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output .II. The average cost curve and the marginal cost curve reach their minima at the same level of output.
Both I and II are false
Use the following two statements to answer this question: I. The marginal product of labor is the slope of the line from the origin to the total product curve at that level of labor usage. II The average product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage.
Both I and II are false I. The average product of labor is the slope of the line from the origin to the total product curve at that level of labor usage. II. The Marginal product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage.
Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output.
Both I and II are true
A monopolist faces the following demand curve, marginal revenue curve, total cost curve and marginal cost curve for its product: P=100-0.5QTC = 5Q Refer to Scenario 10.2. Suppose that in addition to the tax, a business license is required to stay in business. The license costs $1000. What happens to profit?
Decreases by 1000 The license is the fixed cost, so MR is the same as before. Therefore, the optimal output is the same, but the profit has been changed.
Which of following is a key assumption of a perfectly competitive market?
Each seller has a very small share of the market.
Consider the following statements when answering this question I. The marginal cost curve intersects the average total cost and average variable cost curves at their minimum values. II. When a firm has positive fixed costs, the output level associated with minimum average variable costs is less than the output associated with minimum average total costs.
I and II are both true
Consider the following statements when answering this question; I. Whenever the marginal product of labor curve is a downward sloping curve, the average product of labor curve is also a downward sloping curve that lies above the marginal product of labor curve. II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands.
I is false, and II is true
Use the following two statements to answer this question: I. For a monopolist, at every output level, average revenue is equal to price .II. For a monopolist, at every output level, marginal revenue is equal to price.
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
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor?
MP = 5K
Which of the following is NOT an expression for the cost minimizing combination of inputs?
MRTS = MPL /MPK
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case?
No, the marginal product of labor is constant (for a given K).
Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written as
P = MC.
Because of the relationship between a perfectly competitive firm's demand curve and its marginal revenue curve, the profit maximization condition for the firm can be written a
P=MC
Which of the following is true at the output level where P=MC?
The monopolist is not maximizing profit and should decrease output.
At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves?
They must have the same slope.
Which always increase(s) as output increases?
Total cost and variable cost
A price taker is
a perfectly competitive firm. a firm that cannot influence the market price.
Fixed costs are fixed with respect to changes in
output
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:
an isoquant.
As we move downward along a typical isoquant, the slope of the isoquant
becomes flatter.
Technological improvement
can hide the presence of diminishing returns. allows more output to be produced with the same combination of inputs. can be shown as a shift in the total product curve.
Bette's Breakfast, a perfectly competitive eatery, sells its "Breakfast Special" (the only item on the menu) for $5.00. The costs of waiters, cooks, power, food etc. average out to $3.95 per meal; the costs of the lease, insurance and other such expenses average out to $1.25 per meal. Bette should
continue producing in the short run, but plan to go out of business in the long run. The price is higher than the average variable cost but is lower than average cost, 3.95+1.25
Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ________ price and sell a ________ quantity.
higher; smaller
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C=ML^(1/3) This production function exhibits
increasing returns to scale for all output levels
An isocost line reveals the
input combinations that can be purchased with a given outlay of funds.
The demand curve facing a perfectly competitive firm is
perfectly horizontal.
Which of the following production functions exhibits constant returns to scale?
q = K + L
The supply curve for a competitive firm is
its MC curve above the minimum point of the AVC curve.
A firm maximizes profit by operating at the level of output where
marginal revenue equals marginal cost.
The total cost of producing a given level of output is
minimized when the ratio of marginal product to input price is equal for all inputs.
The production function of producing computer software diskettes (Q) is given as: q=LK^(1/2_. The input K is fixed at 100. The price of K is $2 and the price of L is $50. What is the average fixed cost?
none of the above Cost=2*100+50*q/10
Joe owns a small coffee shop, and his production function is q=K^(1/2)L^(1/2) where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=9 machines, what is his short-run production function?
q=3L^(1/2 It's a short run question since K is fixed at 9. The only variable input is the L. So, we can simply substitute K=9 into equation and get the answer
The marginal rate of technical substitution is equal to:
the absolute value of the slope of an isoquant and the ratio of the marginal products of the inputs.
When labor usage is at 12 units, output is 36 units. From this we may infer that
the average product of labor is 3.
With its current levels of input use, a firm's MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies
the marginal product of labor is 3 times the marginal product of capital. Again, MRTS=MP1/MP2, as 1 stands for the input on the horizontal axis. So, MRTS=MPl/MPk
When the price faced by a competitive firm was $5, the firm produced nothing in the short run. However, when the price rose to $10, the firm produced 100 tons of output. From this we can infer tha
the minimum value of the firm's average variable cost lies between $5 and $10.
