Mang Econ Exam 2

The chemical industry has a Lerner index of 0.67. Based on this information, a firm with marginal cost of $10 should charge a price of:

$30.30.

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

7

Changes in the price of an input cause:

slope changes in the isocost line.

The first step in formulating a linear programming problem is

understand the problem

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

0.50

For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is:

30

A company uses 4 pounds of resource 1 to make each unit of X1 and 3 pounds of resource 1 to make each unit of X2. There are only 150 pounds of resource 1 Which of the following constraints reflects the relationship between X1, X2 and resource 1?

4 X1 + 3 X2 ≤ 150

Which of the following are measures of industry concentration?

Four-firm concentration ratio and HHI index

Oligopoly differs from monopoly as follows:

Oligopoly involves a few firms; monopoly involves a single firm.

A manager has only 200 tons of plastic for his This is an example of a(n)

constraint

Limited resources are modeled in optimization problems as

constraints

The combinations of inputs that produce a given level of output are depicted by:

isoquants.

Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized?

1,000 units

The constraint for resource 1 is 5X1 + 4X2 ≤ If X1 = 20, what is the maximum value for X2?

25

The following linear programming problem has been written to plan the production of two The company wants to maximize its profits. X1 = number of product 1 produced in each batch X2 = number of product 2 produced in each batch MAX: 150 X1 + 250 X2 Subject to: 2 X1 + 5 X2 ≤ 200 3 X1 + 7 X2 ≤ 175 X1, X2 ≥ 0 How much profit is earned per each unit of product 2 produced?

250

For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPK is:

5.2

For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is:

50

Which of the following kinds of market structure are NOT associated with market power?

Perfect competition

As a general rule of thumb, industries with a Herfindahl index below ________ are considered to be competitive, while those above ________ are considered noncompetitive.

1,000, 1,800

Suppose that there are two industries, A and B. There are five firms in industry A with sales at $5 million, $2 million, $1 million, $1 million, and $1 million, respectively. There are four firms in industry B with equal sales of $2.5 million for each firm. The HHI for industry A is:

3,200

Which of the following is used to measure market structure and performance?

Dansby-Willig Performance index HHI (Herfindahl-Hirschman index) Four-firm concentration ratio

Which of the following sets of economic data is minimizing the cost of producing a given level of output?

MPL = 20, MPK = 40, w = $16, r = $32

A student in a managerial economics class calculated the four-firm concentration ratio and HHI for industries A and B. What is the proper conclusion she can draw from the following findings? Industry A Industry B Four-firm C 0.9 1 HHI 3,200 2,500

Neither industry is perfectly competitive.

Mathematical programming is referred to as

Optimization

The third step in formulating a linear programming problem

State the objective function as a linear combination of the decision variables.

The above table shows a short-run production function for Albert's Pretzels. The marginal product of labor

is less than or equal to the average product of labor for all amounts of labor.

A Herfindahl index of 10,000 suggests:

monopoly

The following linear programming problem has been written to plan the production of two The company wants to maximize its profits. X1 = number of product 1 produced in each batch X2 = number of product 2 produced in each batch MAX: 150 X1 + 250 X2 Subject to: 2 X1+ 5 X2 ≤ 200 3 X1+ 7 X2 ≤ 175 X1, X2 ≥ 0 How many units of resource two (the second constraint) are unutilized if the company produces 10 units of product 1 and 5 units of product 2?

110

For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is:

16

Jones Furniture Company produces beds and desks for college The production process requires carpentry and varnishing. Each bed requires 6 hours of carpentry and 4 hours of varnishing. Each desk requires 4 hours of carpentry and 8 hours of varnishing. There are 36 hours of carpentry time and 40 hours of varnishing time available. Beds generate $30 of profit and desks generate $40 of profit. Demand for desks is limited so at most 8 will be produced. After solving the problem using the graphical method, the number of desks to produce that maximizes the objective function is:

3

The tobacco industry has a Lerner index of 0.76. Based on this information, compute the optimal markup factor.

4.17 times marginal cost

Which curve(s) does the marginal cost curve intersect at the (their) minimum point?

Average total cost curve and average variable cost curve

What is the goal in optimization?

Find the decision variable values that result in the best objective function and satisfy all constraints.

Solve the following LP problem graphically using level MAX: 7 X1 + 4 X2 Subject to: 2 X1 + X2 ≤ 16 X1 + X2 ≤ 10 2 X1 + 5 X2 ≤ 40 X1, X2 ≥ 0

X1 = 6

A set of values for the decision variables that satisfy all the constraints and yields the best objective function value is

an optimal solution.

What are the three common elements of an optimization problem?

decisions, constraints, an objective.

A firm's average cost is $20, and it charges a price of $20. The Lerner index for this firm is:

insufficient information.

The causal view of an industry is that:

market structure causes firms to behave in a certain way.

When economies of scale are large, firms can reduce their average total cost by:

merging into even larger firms.

A facility produces two products and wants to maximize The objective function to maximize is z=350x1+300x2. The number 350 means that:

one unit of product 1 contributes $350 to the objective function

The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:

production function.

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm:

should use more L and less K to cost minimize.

A production function tells the firm

the maximum output it can expect to produce with a given mix of inputs.