StatisicalAnalysis

labor, capital

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.

The firm should cut output.

A monopolist has determined that at the current level of output the price elasticity of demand is -0.15. Which of the following statements is true? The firm should cut output. This is typical for a monopolist; output should not be altered. The firm should increase output. None of the above is necessarily correct

produce less output in plant 1 and more in plant 2

A multiplant monopolist can produce her output in either of two plants. Having sold all of her output she discovers that the marginal cost in plant 1 is $30 while the marginal cost in plant 2 is $20. To maximize profits the firm will

the ratio of the marginal product of waste water to the marginal product of machinery.

A plant uses machinery and waste water to produce steel. The owner of the plant wants to maintain an output of 10,000 tons a day, even though the government has just imposed a $100 per gallon tax on using waste water. The reduction in the amount of waste water that results from the imposition of this tax depends on

linear

A production function in which the inputs are perfectly substitutable would have isoquants that are: convex to the origin. L-shaped. linear. concave to the origin

upward sloping.

A variable cost function of the form: implies a marginal cost curve that is: constant. upward sloping. U-shaped. quadratic

continue producing in the short run, but plan to go out of business in the long run

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

Bubba adds grilled chicken sandwiches to the menu.

Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery? Bubba adds more varied inputs to burger production. Bubba expands burger production, focusing on that one good. Bubba contracts burger production. Bubba adds grilled chicken sandwiches to the menu. Bubba cuts back on the diversity of the menu.

I and II are both true

Consider the following statements when answering this question I. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too. II. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises.

I is false, and II is true

Consider the following statements when answering this question: I. Whenever a firm's average variable costs are falling as output rises, marginal costs must be falling too. II. Whenever a firm's average total costs are rising as output rises, average variable costs must be rising too.

barrier to entry

Firms often use patent rights as a

output

Fixed costs are fixed with respect to changes in: output. capital expenditure. wages. time

the profit-maximizing output is found where MC = MR and MC is increasing

If a competitive firm has a U-shaped marginal cost curve then: the profit-maximizing output will always generate positive economic profit. the profit-maximizing output will always generate positive producer surplus. the profit-maximizing output is found where MC = MR and MC is decreasing. the profit-maximizing output is found where MC = MR and MC is constant. the profit-maximizing output is found where MC = MR and MC is increasing.

the firm is earning negative profit, but will continue to produce where in the short run.

If a graph of a perfectly competitive firm shows that the point occurs where MR is above AVC but below ATC, the firm is earning negative profit, and will shut down rather than produce that level of output. the firm is earning negative profit, but will continue to produce where in the short run. the firm is still earning positive profit, as long as variable costs are covered. the firm is covering explicit, but not implicit, costs. the firm can cover all of fixed costs but only a portion of variable costs.

is on the upward-sloping portion of its AVC.

In the short run, a perfectly competitive firm earning negative economic profit:

B and C are correct

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: marginal cost is less than average total cost. average total cost is positive and constant. average total cost equals marginal cost. A and B are correct. B and C are correct.

B and C are correct

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: marginal cost is less than average total cost. average total cost is positive and constant. average total cost equals marginal cost. A and B are correct. B and C are correct

Output decreases by more than 25 percent.

Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output? Output increases by less than 25 percent. Output decreases by less than 25 percent. Output decreases by exactly 25 percent. Output decreases by more than 25 percent.

output exceeds the profit-maximizing level.

Marginal profit is negative when: marginal revenue is negative. l cost exceeds total revenue. output exceeds the profit-maximizing level. profit is negative.

5,400

Maui Macadamia Inc. has a monopoly in the macadamia nut industry. The demand curve, marginal revenue and marginal cost curve for macadamia nuts are given as follows: P = 360 - 4Q MR = 360 - 8Q MC = 4Q At the profit maximizing level of output, what is the level of producer surplus?

the higher capital/labor ratio in the U.S.

One of the factors contributing to the fact that labor productivity is higher in the U.S. than in the People's Republic of China is: China's larger stock of capital. the higher capital/labor ratio in China. the higher capital/labor ratio in the U.S. China's smaller stock of fossil fuels. the fact that much labor in the U.S. is in management

.. firms that do best are those in which the managers pursue the goals of the owners

Owners and managers:

price times quantity

Revenue is equal to:

Ronny's decision depends on the circumstances—if their profits are larger than $250 per year, then the tax does not impact output; otherwise, Ronny's Pizza House will shut down

Ronny's Pizza House is a profit maximizing firm in a perfectly competitive local restaurant market, and their optimal output is 80 pizzas per day. The local government imposes a new tax of $250 per year on all restaurants that operate in the city. How does this affect Ronny's profit maximizing decisions?

1000

The production function is: Q = 4L^1/2 K^1/2 . What is the total cost of producing 200 units of output?

Neither, the costs are identical

Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs?

one

What is the maximum value of the Lerner index?

Law of diminishing returns

Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Short-run time period Shortage of labor Law of diminishing resource availability Law of diminishing returns

Labor

Which of the following inputs are variable in the long run? Labor Capital and equipment Plant size all of these

Prices are relatively low.

Which of the following is NOT a necessary condition for long-run equilibrium under perfect competition?

Monopolist can charge as high a price as it likes.

Which of the following is NOT true regarding monopoly?

economic depreciation + (interest rate)(value of capital)

Which of the following is the user cost of capital? implicit cost of capital + explicit cost of capital interest rate × value of capital - depreciation economic depreciation + (interest rate)( value of Capital) interest rate - depreciation

There is no definite relationship between returns to scale and economies of scope.

Which of the following is true regarding the relationship between returns to scale and economies of scope? A firm experiencing economies of scope must also experience increasing returns to scale. Economies of scale and economies of scope must occur together. A firm experiencing increasing returns to scale must also experience economies of scope. There is no definite relationship between returns to scale and economies of scope

For natural monopolies, marginal cost is always below average cost

Which of the following statements about natural monopolies is true? Natural monopolies are only found in the markets for natural resources(like crude oil and coal). For natural monopolies, marginal cost is always below average cost. For natural monopolies, average cost is always increasing. Natural monopolies cannot be regulated.

I and II are both false.

Which of the following statements correctly uses the concept of opportunity cost in decision making? I. "Because my secretary's time has already been paid for, my cost of taking on an additional project is lower than it otherwise would be." II. "Since the marketing department is running under budget this year, the cost of another sales promotion is lower than it otherwise would be."

the marginal product of labor is 3 times the marginal product of capital

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 rate of technical substitution of inputs is constant.

if the isoquants are straight lines, then: inputs have fixed costs at all use rates. the marginal rate of technical substitution of inputs is constant. only one combination of inputs is possible. there are constant returns to scale

No, the authors predict that returns to scale in carpet production will likely decline at some point.

in Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale. Are returns to scale in this industry likely to continue increasing as these firms become even larger?

an economic rent due to the scarcity of low-cost oil reserves.

Although the long-run equilibrium price of oil is $80 per barrel, some producers have much lower costs because their oil reserves are relatively close to the surface and are easier to extract. If the low-cost producers have a minimum LAC equal to $20 per barrel, then the difference ($60 per barrel) is: an above-normal economic profit. an economic rent due to the scarcity of low-cost oil reserves. a profit that will go to zero as new oil producers enter the market. none of the above

input combinations that can be purchased for a given total cost

An isocost line reveals the

cannot be derived from a production function when a firm is assumed to maximize profits

An upward sloping isoquant: can be derived from a production function with one input. can be derived from a production function that uses more than one input where reductions in the use of any input always reduces output. cannot be derived from a production function when a firm is assumed to maximize profits. can be derived whenever one input to production is available at zero cost to the firm. none of the above

reduce output until marginal revenue equals marginal cost

As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should:

They must have the same slope

At the profit-maximizing level of output, what is relationship between the total revenue (TR) and total cost (TC) curves? They must intersect, with TC cutting TR from below. They must intersect, with TC cutting TR from above. They must be tangent to each other. They cannot be tangent to each other. They must have the same slope

I is false, and II is 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.

Consider the following statements when answering this question: I. Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns. II. Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns.

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

Does it make sense to consider the returns to scale of a production function in the short run? Yes, this is an important short-run characteristic of production functions. Yes, returns to scale determine the diminishing marginal returns of the inputs. No, returns to scale is a property of the consumer's utility function. No, we cannot change all of the production inputs in the short run

may increase or decrease with output.

For a given pair of production outputs, the degree of economies of scope: is constant across different output levels. only increases as the level of output increases. may increase or decrease with output. will always tend to zero as output becomes very large

joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).

Generally, economies of scope are present when: economies of scale are present in the production of two or more goods. economies of scale are constant in the joint production of two products. joint output is less from a single firm than could be achieved from two different firms each producing a single product (assuming equivalent production inputs in both situations). joint output is greater from a single firm producing two goods than could be achieved by two different firms each producing a single product (assuming equivalent production inputs in both situations).

there may still be enough competition in the industry to make the model of perfect competition usable

If any of the assumptions of perfect competition are violated, supply-and-demand analysis cannot be used to study the industry. graphs with flat demand curves cannot be used to study the firm. graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead.

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

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 theoutput rate. average rate at which the firm can replace capital with labor without changing the output rate. marginal product of labor. marginal product of capital

Marginal revenue is greater than marginal cost.

If current output is less than the profit-maximizing output, which must be true?

costs to go up less than double as output doubles.

If input prices are constant, a firm with increasing returns to scale can expect: costs to double as output doubles. costs to more than double as output doubles. costs to go up less than double as output doubles. to hire more and more labor for a given amount of capital, since marginal product increases. to never reach the point where the marginal product of labor is equal to the wage.

greater than the monopoly profit maximizing level

If the regulatory agency sets a price where AR = AC for a natural monopoly, output will be: equal to the competitive level. equal to the monopoly profit maximizing level. greater than the monopoly profit maximizing level and less than the competitive level. greater than the competitive level

causes input prices to rise as demand for them grows.

In an increasing-cost industry, expansion of output: causes input prices to rise as demand for them grows. leaves input prices constant as input demand grows. causes economies of scale to occur. occurs under conditions of increasing returns to scale. occurs without diminishing marginal product.

causes input prices to rise as demand for them grows

In an increasing-cost industry, expansion of output: causes input prices to rise as demand for them grows. leaves input prices constant as input demand grows. causes economies of scale to occur. occurs under conditions of increasing returns to scale. occurs without diminishing marginal product.

economic profit = $0 and accounting profit > $0

In long-run competitive equilibrium, a firm that owns factors of production will have an: economic profit = $0 and accounting profit > $0. economic profit > $0 and accounting profit = $0. economic and accounting profit = $0. economic and accounting profit > $0. economic and accounting profit can take any value

$45,000 per year

Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? $25,000 per year Zero $70,000 per year $45,000 per year

MP = 5K

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 = 5 MP = 5K MP = 5L MP = 5K/L

Shift downward

Joe's Organic Cereal Company produces granola breakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change? Shift upward Shift downward Shift rightward Shift leftward

Positive

Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? Normative Positive Administrative Executive

Shifts rightward

Suppose a pizza restaurant has two pizza ovens that may be used to bake pizzas, so the restaurant has a maximum capacity constraint that affects the shape of the firm's short-run marginal cost curve. What happens to maximum capacity segment of this curve if the firm adds another pizza oven? Shifts upward Shifts downward Shifts leftward Shifts rightward

Average fixed cost curve

Suppose a technological innovation shifts the marginal cost curve downward. Which one of the following cost curves does NOT shift?

follow the 45-degree line from the origin.

Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will: increase at a decreasing rate because we will substitute capital for labor as the business grow. follow the 45-degree line from the origin. not be defined. be a vertical line.

1

Suppose the long-run cost function is C = 3q. What is the cost-output elasticity for this case?

production at this point is technically inefficient.

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that:

a straight line from the origin with slope equal to the market price

Suppose we plot the total revenue curve with quantity on the horizontal axis and revenue on the vertical axis (as in Figure 8.1 in the book). Under price-taking behavior, the total revenue curve should be: an inverted U-shaped curve (first increasing and then decreasing). a U-shaped curve (first decreasing and then increasing). a horizontal line with vertical axis intercept equal to the market price. a straight line from the origin with slope equal to the market price

Marginal revenue increases but marginal cost remains the same

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm's marginal profit? Marginal revenue and marginal cost increase Marginal revenue increases but marginal cost remains the same Marginal cost may change but marginal revenue remains the same Marginal revenue and marginal cost decrease

Consumers can anticipate price changes

The "perfect information" assumption of perfect competition includes all of the following except one. Which one: Consumers know their preferences. Consumers know their income levels. Consumers know the prices available. Consumers can anticipate price changes. Firms know their costs, prices and technology

20

The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 50 cookies is: $20 $25 $50 $60

If the marginal product of labor is a concave curve, then the MC curve is also concave.

The classical budgeting model yields a short-run marginal cost of production is MC = w/MP. Based on this equation, which of the following statements is NOT true? If the marginal product of labor is constant, then MC is constant. If the marginal product of labor is a concave curve, then the MC curve is also concave. If the marginal product of labor is a concave curve, then the MC curve is U- shaped. MC increases as the marginal product of labor declines

technological improvements have increased our ability to produce food over time.

The concerns about world food production raised by Malthus have not materialized because:

economies of scale

The cost-output elasticity is used to measure: economies of scope. economies of scale. the curvature in the fixed cost curve. steepness of the production function.

11

The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q After the imposition of a tax of $2 per unit of output, what is the profit maximizing price?

6

The demand curve and marginal revenue curve for red rubber balls are given as follows: Q = 16 - P MR = 16 - 2Q What level of output maximizes profit?

isoquant curve.

The function which shows combinations of inputs that yield the same output is called a(n): isoquant curve. isocost curve. production function. production possibilities frontier.

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

The marginal product of an input is: total product divided by the amount of the input used to produce this amount of output. the addition to total output that adds nothing to total revenue. the addition to total output that adds nothing to profit. the addition to total output due to the addition of one unit of all other inputs. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

500

The marginal revenue of green ink pads is given as follows: MR = 2500 - 5Q The marginal cost of green ink pads is 5Q. How many ink pads will be produced to maximize revenue?

horizontal

The perfectly competitive firm's marginal revenue curve is: exactly the same as the marginal cost curve. downward-sloping, at twice the (negative) slope of the market demand curve. vertical. horizontal. upward-sloping

A and B, but not C.

The production function Q = 4L^1/2 K^1/2 exhibits: diminishing returns to labor. diminishing returns to capital. decreasing returns to scale. all of the above A and B, but not C.

Cobb-Douglas

The production function for earthquake detectors (Q) is given as follows: Q =4K1/2L1/2 where K is the amount of capital employed and L is the amount of labor employed. The price of capital, Pk is $18 and the price of labor, PL is $2. This production function is an example of which of the following types of production functions? Cobb-Douglas Leontief Fixed proportions Lagrange none of the above

one minus the cost-output elasticity

The scale economies index (SCI) is equal to:

its MC curve above the minimum point of the AVC curve.

The supply curve for a competitive firm is its entire MC curve. the upward-sloping portion of its MC curve. its MC curve above the minimum point of the AVC curve. its MC curve above the minimum point of the ATC curve. its MR curve.

constant, increasing

The textbook discusses the carpet industry situated in the southeastern U.S., and the authors indicate that smaller carpet mills have ________ returns to scale while larger mills have ________ returns to scale. increasing, decreasing increasing, constant constant, decreasing constant, increasing

None of the above

The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average fixed cost?

5 + (200/Q)

The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average total cost?

I is true, and II is false.

Use the following statements to answer this question. I. The numerical labels attached to indifference curves are meaningful only in an ordinal way. II. The numerical labels attached to isoquants are meaningful only in an ordinal way.

I is true and II is false.

Use the following statements to answer this question: I. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) also shifts the average variable cost curve upward. II. Under perfect competition, an upward shift in the marginal cost curve (perhaps due to a higher price for a variable input) reduces firm output but may increase firm profits.

I and II are false.

Use the following statements to answer this question: I. We cannot measure the returns to scale for a fixed-proportion production function. II. Production functions with inputs that are perfect substitutes always exhibit constant returns to scale.

Both I and II are true

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 total cost curve at that 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

technologically inefficient.

We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K = 10 robots and L = 10 workers in order to produce q = 450 autos per shift, then we know that production is:

0

What is the value of the Lerner index under perfect competition?

the minimum value of the firm's average variable cost lies between $5 and $10.

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 that:

MC < AC, so cost-output elasticity is less than 1.

When there are economies of scale, MC > AC, so cost-output elasticity is greater than AC. MC < AC, so cost-output elasticity is less than AC. MC < AC, so cost-output elasticity is greater than 1. MC < AC, so cost-output elasticity is less than 1 long-run marginal cost is declining

both A and B

Which of following is an example of a homogeneous product? Gasoline Copper Personal computers Winter parkas both A and B

Establish industry safety regulations

Which of the following actions is NOT an example of the production coordination provided by firms? Manage production activities of workers Pay wages to workers Establish industry safety regulations Set the production schedule for each week

Accounting costs include only explicit costs

Which of the following statements is true regarding the differences between economic and accounting costs? Accounting costs include all implicit and explicit costs. Economic costs include implied costs only. Accountants consider only implicit costs when calculating costs. Accounting costs include only explicit costs

An increase in the size of the labor force

Which would not increase the productivity of labor? An increase in the size of the labor force An increase in the quality of capital An increase in the quantity of capital An increase in technology An increase in the efficiency of energy

3 cars per worker

You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. As you increased the number of employees hired per hour from three to five, your total output increased by 5 cars to 15 cars per hour. What is the average product of labor at the new levels of labor? 3/17/2018 Practice Exam 2: ECO61 15-18Spring 0026 AP = 3 cars per worker AP = 5 cars per worker AP = 4 cars per worker

a fixed cost.

n 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 variable cost. an implicit cost. an opportunity cost. a sunk cost.