Question 1

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?

Accepted Answer

A)  200 
B)  5Q 
C)  5 
D)  5 + (200/Q) 
E)  none of the above 
A)  200 
B)  5Q 
C)  5 
D)  5 + (200/Q) 
E)  none of the above C

Question 2

Which of the following statements is true regarding the differences between economic and accounting costs?

Accepted Answer

A)  Accounting costs include all implicit and explicit costs. 
B)  Economic costs include implied costs only. 
C)  Accountants consider only implicit costs when calculating costs. 
D)  Accounting costs include only explicit costs. 
A)  Accounting costs include all implicit and explicit costs. 
B)  Economic costs include implied costs only. 
C)  Accountants consider only implicit costs when calculating costs. 
D)  Accounting costs include only explicit costs. D

Question 3

The cost-output elasticity can be written and calculated as

Accepted Answer

A)  MC/AC. 
B)  AC/MC. 
C)  (A
C) (M
C) . 
D)  (A
C) 2(M
C) . 
E)  (A
C) (M
C) 2. 
A)  MC/AC. 
B)  AC/MC. 
C)  (A
C) (M
C) . 
D)  (A
C) 2(M
C) . 
E)  (A
C) (M
C) 2. A

Question 4

Use the following two statements to answer this question:
I. Increasing returns to scale cause economies of scale.
II. Economies of scale cause increasing returns to scale.

Accepted Answer

A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false. 
A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false.

Question 5

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?

Accepted Answer

A)  An hourly employee 
B)  A temporary worker who is paid by the hour 
C)  A salaried manager who has a three-year employment contract 
D)  none of the above 
A)  An hourly employee 
B)  A temporary worker who is paid by the hour 
C)  A salaried manager who has a three-year employment contract 
D)  none of the above

Question 6

Which of the following business combinations likely exhibit economies of scope?

Accepted Answer

A)  Banking services for individuals and banking services for other business 
B)  Retail clothing stores and electronic (internet) clothing sales 
C)  Hospitals that perform heart surgery and hospitals that perform cosmetic surgery 
D)  all of the above 
A)  Banking services for individuals and banking services for other business 
B)  Retail clothing stores and electronic (internet) clothing sales 
C)  Hospitals that perform heart surgery and hospitals that perform cosmetic surgery 
D)  all of the above

Question 7

A firm's total cost function is given by the equation:
TC = 4000 + 5Q + 10Q2.
(1) Write an expression for each of the following cost concepts:
a. Total Fixed Cost
b. Average Fixed Cost
c. Total Variable Cost
d. Average Variable Cost
e. Average Total Cost
f. Marginal Cost
(2) Determine the quantity that minimizes average total cost. Demonstrate that the predicted relationship between marginal cost and average cost holds.

Accepted Answer

PART (1)
a.
TFC = 4000
b.
AFC = @#IMG-DLM& c.
TVC

Question 8

A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm's long-run average cost curve over this range of output

Accepted Answer

A)  is downward sloping. 
B)  is upward sloping. 
C)  is horizontal. 
D)  may be any of the above. 
A)  is downward sloping. 
B)  is upward sloping. 
C)  is horizontal. 
D)  may be any of the above.

Question 9

A variable cost function of the form: VC = 23 + Q + 7Q2 implies a marginal cost curve that is

Accepted Answer

A)  linear. 
B)  downward sloping. 
C)  U-shaped. 
D)  quadratic. 
A)  linear. 
B)  downward sloping. 
C)  U-shaped. 
D)  quadratic.

Question 10

The cost-output elasticity is used to measure:

Accepted Answer

A)  economies of scope. 
B)  economies of scale. 
C)  the curvature in the fixed cost curve. 
D)  steepness of the production function. 
A)  economies of scope. 
B)  economies of scale. 
C)  the curvature in the fixed cost curve. 
D)  steepness of the production function.

Question 11

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?

Accepted Answer

A)  Shifts upward 
B)  Shifts downward 
C)  Shifts leftward 
D)  Shifts rightward 
A)  Shifts upward 
B)  Shifts downward 
C)  Shifts leftward 
D)  Shifts rightward

Question 12

A fast food restaurant currently pays $5 per hour for servers and $50 per hour to rent ovens and other kitchen machinery. The restaurant uses seven hours of server time per unit of machinery time. Determine whether the restaurant is minimizing its cost of production when the ratio of marginal products (capital to labor) is 12. If not, what adjustments are called for to improve the efficiency in resource use?

Accepted Answer

If the firm is minimizing its costs of p

Question 13

When we solve the firm's dual production problem (i.e., maximize output subject to a cost constraint) by the method of Lagrange multipliers, the optimal value of the Lagrange multiplier equals the:

Accepted Answer

A)  marginal product per unit cost of each variable input. 
B)  marginal product of capital. 
C)  marginal product of labor. 
D)  marginal cost of production. 
A)  marginal product per unit cost of each variable input. 
B)  marginal product of capital. 
C)  marginal product of labor. 
D)  marginal cost of production.

Question 14

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.

Accepted Answer

A)  I is true, and II is false. 
B)  I is false, and II is true. 
C)  I and II are both true. 
D)  I and II are both false. 
A)  I is true, and II is false. 
B)  I is false, and II is true. 
C)  I and II are both true. 
D)  I and II are both false.

Question 15

Scenario 7.3:
Use the production function: Q = 4LS1U1P11/2S1S1P0KS1U1P11/2S1S1P0.
-The production function in Scenario 7.3 exhibits:

Accepted Answer

A)  decreasing returns to scale. 
B)  constant returns to scale. 
C)  increasing returns to scale. 
D)  all of the above at various levels of output. 
A)  decreasing returns to scale. 
B)  constant returns to scale. 
C)  increasing returns to scale. 
D)  all of the above at various levels of output.

Question 16

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

Accepted Answer

A)  increase. 
B)  decline. 
C)  remain constant. 
D)  fall to a minimum and then rise. 
A)  increase. 
B)  decline. 
C)  remain constant. 
D)  fall to a minimum and then rise.

Question 17

Scenario 7.3:
Use the production function: Q = 4LS1U1P11/2S1S1P0KS1U1P11/2S1S1P0.
-Refer to Scenario 7.3. Which of the following combinations of inputs is on the isoquant to produce 400 units of output?

Accepted Answer

A)  L = 0, K = 400 
B)  L = 400, K = 0 
C)  L = 100, K = 100 
D)  all of the above 
E)  A and B, but not C 
A)  L = 0, K = 400 
B)  L = 400, K = 0 
C)  L = 100, K = 100 
D)  all of the above 
E)  A and B, but not C

Question 18

Use the following two statements to answer this question:
I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present.
II. A firm's average cost of production can decline over time if learning occurs as cumulative output increases.

Accepted Answer

A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false. 
A)  Both I and II are true. 
B)  I is true, and II is false. 
C)  I is false, and II is true. 
D)  Both I and II are false.

Question 19

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average total cost?

Accepted Answer

A)  500 
B)  5Q 
C)  5 
D)  5 + (200/Q) 
E)  none of the above 
A)  500 
B)  5Q 
C)  5 
D)  5 + (200/Q) 
E)  none of the above

Question 20

A cubic cost function implies:

Accepted Answer

A)  a U-shaped average variable cost curve. 
B)  a U-shaped marginal cost curve. 
C)  a U-shaped average cost curve. 
D)  all of the above 
A)  a U-shaped average variable cost curve. 
B)  a U-shaped marginal cost curve. 
C)  a U-shaped average cost curve. 
D)  all of the above

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?

Which of the following statements is true regarding the differences between economic and accounting costs?

The cost-output elasticity can be written and calculated as

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale.

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?

Which of the following business combinations likely exhibit economies of scope?

A variable cost function of the form: VC = 23 + Q + 7Q² implies a marginal cost curve that is

The cost-output elasticity is used to measure:

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?

When we solve the firm's dual production problem (i.e., maximize output subject to a cost constraint) by the method of Lagrange multipliers, the optimal value of the Lagrange multiplier equals the:

Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -The production function in Scenario 7.3 exhibits:

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

Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -Refer to Scenario 7.3. Which of the following combinations of inputs is on the isoquant to produce 400 units of output?

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average total cost?

A cubic cost function implies:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

Exam 7: The Cost of Production

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?

Which of the following statements is true regarding the differences between economic and accounting costs?

The cost-output elasticity can be written and calculated as

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale.

We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?

Which of the following business combinations likely exhibit economies of scope?

A variable cost function of the form: VC = 23 + Q + 7Q2 implies a marginal cost curve that is

The cost-output elasticity is used to measure:

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?

When we solve the firm's dual production problem (i.e., maximize output subject to a cost constraint) by the method of Lagrange multipliers, the optimal value of the Lagrange multiplier equals the:

Scenario 7.3: Use the production function: Q = 4L1/2K1/2. -The production function in Scenario 7.3 exhibits:

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

Scenario 7.3: Use the production function: Q = 4L1/2K1/2. -Refer to Scenario 7.3. Which of the following combinations of inputs is on the isoquant to produce 400 units of output?

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average total cost?

A cubic cost function implies:

Preliminaries

The Basics of Supply and Demand

Consumer Behavior

Individual and Market Demand

Uncertainty and Consumer Behavior

Production

Profit Maximization and Competitive Supply

The Analysis of Competitive Markets

Market Power: Monopoly and Monopsony

Pricing With Market Power

Monopolistic Competition and Oligopoly

Game Theory and Competitive Strategy

Markets for Factor Inputs

Investment, Time, and Capital Markets

General Equilibrium and Economic Efficiency

Markets With Asymmetric Information

Externalities and Public Goods

Filters

A variable cost function of the form: VC = 23 + Q + 7Q² implies a marginal cost curve that is

Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -The production function in Scenario 7.3 exhibits:

Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -Refer to Scenario 7.3. Which of the following combinations of inputs is on the isoquant to produce 400 units of output?