Question 1

When returns to scale are constant, long run marginal cost is:

Accepted Answer

A) horizontal. 
B) greater than long run average cost. 
C) less than long run average cost. 
D) equal to long run average cost. 
A) horizontal. 
B) greater than long run average cost. 
C) less than long run average cost. 
D) equal to long run average cost. D

Question 2

Interior solutions of the cost minimizing problem, given convex isoquants, are characterized by:

Accepted Answer

A) diminishing marginal rate of technical substitution. 
B) a tangency between an isoquant and an isocost line. 
C) a solution on one of the axes. 
D) an intersection between an isoquant and an isocost line. 
A) diminishing marginal rate of technical substitution. 
B) a tangency between an isoquant and an isocost line. 
C) a solution on one of the axes. 
D) an intersection between an isoquant and an isocost line. B

Question 3

Coal- fired steam locomotives become more efficient for railroads relative to oil- burning diesel locomotives as:

Accepted Answer

A) the price of oil increases. 
B) the price of coal increases. 
C) railroad freight rates increase. 
D) coal- fired steam locomotives become larger. 
A) the price of oil increases. 
B) the price of coal increases. 
C) railroad freight rates increase. 
D) coal- fired steam locomotives become larger. A

Question 4

Fixed proportions production functions always have:

Accepted Answer

A) varying returns to scale. 
B) constant returns to scale. 
C) increasing returns to scale. 
D) decreasing returns to scale. 
A) varying returns to scale. 
B) constant returns to scale. 
C) increasing returns to scale. 
D) decreasing returns to scale.

Question 5

A firm has the following long- run production function y = z11/2z21/2
where z1 and z2 are the two inputs used in production and y is the output. Let w1 and w2 be the input prices.
i)What is the returns to scale of this production function?
ii)Assume both inputs are variable and the input prices are w1 = 4 and w2 = 9. The firm minimizes cost. Derive the conditional input demand functions.
iii)Derive an equation for the output expansion path.
iv)Find the firm's long- run total cost function.

Accepted Answer

i)CRTS
ii)In the long run the firm minim

Question 6

A feasible input bundle lies:

Accepted Answer

A) above or on the isoquant of a specified output level. 
B) below or on an isoquant of a specified output level. 
C) only on the isoquant of a specified output level. 
D) below the isoquant of a specified output level. 
A) above or on the isoquant of a specified output level. 
B) below or on an isoquant of a specified output level. 
C) only on the isoquant of a specified output level. 
D) below the isoquant of a specified output level.

Question 7

Suppose MTRS =MPL/MPK=1/3. If we want to reduce K by 6 units and keep output constant, we have to increase L by units.

Accepted Answer

A) 18 
B) 12 
C) 6 
D) 3 
A) 18 
B) 12 
C) 6 
D) 3

Question 8

The firm has a production function given by f(L,K)= L1/4K1/2. Currently, the wage rate is 9 and the rental rate of capital is 2 and this firm has a contract to produce 24 units of output. How much labour and capital will this firm hire?

Accepted Answer

MTS = K/(2L). So setting MRTS

Question 9

A lawn care service has a production function given by f(L,K)= min(4L,5K). If the price of L
is 8 and the price of K is 5, what is its marginal cost for caring for an additional yard?

Accepted Answer

Given the production function

Question 10

A LRAC curve is U- shaped if:

Accepted Answer

A) input prices fall at low output levels and rise at higher levels. 
B) factors of production become more productive as output expands. 
C) decreasing returns to scale follow increasing returns to scale. 
D) the production function is homothetic. 
A) input prices fall at low output levels and rise at higher levels. 
B) factors of production become more productive as output expands. 
C) decreasing returns to scale follow increasing returns to scale. 
D) the production function is homothetic.

Question 11

An isocost line represents combinations of:

Accepted Answer

A) inputs with the same output. 
B) inputs with the same cost. 
C) goods with the same cost. 
D) goods with the same utility. 
A) inputs with the same output. 
B) inputs with the same cost. 
C) goods with the same cost. 
D) goods with the same utility.

Question 12

Which of the following statements is true?

Accepted Answer

A) SRTC exceeds LRTC. 
B) For any specified output level, LRAC never exceeds SRAC. 
C) SRAC exceeds LRTC. 
D) SRMC exceeds LRMC. 
A) SRTC exceeds LRTC. 
B) For any specified output level, LRAC never exceeds SRAC. 
C) SRAC exceeds LRTC. 
D) SRMC exceeds LRMC.

Question 13

In the cost minimization problem, output:

Accepted Answer

A) and prices are exogenous while the quantity of inputs are endogenous. 
B) is exogenous while input quantities and prices are endogenous. 
C) is endogenous while input quantities and prices are exogenous. 
D) and the quantity of inputs are exogenous while prices are endogenous. 
A) and prices are exogenous while the quantity of inputs are endogenous. 
B) is exogenous while input quantities and prices are endogenous. 
C) is endogenous while input quantities and prices are exogenous. 
D) and the quantity of inputs are exogenous while prices are endogenous.

Question 14

Herongate Horses produces saddles (y)using two inputs, leather (z1)and labour (z2). Herongate Horses' production function is given by: F(z1, z2)= (1/4)z1z2
i)Does Herongate Horses' production function exhibit constant, increasing, or decreasing returns to scale?
ii)Graph Herongate Horses' isoquant for y = 4. Calculate the slope of the isoquant as a function of z1 and z2.
iii)Calculate Herongate Horses' conditional input demands for z1 and z2 as a function of y, when w1 = 5 and
w2 = 20.
iv)Using your answer to (iii), find Herongate Horses' total cost function. Graph the total cost function, TC(y). Find and graph the long run average cost function, LAC(y).

Accepted Answer

i)IRTS;
ii)slope = z

Question 15

A homothetic production function:

Accepted Answer

A) has constant returns to scale. 
B) implies linear marginal cost curves. 
C) does not necessarily have isoquants that are the same shape. 
D) has linear expansion paths. 
A) has constant returns to scale. 
B) implies linear marginal cost curves. 
C) does not necessarily have isoquants that are the same shape. 
D) has linear expansion paths.

Question 16

Competitive firms are most likely to exist when average cost curves:

Accepted Answer

A) are U- shaped and achieve their minimum at relatively small output. 
B) are horizontal. 
C) are U- shaped and achieve their minimum at relatively large output. 
D) are upward sloping. 
A) are U- shaped and achieve their minimum at relatively small output. 
B) are horizontal. 
C) are U- shaped and achieve their minimum at relatively large output. 
D) are upward sloping.

Question 17

If isoquants are smooth and convex, then a necessary condition for cost minimization is that the:

Accepted Answer

A) cost minimizing bundle intersects the isoquant. 
B) MP per dollar of an input equals the MP per dollar of all others. 
C) MRTS equals the slope of the isoquant. 
D) price of the final good is equal to the MC of production. 
A) cost minimizing bundle intersects the isoquant. 
B) MP per dollar of an input equals the MP per dollar of all others. 
C) MRTS equals the slope of the isoquant. 
D) price of the final good is equal to the MC of production.

Question 18

The Marginal Rate of Technical Substitution is the:

Accepted Answer

A) product of two marginal products. 
B) difference between two marginal products. 
C) sum of two marginal products. 
D) ratio of two marginal products. 
A) product of two marginal products. 
B) difference between two marginal products. 
C) sum of two marginal products. 
D) ratio of two marginal products.

Question 19

If an industry is characterized by universal constant returns to scale:

Accepted Answer

A) then natural monopoly is inevitable. 
B) perfect competition should survive. 
C) firms should be extremely small. 
D) no prediction can be made about the size of firms in an industry. 
A) then natural monopoly is inevitable. 
B) perfect competition should survive. 
C) firms should be extremely small. 
D) no prediction can be made about the size of firms in an industry.

Question 20

Figure 7A
 
-The optimum quantity of output in Figure 7A is given by the line:

Accepted Answer

A) ACF. 
B) ACB. 
C) ADB. 
D) ECH. 
A) ACF. 
B) ACB. 
C) ADB. 
D) ECH.

When returns to scale are constant, long run marginal cost is:

Interior solutions of the cost minimizing problem, given convex isoquants, are characterized by:

Coal- fired steam locomotives become more efficient for railroads relative to oil- burning diesel locomotives as:

Fixed proportions production functions always have:

A feasible input bundle lies:

Suppose MTRS =MP_L/MP_K=1/3. If we want to reduce K by 6 units and keep output constant, we have to increase L by units.

The firm has a production function given by f(L,K)= L^1/4K^1/2. Currently, the wage rate is 9 and the rental rate of capital is 2 and this firm has a contract to produce 24 units of output. How much labour and capital will this firm hire?

A lawn care service has a production function given by f(L,K)= min(4L,5K). If the price of L is 8 and the price of K is 5, what is its marginal cost for caring for an additional yard?

A LRAC curve is U- shaped if:

An isocost line represents combinations of:

Which of the following statements is true?

In the cost minimization problem, output:

A homothetic production function:

Competitive firms are most likely to exist when average cost curves:

If isoquants are smooth and convex, then a necessary condition for cost minimization is that the:

The Marginal Rate of Technical Substitution is the:

If an industry is characterized by universal constant returns to scale:

Figure 7A -The optimum quantity of output in Figure 7A is given by the line:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Exam 7: Production Cost: Many Variable Inputs

When returns to scale are constant, long run marginal cost is:

Interior solutions of the cost minimizing problem, given convex isoquants, are characterized by:

Coal- fired steam locomotives become more efficient for railroads relative to oil- burning diesel locomotives as:

Fixed proportions production functions always have:

A feasible input bundle lies:

Suppose MTRS =MPL/MPK=1/3. If we want to reduce K by 6 units and keep output constant, we have to increase L by units.

The firm has a production function given by f(L,K)= L1/4K1/2. Currently, the wage rate is 9 and the rental rate of capital is 2 and this firm has a contract to produce 24 units of output. How much labour and capital will this firm hire?

A lawn care service has a production function given by f(L,K)= min(4L,5K). If the price of L is 8 and the price of K is 5, what is its marginal cost for caring for an additional yard?

A LRAC curve is U- shaped if:

An isocost line represents combinations of:

Which of the following statements is true?

In the cost minimization problem, output:

A homothetic production function:

Competitive firms are most likely to exist when average cost curves:

If isoquants are smooth and convex, then a necessary condition for cost minimization is that the:

The Marginal Rate of Technical Substitution is the:

If an industry is characterized by universal constant returns to scale:

Figure 7A -The optimum quantity of output in Figure 7A is given by the line:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Suppose MTRS =MP_L/MP_K=1/3. If we want to reduce K by 6 units and keep output constant, we have to increase L by units.

The firm has a production function given by f(L,K)= L^1/4K^1/2. Currently, the wage rate is 9 and the rental rate of capital is 2 and this firm has a contract to produce 24 units of output. How much labour and capital will this firm hire?