Question 1

Which of the following cost relationships hold in the short- run?

Accepted Answer

A) If ATC exceeds AVC, AVC is falling. 
B) If AVC is constant, then ATC is also constant, but at a higher level. 
C) For positive FC, AVC approaches ATC as output increases. 
D) If SRMC is rising, both AVC and AFC are rising. 
A) If ATC exceeds AVC, AVC is falling. 
B) If AVC is constant, then ATC is also constant, but at a higher level. 
C) For positive FC, AVC approaches ATC as output increases. 
D) If SRMC is rising, both AVC and AFC are rising.

Question 2

Which of the following is a Cobb- Douglas production function?

Accepted Answer

A) min(K,L) 
B) K + L 
C) (KL)/2 
D) max(K,L) 
A) min(K,L) 
B) K + L 
C) (KL)/2 
D) max(K,L)

Question 3

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should

Accepted Answer

A) decrease output in both plants. 
B) increase output in both plants. 
C) increase output in the first plant and decrease it in the second plant. 
D) decrease output in the first plant and increase it in the second plant. 
A) decrease output in both plants. 
B) increase output in both plants. 
C) increase output in the first plant and decrease it in the second plant. 
D) decrease output in the first plant and increase it in the second plant.

Question 4

Marginal product:

Accepted Answer

A) is the slope of the total product. 
B) is the inverse of the total product. 
C) has nothing to do with the total product. 
D) is always greater than the total product. 
A) is the slope of the total product. 
B) is the inverse of the total product. 
C) has nothing to do with the total product. 
D) is always greater than the total product.

Question 5

You have just been hired as the production manager of a Krispy Kreme donut shop. You produce donuts using labour and capital with a production function given by f(L,K)= L1/3K1/3. The rental rate of your donut machines is 16 and workers cost 2. Right now you are under contract to hire 27 workers regardless of the number of donuts you produce. How much capital should you rent to produce 3 doughnuts?
9 doughnuts?

Accepted Answer

L is fixed at 27. To make q un

Question 6

The MP of an input is not:

Accepted Answer

A) the change in output as the input is changed by a small amount. 
B) the input's productivity in the most recently constructed plant. 
C) the slope of the total product function. 
D) the rate at which output increases as more of the input is used. 
A) the change in output as the input is changed by a small amount. 
B) the input's productivity in the most recently constructed plant. 
C) the slope of the total product function. 
D) the rate at which output increases as more of the input is used.

Question 7

Economic cost differs from accounting cost in that:

Accepted Answer

A) the former includes implicit costs, while the latter does not. 
B) the latter counts true depreciation, while the former uses arbitrary rules. 
C) the former is used to calculate both economic and accounting profit. 
D) the latter includes depreciation, while the former does not. 
A) the former includes implicit costs, while the latter does not. 
B) the latter counts true depreciation, while the former uses arbitrary rules. 
C) the former is used to calculate both economic and accounting profit. 
D) the latter includes depreciation, while the former does not.

Question 8

Suppose a firm's short run total costs are given by: TC(y)= 3y2 + y + 500.
i)What are the firm's variable costs? Fixed costs?
ii)Calculate and graph the firm's short run average costs (SAC(y))and short run marginal costs (SMC(y))
iii)Calculate the point where SAC = SMC and mark it on your graph. What point on the SAC curve does this correspond to?

Accepted Answer

i)VC(y)= 3y²+ y, FC(y)= 500 ii)SAC(y)= 3y

Question 9

What happens to the cost of growing crops on a particular farm when the land is rezoned from agricultural to industrial use and its price triples?

Accepted Answer

A) The cost rises, but only if the farmer rents the land from someone else. 
B) There is no change unless industrialization somehow interferes with farming. 
C) The cost will probably fall, because industrialization is often incompatible with farming. 
D) The cost rises, even if the farmer owns the land. 
A) The cost rises, but only if the farmer rents the land from someone else. 
B) There is no change unless industrialization somehow interferes with farming. 
C) The cost will probably fall, because industrialization is often incompatible with farming. 
D) The cost rises, even if the farmer owns the land.

Question 10

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?

Accepted Answer

A) SMC is less than AVC. 
B) SAC will fall. 
C) AP will increase. 
D) AFC will increase. 
A) SMC is less than AVC. 
B) SAC will fall. 
C) AP will increase. 
D) AFC will increase.

Question 11

In the short run:

Accepted Answer

A) fixed costs are zero. 
B) all inputs are fixed. 
C) some inputs are fixed. 
D) variable costs are zero. 
A) fixed costs are zero. 
B) all inputs are fixed. 
C) some inputs are fixed. 
D) variable costs are zero.

Question 12

The law of diminishing marginal productivity implies that when one input is variable while others are fixed:

Accepted Answer

A) as input use increases, total output eventually falls. 
B) the MP of the variable input will eventually decline. 
C) the SRMC must fall initially. 
D) the marginal product increases initially. 
A) as input use increases, total output eventually falls. 
B) the MP of the variable input will eventually decline. 
C) the SRMC must fall initially. 
D) the marginal product increases initially.

Question 13

The AP of an input at some given quantity of the input is not:

Accepted Answer

A) total product divided by the quantity of the input. 
B) the slope of a ray from the origin to the total product function. 
C) output divided by the quantity of the input. 
D) the rate at which output increases as more of the input is used. 
A) total product divided by the quantity of the input. 
B) the slope of a ray from the origin to the total product function. 
C) output divided by the quantity of the input. 
D) the rate at which output increases as more of the input is used.

Question 14

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid
$2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?

Accepted Answer

A) $5.50 
B) $6.75 
C) $3.00 
D) $4.25 
A) $5.50 
B) $6.75 
C) $3.00 
D) $4.25

Question 15

Figure 6A
 
-Under the free disposal assumption, an output maximizing firm using Figure 6A would want to use:

Accepted Answer

A) more than C units of z1. 
B) less than A units of z1. 
C) at least C units of z1. 
D) between A and C units of z1. 
A) more than C units of z1. 
B) less than A units of z1. 
C) at least C units of z1. 
D) between A and C units of z1.

Question 16

Let y* denote the level of output for which AP of a variable input reaches a maximum. Then:

Accepted Answer

A) for y = y*, short run SMC is zero. 
B) for y > y*, the input's SMP exceeds its AP. 
C) for y > y*, SMC exceeds AVC. 
D) for y *, the input's AP exceeds its SMP. 
A) for y = y*, short run SMC is zero. 
B) for y > y*, the input's SMP exceeds its AP. 
C) for y > y*, SMC exceeds AVC. 
D) for y *, the input's AP exceeds its SMP.

Question 17

Variable cost may be defined as:

Accepted Answer

A) the change in TC as more of the variable factor is employed. 
B) the vertical distance between the APC and SRAC at level of output. 
C) the least expenditure on all inputs to produce a level of output. 
D) the least expenditure on variable inputs to produce a level of output. 
A) the change in TC as more of the variable factor is employed. 
B) the vertical distance between the APC and SRAC at level of output. 
C) the least expenditure on all inputs to produce a level of output. 
D) the least expenditure on variable inputs to produce a level of output.

Question 18

If STC = 7q3 + 3q + 7, then VC is:

Accepted Answer

A) 7q2 + 3. 
B) 7q3 + 3q + 7. 
C) 7q3.  
D) 7q3 + 3q. 
A) 7q2 + 3. 
B) 7q3 + 3q + 7. 
C) 7q3.  
D) 7q3 + 3q.

Question 19

Profit maximizing firms produce their output:

Accepted Answer

A) to minimize tax payments to government. 
B) to minimize the cost of production. 
C) according to Cobb- Douglas production functions. 
D) to maximize their revenue from sales. 
A) to minimize tax payments to government. 
B) to minimize the cost of production. 
C) according to Cobb- Douglas production functions. 
D) to maximize their revenue from sales.

Question 20

Which of the following is the most reasonable production function for bicycles (b)made of frames (f), handlebars (h), seats (s), and wheels (w)? (Note: frames include pedals, gears, and other parts.)

Accepted Answer

A) b = min(f,h,s,w/2) 
B) b = fhsw/2 
C) b = min(f,h,s,2w) 
D) b = max(f,h,s,w/2) 
A) b = min(f,h,s,w/2) 
B) b = fhsw/2 
C) b = min(f,h,s,2w) 
D) b = max(f,h,s,w/2)

Which of the following cost relationships hold in the short- run?

Which of the following is a Cobb- Douglas production function?

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should

Marginal product:

The MP of an input is not:

Economic cost differs from accounting cost in that:

What happens to the cost of growing crops on a particular farm when the land is rezoned from agricultural to industrial use and its price triples?

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?

In the short run:

The law of diminishing marginal productivity implies that when one input is variable while others are fixed:

The AP of an input at some given quantity of the input is not:

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid $2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?

Figure 6A -Under the free disposal assumption, an output maximizing firm using Figure 6A would want to use:

Let y^*denote the level of output for which AP of a variable input reaches a maximum. Then:

Variable cost may be defined as:

If STC = 7q³+ 3q + 7, then VC is:

Profit maximizing firms produce their output:

Which of the following is the most reasonable production function for bicycles (b)made of frames (f), handlebars (h), seats (s), and wheels (w)? (Note: frames include pedals, gears, and other parts.)

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: Many Variable Inputs

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 6: Production Cost: One Variable Input

Which of the following cost relationships hold in the short- run?

Which of the following is a Cobb- Douglas production function?

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should

Marginal product:

The MP of an input is not:

Economic cost differs from accounting cost in that:

What happens to the cost of growing crops on a particular farm when the land is rezoned from agricultural to industrial use and its price triples?

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?

In the short run:

The law of diminishing marginal productivity implies that when one input is variable while others are fixed:

The AP of an input at some given quantity of the input is not:

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid $2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?

Figure 6A -Under the free disposal assumption, an output maximizing firm using Figure 6A would want to use:

Let y* denote the level of output for which AP of a variable input reaches a maximum. Then:

Variable cost may be defined as:

If STC = 7q3 + 3q + 7, then VC is:

Profit maximizing firms produce their output:

Which of the following is the most reasonable production function for bicycles (b)made of frames (f), handlebars (h), seats (s), and wheels (w)? (Note: frames include pedals, gears, and other parts.)

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: Many Variable Inputs

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

Let y^*denote the level of output for which AP of a variable input reaches a maximum. Then:

If STC = 7q³+ 3q + 7, then VC is: