Question 1

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AVC equals

Accepted Answer

A) q. 
B) q/10. 
C) 10/q. 
D) 1. 
A) q. 
B) q/10. 
C) 10/q. 
D) 1. D

Question 2

When diminishing marginal returns set in,

Accepted Answer

A) average product is increasing. 
B) average variable cost is decreasing. 
C) average cost is decreasing. 
D) None of above. 
A) average product is increasing. 
B) average variable cost is decreasing. 
C) average cost is decreasing. 
D) None of above. D

Question 3

Marginal cost is equal to

Accepted Answer

A) the increase in total cost from increasing the amount of labor by one unit. 
B) the increase in variable cost from increasing the amount of labor by one unit. 
C) Both A and B. 
D) Neither A nor B. 
A) the increase in total cost from increasing the amount of labor by one unit. 
B) the increase in variable cost from increasing the amount of labor by one unit. 
C) Both A and B. 
D) Neither A nor B. C

Question 4

Suppose the short-run production function is q = L0.5.If the marginal cost of producing the tenth unit is $5,what is the wage per unit of labor?

Accepted Answer

A) $1 
B) 5¢ 
C) 25¢ 
D) It cannot be determined without more information. 
A) $1 
B) 5¢ 
C) 25¢ 
D) It cannot be determined without more information.

Question 5

Explain why in the case of economies of scope the production possibility frontier is bowed outward.

Accepted Answer

With economies of scope a firm uses less

Question 6

Which of the following statements best explains why long-run average cost is never greater than short-run average cost?

Accepted Answer

A) In the long run,tangency of the isocost and isoquant is attainable.This is not necessarily true in the short run. 
B) In the long run,diseconomies of scale might not occur,but in the short run diminishing marginal returns do. 
C) In the long run,the cost of capital declines because the firm is able to pay down some of its debts. 
D) In the long run,the average cost curve need not be U-shaped,but in the short run it is. 
A) In the long run,tangency of the isocost and isoquant is attainable.This is not necessarily true in the short run. 
B) In the long run,diseconomies of scale might not occur,but in the short run diminishing marginal returns do. 
C) In the long run,the cost of capital declines because the firm is able to pay down some of its debts. 
D) In the long run,the average cost curve need not be U-shaped,but in the short run it is.

Question 7

Sam's company produces output with labor and capital.At the current quantities of labor and capital,the following information is obtained: the output produced by spending one more dollar on labor exceeds the output produced by spending one more dollar on capital.In the long run,is Sam minimizing costs? If not,explain how capital and labor should change (holding output constant)and how this relates to the   
condition.

Accepted Answer

The last dollar rule is not sa

Question 8

Alison lives in a small town where she plans to hire workers to help her make candy.Her production function for candy is
q = 4LK.5
She begins producing with K = 4.The cost of capital is $50/unit.The wage depends on the amount of workers she employs.Specifically,w(L)= 10 + 2L.
a.Does Alison's production function exhibit diminishing marginal return to labor? Explain.
b.Derive Alison's short-run cost function.
c.What is the shape of Alison's Marginal Cost.
d.Does the relationship w/MP = MC hold? Show this explicitly.

Accepted Answer

a.No,MP = 8,so it is constant.
b.Plug in

Question 9

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

Accepted Answer

A) $0. 
B) $1 million. 
C) some amount greater than $0 but less than $1 million. 
D) equal to the cost of the factory that was planned to be built there. 
A) $0. 
B) $1 million. 
C) some amount greater than $0 but less than $1 million. 
D) equal to the cost of the factory that was planned to be built there.

Question 10

If average cost is decreasing,

Accepted Answer

A) marginal cost equals average cost. 
B) marginal cost exceeds average cost. 
C) marginal cost is less than average cost. 
D) Not enough information is provided. 
A) marginal cost equals average cost. 
B) marginal cost exceeds average cost. 
C) marginal cost is less than average cost. 
D) Not enough information is provided.

Question 11

A local non-profit group prints a weekly newsletter.Professional typists earn $10 per hour and can type 2 pages per hour.Unpaid volunteers can type only 1 page per hour.Measuring hours of professional typist services on the vertical axis and hours of unpaid volunteer typist services on the horizontal axis,draw the relevant isoquant and isocost curves if the newsletter is 10 pages long.What input mix is chosen by the non-profit group if they wish to minimize the cost of the newsletter? If the group will reimburse volunteers for expenses (lunch,driving),how much must the reimbursement be for your answer to change?

Accepted Answer

@#IMG-DLM& See the above figure.The isoquant is a

Question 12

Consider a general Cobb-Douglas production function
q = ALaKb
where A,a and b are positive constants.
Using this production function,derive the short-run cost function for a fixed capital stock,K0,wage rate w,and capital rental rate r.

Accepted Answer

The production function is
q =

Question 13

If a production function is represented as q = Lα Kβ,the long-run average cost curve will be horizontal as long as

Accepted Answer

A) α + β = 0. 
B) α + β = 1. 
C) q > 0. 
D) L = K. 
A) α + β = 0. 
B) α + β = 1. 
C) q > 0. 
D) L = K.

Question 14

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then MC equals

Accepted Answer

A) q. 
B) q/10. 
C) 10/q. 
D) 1. 
A) q. 
B) q/10. 
C) 10/q. 
D) 1.

Question 15

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

Accepted Answer

A) $2 
B) $1.50 
C) $1 
D) $0.50 
A) $2 
B) $1.50 
C) $1 
D) $0.50

Question 16

Simon is given a free ticket to see Coldplay Saturday night.He already has a ticket to see Sting in concert that night.The Sting ticket cost Simon $50 though he would have paid as much as $80 to go to the show.Simon knows that he can easily sell the Sting ticket on Craigslist for $60.What is his opportunity cost of seeing Coldplay?

Accepted Answer

If Simon did not go to Coldplay,he would

Question 17

When a firm produces one unit,the variable cost is $3.When the firm produces two units,the variable cost is $6.What is the marginal cost associated with two units of production?

Accepted Answer

A) $2 
B) 5¢ 
C) $6 
D) $3 
A) $2 
B) 5¢ 
C) $6 
D) $3

Question 18

A production possibilities frontier that is a downward-sloping straight line implies

Accepted Answer

A) economies of scale. 
B) diseconomies of scale. 
C) economies of scope. 
D) no economies of scope. 
A) economies of scale. 
B) diseconomies of scale. 
C) economies of scope. 
D) no economies of scope.

Question 19

After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

Accepted Answer

A) True 
 B)False

Question 20

A production possibilities frontier that is a bowed-inward line implies

Accepted Answer

A) economies of scale. 
B) diseconomies of scope. 
C) economies of scope. 
D) no economies of scope. 
A) economies of scale. 
B) diseconomies of scope. 
C) economies of scope. 
D) no economies of scope.

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AVC equals

When diminishing marginal returns set in,

Marginal cost is equal to

Suppose the short-run production function is q = L^0.5.If the marginal cost of producing the tenth unit is $5,what is the wage per unit of labor?

Explain why in the case of economies of scope the production possibility frontier is bowed outward.

Which of the following statements best explains why long-run average cost is never greater than short-run average cost?

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

If average cost is decreasing,

Consider a general Cobb-Douglas production function q = AL^aK^b where A,a and b are positive constants. Using this production function,derive the short-run cost function for a fixed capital stock,K₀,wage rate w,and capital rental rate r.

If a production function is represented as q = L^α K^β,the long-run average cost curve will be horizontal as long as

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then MC equals

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

When a firm produces one unit,the variable cost is $3.When the firm produces two units,the variable cost is $6.What is the marginal cost associated with two units of production?

A production possibilities frontier that is a downward-sloping straight line implies

After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

A production possibilities frontier that is a bowed-inward line implies

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Exam 7: Costs

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then AVC equals

When diminishing marginal returns set in,

Marginal cost is equal to

Suppose the short-run production function is q = L0.5.If the marginal cost of producing the tenth unit is $5,what is the wage per unit of labor?

Explain why in the case of economies of scope the production possibility frontier is bowed outward.

Which of the following statements best explains why long-run average cost is never greater than short-run average cost?

The Nifty Gum Co.has purchased a large parcel of land for $1 million.The company recently discovered that the land is contaminated and is worthless to all possible buyers.The opportunity cost of the land is

If average cost is decreasing,

Consider a general Cobb-Douglas production function q = ALaKb where A,a and b are positive constants. Using this production function,derive the short-run cost function for a fixed capital stock,K0,wage rate w,and capital rental rate r.

If a production function is represented as q = Lα Kβ,the long-run average cost curve will be horizontal as long as

Suppose the short-run production function is q = 10 ∗ L.If the wage rate is $10 per unit of labor,then MC equals

If the total cost of production for 1000 widgets is $2000 and marginal cost is constant at $1,what is the average fixed cost for the 1000 widgets?

When a firm produces one unit,the variable cost is $3.When the firm produces two units,the variable cost is $6.What is the marginal cost associated with two units of production?

A production possibilities frontier that is a downward-sloping straight line implies

After employing her last laborer,Rachel notices that her Average Product has decreased.True or False: Her marginal cost is greater than her average variable cost.

A production possibilities frontier that is a bowed-inward line implies

Introduction

Supply and Demand

A Consumers Constrained Choice

Demand

Consumer Welfare and Policy Analysis

Firms and Production

Competitive Firms and Markets

Properties and Applications of the Competitive Model

General Equilibrium and Economic Welfare

Monopoly and Monopsony

Pricing and Advertising

Game Theory

Oligopoly and Monopolistic Competition

Factor Markets

Uncertainty

Property Rights, Externalities, Rivalry, and Exclusion

Asymmetric Information

Contracts and Moral Hazards

Filters

Suppose the short-run production function is q = L^0.5.If the marginal cost of producing the tenth unit is $5,what is the wage per unit of labor?

Consider a general Cobb-Douglas production function q = AL^aK^b where A,a and b are positive constants. Using this production function,derive the short-run cost function for a fixed capital stock,K₀,wage rate w,and capital rental rate r.

If a production function is represented as q = L^α K^β,the long-run average cost curve will be horizontal as long as