Question 1

Identify the truthfulness of the following statements. I.All fixed costs are sunk costs.
II.All sunk costs are fixed costs.

Accepted Answer

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

Question 2

Which of the following statements correctly characterizes the solution to a cost minimization problem with an interior solution?

Accepted Answer

A)  The isoquant is tangent to the isocost line. 
B)  The isoquant lies to the interior of the isocost line. 
C)  The isocost line lies to the interior of the isoquant. 
D)  The distance between the isoquant and the isocost line is maximized. 
A)  The isoquant is tangent to the isocost line. 
B)  The isoquant lies to the interior of the isocost line. 
C)  The isocost line lies to the interior of the isoquant. 
D)  The distance between the isoquant and the isocost line is maximized. A

Question 3

A firm's production function is given by Q = KL.The marginal products of labor and capital are,respectively,MPL = K and MPK = L.The wage rate of labor is w = $10 and the rental rate of capital is r = $20.The firm wants to produce 1,800 units of output.What is the most efficient combination of labor and capital   ?

Accepted Answer

A)  (10, 20) 
B)  (20, 90) 
C)  (60, 30) 
D)  (90, 20) 
A)  (10, 20) 
B)  (20, 90) 
C)  (60, 30) 
D)  (90, 20) C

Question 4

Let a firm use labor (L) and capital (K) as its only inputs to produce an output,Q.The cost of labor is w = $5 per labor hour and the cost of capital is r = $15 per machine hour.What is the equation of the $1.5million isocost line?

Accepted Answer

A)  1.5m = L + K. 
B)  1.5m = 5L + 15K. 
C)  1.5m = (5L)(15K). 
D)  1.5m = (5L + 15K)Q. 
A)  1.5m = L + K. 
B)  1.5m = 5L + 15K. 
C)  1.5m = (5L)(15K). 
D)  1.5m = (5L + 15K)Q.

Question 5

A firm's production function is given by Q = KL.The marginal products of labor and capital are,respectively,MPL = K and MPK = L.The wage rate of labor is w = $10 and the rental rate of capital is r = $20.The firm wants to produce 1,800 units of output in the most efficient way possible.How much does the firm spend?

Accepted Answer

A)  $2,000 
B)  $1,300 
C)  $1,200 
D)  $1,100 
A)  $2,000 
B)  $1,300 
C)  $1,200 
D)  $1,100

Question 6

The short-run is

Accepted Answer

A)  a time period in which all input levels are fixed. 
B)  a time period in which at least one input level is fixed. 
C)  three months. 
D)  a time period in which no input levels are fixed. 
A)  a time period in which all input levels are fixed. 
B)  a time period in which at least one input level is fixed. 
C)  three months. 
D)  a time period in which no input levels are fixed.

Question 7

A firm's production process uses labor,L,and capital,K,and materials,M,to produce an output,Q according to the function Q = KLM,where the marginal products of the three inputs are MPL = KM,MPK = LM,and MPM = KL.The wage rate for labor is w = 2,the rental rate of capital is r = 1,and the cost of materials is m = 4 per unit.Let materials input be fixed now at M = 2.What is the cost minimizing level of capital that the firm must use to produce a target level of output,Q = 1600?

Accepted Answer

A)  K = 5 
B)  K = 10 
C)  K = 20 
D)  K = 40 
A)  K = 5 
B)  K = 10 
C)  K = 20 
D)  K = 40

Question 8

The "equal bang per buck" condition refers to the firm equating

Accepted Answer

A)  marginal revenue with marginal cost. 
B)  the marginal productivity of the last dollar spent on labor with the marginal productivity of the last dollar spent on capital. 
C)  the marginal productivity of capital with the marginal productivity of labor. 
D)  the cost of capital with the cost of labor. 
A)  marginal revenue with marginal cost. 
B)  the marginal productivity of the last dollar spent on labor with the marginal productivity of the last dollar spent on capital. 
C)  the marginal productivity of capital with the marginal productivity of labor. 
D)  the cost of capital with the cost of labor.

Question 9

A firm's production function is given by Q = KL.The marginal products of labor and capital are,respectively,MPL = K and MPK = L.The wage rate of labor is w = $10 and the rental rate of capital is r = $20.What is the most efficient combination of labor and capital   that also yields a cost of exactly $1000?

Accepted Answer

A)  (10, 45) 
B)  (25, 50) 
C)  (50, 25) 
D)  (20, 40) 
A)  (10, 45) 
B)  (25, 50) 
C)  (50, 25) 
D)  (20, 40)

Question 10

To derive the equation for an isocost line when the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,you should

Accepted Answer

A)  solve the production function for 
B)  solve the production function for . 
C)  solve the total cost equation for . 
D)  solve the total cost equation for 
A)  solve the production function for 
B)  solve the production function for . 
C)  solve the total cost equation for . 
D)  solve the total cost equation for

Question 11

You decide to purchase a car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.After purchasing the car,the $12,000 purchase price represents a(n)

Accepted Answer

A)  average cost. 
B)  implicit cost. 
C)  sunk cost. 
D)  non-sunk cost. 
A)  average cost. 
B)  implicit cost. 
C)  sunk cost. 
D)  non-sunk cost.

Question 12

When the elasticity of substitution between capital and labor is low,

Accepted Answer

A)  labor demand will be price elastic. 
B)  labor demand will be price inelastic. 
C)  the capital-labor ratio will be low. 
D)  the labor demand curve will be a flat line. 
A)  labor demand will be price elastic. 
B)  labor demand will be price inelastic. 
C)  the capital-labor ratio will be low. 
D)  the labor demand curve will be a flat line.

Question 13

The long-run is

Accepted Answer

A)  a time period in which all input levels are fixed. 
B)  a time period in which at least one input level is fixed. 
C)  one year. 
D)  a time period in which no input levels are fixed. 
A)  a time period in which all input levels are fixed. 
B)  a time period in which at least one input level is fixed. 
C)  one year. 
D)  a time period in which no input levels are fixed.

Question 14

You decide to purchase a new car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.The opportunity cost of purchasing the car is __________ and the opportunity cost of using the car is __________

Accepted Answer

A)  $12,000 and $9,000. 
B)  $12,000 and $3,000. 
C)  Unknown and $9,000. 
D)  Unknown and $3,000. 
A)  $12,000 and $9,000. 
B)  $12,000 and $3,000. 
C)  Unknown and $9,000. 
D)  Unknown and $3,000.

Question 15

A firm's production function is given by Q = KL.The marginal products of labor and capital are,respectively,MPL = K and MPK = L.The wage rate of labor is w = $10 and the rental rate of capital is r = $20.The firm spends exactly $1000 in the most efficient way possible.How much output can the firm produce?

Accepted Answer

A)  450 
B)  800 
C)  1000 
D)  1250 
A)  450 
B)  800 
C)  1000 
D)  1250

Question 16

An isocost line represents

Accepted Answer

A)  all combinations of inputs in which the firm produces the same level of output. 
B)  all combinations of inputs in which the firm has the same level of total cost. 
C)  for a given level of output, the various points that will produce that same level of output at the same cost. 
D)  all combinations of output that yield the same total cost level. 
A)  all combinations of inputs in which the firm produces the same level of output. 
B)  all combinations of inputs in which the firm has the same level of total cost. 
C)  for a given level of output, the various points that will produce that same level of output at the same cost. 
D)  all combinations of output that yield the same total cost level.

Question 17

A high elasticity of substitution between capital and labor implies that labor demand will be

Accepted Answer

A)  price elastic. 
B)  unitary price elastic. 
C)  price inelastic. 
D)  more inelastic than capital demand. 
A)  price elastic. 
B)  unitary price elastic. 
C)  price inelastic. 
D)  more inelastic than capital demand.

Question 18

Identify the truthfulness of the following statements. I.A firm decides to purchase a computer for $1,500 at the end of the month.The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes.The computer has no re-sale value.This is a fixed cost.At the beginning of the month,this cost is non-sunk.
II.A firm decides to purchase a computer for $1,500 at the beginning of the month.The computer will be used for administrative purposes that do not vary with the volume of product that the firm makes.The computer has no re-sale value.This is a fixed cost.At the end of the month,this cost is sunk.

Accepted Answer

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

Question 19

The cost-minimization problem of the firm is to

Accepted Answer

A)  minimize total costs. 
B)  minimize average costs. 
C)  minimize total cost of producing a particular amount of output. 
D)  maximize output subject to a cost constraint. 
A)  minimize total costs. 
B)  minimize average costs. 
C)  minimize total cost of producing a particular amount of output. 
D)  maximize output subject to a cost constraint.

Question 20

Economic costs

Accepted Answer

A)  are the same as accounting costs. 
B)  are the same as implicit costs. 
C)  are the same as opportunity costs. 
D)  are the same as the sum of all past explicit costs 
A)  are the same as accounting costs. 
B)  are the same as implicit costs. 
C)  are the same as opportunity costs. 
D)  are the same as the sum of all past explicit costs

Identify the truthfulness of the following statements. I.All fixed costs are sunk costs. II.All sunk costs are fixed costs.

Which of the following statements correctly characterizes the solution to a cost minimization problem with an interior solution?

Let a firm use labor (L) and capital (K) as its only inputs to produce an output,Q.The cost of labor is w = $5 per labor hour and the cost of capital is r = $15 per machine hour.What is the equation of the $1.5million isocost line?

The short-run is

The "equal bang per buck" condition refers to the firm equating

To derive the equation for an isocost line when the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,you should

You decide to purchase a car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.After purchasing the car,the $12,000 purchase price represents a(n)

When the elasticity of substitution between capital and labor is low,

The long-run is

You decide to purchase a new car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.The opportunity cost of purchasing the car is and the opportunity cost of using the car is

An isocost line represents

A high elasticity of substitution between capital and labor implies that labor demand will be

The cost-minimization problem of the firm is to

Economic costs

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 7: Costs and Cost Minimization

Identify the truthfulness of the following statements. I.All fixed costs are sunk costs. II.All sunk costs are fixed costs.

Which of the following statements correctly characterizes the solution to a cost minimization problem with an interior solution?

Let a firm use labor (L) and capital (K) as its only inputs to produce an output,Q.The cost of labor is w = $5 per labor hour and the cost of capital is r = $15 per machine hour.What is the equation of the $1.5million isocost line?

The short-run is

The "equal bang per buck" condition refers to the firm equating

To derive the equation for an isocost line when the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,you should

You decide to purchase a car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.After purchasing the car,the $12,000 purchase price represents a(n)

When the elasticity of substitution between capital and labor is low,

The long-run is

You decide to purchase a new car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.The opportunity cost of purchasing the car is __________ and the opportunity cost of using the car is __________

An isocost line represents

A high elasticity of substitution between capital and labor implies that labor demand will be

The cost-minimization problem of the firm is to

Economic costs

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Cost Curves

Perfectly Competitive Markets

Competitive Markets

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

Risk and Information

General Equilibrium Theory

Externalities and Public Goods

Filters

You decide to purchase a new car for $12,000.Upon driving the car off of the lot,the resale value of the car falls to $9,000.The opportunity cost of purchasing the car is and the opportunity cost of using the car is