Question 1

A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's

Accepted Answer

A)  Price-expansion curve 
B)  Labor demand curve 
C)  Capital demand curve 
D)  Elasticity of demand curve 
A)  Price-expansion curve 
B)  Labor demand curve 
C)  Capital demand curve 
D)  Elasticity of demand curve

Question 2

Suppose that a firm's production function of output Q is a function of only two inputs,labor (L) and capital (K) and can be written Q = 25LK with marginal products MPL = 25K and MPK = 25L.Letting the wage rate for labor be w and the rental rate of capital be r,the equation for the firm's demand for labor would be:

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 3

The expansion path graphs

Accepted Answer

A)  the combinations of capital and labor that minimize total cost for various levels of output. 
B)  the combinations of capital and labor that have the same total cost for various levels of output. 
C)  the combinations of capital and labor that have the same level of output. 
D)  how the firm can expand output while holding total cost constant. 
A)  the combinations of capital and labor that minimize total cost for various levels of output. 
B)  the combinations of capital and labor that have the same total cost for various levels of output. 
C)  the combinations of capital and labor that have the same level of output. 
D)  how the firm can expand output while holding total cost constant.

Question 4

A difference between the short run and the long run is that a firm in the short run

Accepted Answer

A)  faces an unconstrained cost minimization problem, whereas the firm is constrained in the long run. 
B)  faces a constrained cost minimization problem, whereas the firm is unconstrained in the long run. 
C)  faces a constrained cost minimization problem in both the short run and the long run. 
D)  faces an unconstrained cost minimization problem in both the short run and the long run. 
A)  faces an unconstrained cost minimization problem, whereas the firm is constrained in the long run. 
B)  faces a constrained cost minimization problem, whereas the firm is unconstrained in the long run. 
C)  faces a constrained cost minimization problem in both the short run and the long run. 
D)  faces an unconstrained cost minimization problem in both the short run and the long run.

Question 5

In order to solve graphically for an interior cost minimum of the firm,subject to the constraint of producing a particular target level of output,we

Accepted Answer

A)  shift in the isocost line as much as possible. 
B)  shift out the isoquant as much as possible. 
C)  shift the isocost line left as much as possible subject to the constraint that it touches the target isoquant at least once. 
D)  shift the isoquant left as much as possible subject to the constraint that it touches the target isocost at least once. 
A)  shift in the isocost line as much as possible. 
B)  shift out the isoquant as much as possible. 
C)  shift the isocost line left as much as possible subject to the constraint that it touches the target isoquant at least once. 
D)  shift the isoquant left as much as possible subject to the constraint that it touches the target isocost at least once.

Question 6

The cost-minimization problem of the firm is to

Accepted Answer

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

Question 7

An input demand curve represents

Accepted Answer

A)  how the cost-minimizing amount of input varies with the level of output. 
B)  how the cost-minimizing output varies with an input's price. 
C)  how the cost minimizing amount of input changes with the input's price. 
D)  how the cost minimizing output varies with the output price. 
A)  how the cost-minimizing amount of input varies with the level of output. 
B)  how the cost-minimizing output varies with an input's price. 
C)  how the cost minimizing amount of input changes with the input's price. 
D)  how the cost minimizing output varies with the output price.

Question 8

You have invested about $100,000 in a new (hopefully) trendy restaurant in an urban location. These costs have gone to purchase the restaurant,prepay insurance for the following year and purchase supplies for the restaurant. It will cost you an additional $10,000 per year to hire each waiter and waitress.(They earn tips which they get to keep.) Which of the following statements is most accurate?

Accepted Answer

A)  The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, but do not include all of the possible economic costs of operating the business. 
B)  The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, and also include all of the possible economic costs of operating the business 
C)  The $100,000 sum represents sunk costs and the costs for waiters and waitresses are sunk as well. 
D)  The $100,000 sum represents sunk costs and all of the possible accounting costs as well. 
A)  The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, but do not include all of the possible economic costs of operating the business. 
B)  The $100,000 sum represents sunk costs, whereas the costs for waiters and waitresses is not sunk, but all of these costs would be considered accounting costs, and also include all of the possible economic costs of operating the business 
C)  The $100,000 sum represents sunk costs and the costs for waiters and waitresses are sunk as well. 
D)  The $100,000 sum represents sunk costs and all of the possible accounting costs as well.

Question 9

A firm's production function is given by   .The marginal products of labor and capital are,respectively,   and   .Further,the wage rate is   and the rental rate of capital is   .What is the most efficient combination of labor and capital   that also results in a total cost level of exactly $1,200?

Accepted Answer

A)  (20, 50) 
B)  (25, 47.5) 
C)  (30, 45) 
D)  (40, 40) 
A)  (20, 50) 
B)  (25, 47.5) 
C)  (30, 45) 
D)  (40, 40)

Question 10

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.When capital is measured on the vertical axis and labor on the horizontal axis,what is the slope of an isocost line for this firm?

Accepted Answer

A)  -3. 
B)  -5. 
C)  -15. 
D)  -1/3. 
A)  -3. 
B)  -5. 
C)  -15. 
D)  -1/3.

Question 11

When isocost lines shift outward from the origin,it represents

Accepted Answer

A)  increasing levels of expenditure on the inputs to the production process. 
B)  increasing sunk costs 
C)  increasing opportunity costs 
D)  decreasing levels of expenditure on the inputs to the production process. 
A)  increasing levels of expenditure on the inputs to the production process. 
B)  increasing sunk costs 
C)  increasing opportunity costs 
D)  decreasing levels of expenditure on the inputs to the production process.

Question 12

A firm's production function is given by   .The marginal products of labor and capital are,respectively,   and   .Further,the wage rate is   and the rental rate of capital is   .Suppose that the firm wants to produce 27,000 units of output in the most efficient way possible.How much does the firm spend?

Accepted Answer

A)  $600 
B)  $900 
C)  $1,500 
D)  $2,100 
A)  $600 
B)  $900 
C)  $1,500 
D)  $2,100

Question 13

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.What is the long run cost minimizing level of capital that the firm must use to produce a target level of output,Q = 1000?

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 14

Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital.If the price of capital is $4 per unit and the price of labor is $1 per unit,the firm should

Accepted Answer

A)  employ capital only. 
B)  employ labor only. 
C)  use three times as much capital as labor. 
D)  use three times as much labor as capital. 
A)  employ capital only. 
B)  employ labor only. 
C)  use three times as much capital as labor. 
D)  use three times as much labor as capital.

Question 15

Suppose that a firm has a Cobb-Douglas production function for its inputs of capital and labor.The firm is currently paying $10 per labor hour and $5 per machine hour.The firm is currently at an efficient production level,employing an equal number of machines and workers.Suppose the cost of labor were to double and the cost of capital were to fall by half.If the firm wanted to produce the previous level of output for the previous cost,the firm would hire

Accepted Answer

A)  more labor and less capital. 
B)  less labor and more capital. 
C)  equal amounts of labor and capital. 
D)  twice as much labor as capital. 
A)  more labor and less capital. 
B)  less labor and more capital. 
C)  equal amounts of labor and capital. 
D)  twice as much labor as capital.

Question 16

Suppose capital and labor are perfect complements for a particular production process.If the price of labor increases,holding the price of capital and the level of output constant,the firm should

Accepted Answer

A)  use more capital and less labor. 
B)  use more labor and less capital. 
C)  use the same amounts of capital and labor. 
D)  eliminate all use of labor. 
A)  use more capital and less labor. 
B)  use more labor and less capital. 
C)  use the same amounts of capital and labor. 
D)  eliminate all use of labor.

Question 17

Suppose that capital and labor are perfect complements in a one-to-one ratio in a firm's production function.The firm is currently at an efficient production level,employing an equal number of machines and workers.Suppose the cost of labor were to double and the cost of capital were to fall by half.If the firm wanted to produce the previous level of output,the firm would hire

Accepted Answer

A)  more labor and less capital. 
B)  less labor and more capital. 
C)  the same amounts of labor and capital. 
D)  twice as much labor as capital. 
A)  more labor and less capital. 
B)  less labor and more capital. 
C)  the same amounts of labor and capital. 
D)  twice as much labor as capital.

Question 18

When the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,the slope of the isocost line is (assuming   is the price of labor and   is the price of capital and production uses only these two inputs)

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

A firm's production function is given by   .The marginal products of labor and capital are,respectively,   and   .Further,the wage rate is   and the rental rate of capital is   .Suppose that the firm spends exactly $1200 in the most efficient way possible.How much output can the firm produce?

Accepted Answer

A)  50,000 
B)  56,406.25 
C)  60,750 
D)  64,000 
A)  50,000 
B)  56,406.25 
C)  60,750 
D)  64,000

Question 20

A firm has a Cobb-Douglas production function for its inputs of capital and labor.The firm is currently paying $10 per labor hour and $5 per machine hour.The firm is currently at an efficient production level,employing an equal number of machines and workers.What can we infer about the marginal productivities of capital and labor at this point?

Accepted Answer

A)  MPK = MPL 
B)  MPK = 2MPL 
C)  MPL = 2MPK 
D)  MPL = .5MPK 
A)  MPK = MPL 
B)  MPK = 2MPL 
C)  MPL = 2MPK 
D)  MPL = .5MPK

A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's

The expansion path graphs

A difference between the short run and the long run is that a firm in the short run

In order to solve graphically for an interior cost minimum of the firm,subject to the constraint of producing a particular target level of output,we

The cost-minimization problem of the firm is to

An input demand curve represents

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .What is the most efficient combination of labor and capital that also results in a total cost level of exactly $1,200?

When isocost lines shift outward from the origin,it represents

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .Suppose that the firm wants to produce 27,000 units of output in the most efficient way possible.How much does the firm spend?

Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital.If the price of capital is $4 per unit and the price of labor is $1 per unit,the firm should

Suppose capital and labor are perfect complements for a particular production process.If the price of labor increases,holding the price of capital and the level of output constant,the firm should

When the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,the slope of the isocost line is (assuming is the price of labor and is the price of capital and production uses only these two inputs)

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .Suppose that the firm spends exactly $1200 in the most efficient way possible.How much output can the firm produce?

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

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Exam 7: Costs and Cost Minimization

A curve that shows how the firm's cost-minimizing quantity of capital varies with the price of capital is the firm's

The expansion path graphs

A difference between the short run and the long run is that a firm in the short run

In order to solve graphically for an interior cost minimum of the firm,subject to the constraint of producing a particular target level of output,we

The cost-minimization problem of the firm is to

An input demand curve represents

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .What is the most efficient combination of labor and capital that also results in a total cost level of exactly $1,200?

When isocost lines shift outward from the origin,it represents

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .Suppose that the firm wants to produce 27,000 units of output in the most efficient way possible.How much does the firm spend?

Suppose in a particular production process that capital and labor are perfect substitutes so that three units of labor are equivalent to one unit of capital.If the price of capital is $4 per unit and the price of labor is $1 per unit,the firm should

Suppose capital and labor are perfect complements for a particular production process.If the price of labor increases,holding the price of capital and the level of output constant,the firm should

When the level of capital is plotted on the vertical axis and the level of labor is plotted on the horizontal axis,the slope of the isocost line is (assuming is the price of labor and is the price of capital and production uses only these two inputs)

A firm's production function is given by .The marginal products of labor and capital are,respectively, and .Further,the wage rate is and the rental rate of capital is .Suppose that the firm spends exactly $1200 in the most efficient way possible.How much output can the firm produce?

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