Question 1

If a profit-maximizing competitive firm has constant returns to scale, then its long-run profits must be zero.

Accepted Answer

A) True 
 B)False

Question 2

The production function is given by F(L)= 6L2/3.Suppose that the cost per unit of labor is $16 and the price of output is $16.How many units of labor will the firm hire?

Accepted Answer

A) 192 
B) 64 
C) 32 
D) 128 
E) None of the above. 
A) 192 
B) 64 
C) 32 
D) 128 
E) None of the above.

Question 3

The production function is given by f(x)=4x1/2.If the price of the commodity produced is $80 per unit and the cost of the input is $40 per unit, how much profits will the firm make if it maximizes profits?

Accepted Answer

A) $318 
B) $1,284 
C) $640 
D) $625 
E) $323 
A) $318 
B) $1,284 
C) $640 
D) $625 
E) $323

Question 4

The marginal product of a factor is just the derivative of the production function with respect to the amount of this factor, holding the amounts of other factor inputs constant.

Accepted Answer

A) True 
 B)False

Question 5

Jiffy-Pol Consultants is paid $1,000,000 for each percentage of the vote that Senator Sleaze receives in the upcoming election.Sleaze's share of the vote is determined by the number of slanderous campaign ads run by Jiffy-Pol according to the function S = 100N/(N + 1), where N is the number of ads.If each ad costs $4,900 approximately how many ads should Jiffy-Pol buy in order to maximize its profits?

Accepted Answer

A) 2,853 
B) 1,428 
C) 98 
D) 1,477 
E) 714 
A) 2,853 
B) 1,428 
C) 98 
D) 1,477 
E) 714

Question 6

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20.Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

Accepted Answer

A) leave prices unchanged. 
B) need more-detailed market information before making any pricing changes. 
C) decrease prices. 
D) increase prices. 
E) diversify into selling Karen Carpenter LPs. 
A) leave prices unchanged. 
B) need more-detailed market information before making any pricing changes. 
C) decrease prices. 
D) increase prices. 
E) diversify into selling Karen Carpenter LPs.

Question 7

If the value of the marginal product of factor x increases as the quantity of x increases and the value of the marginal product of x is equal to the wage rate, then the profit-maximizing amount of x is being used.

Accepted Answer

A) True 
 B)False

Question 8

If the short-run marginal costs of producing a good are $40 for the first 200 units and $50 for each additional unit beyond 200, then in the short run, if the market price of output is $46, a profit-maximizing firm will

Accepted Answer

A) produce a level of output where marginal revenue equals marginal costs. 
B) produce as much output as possible since there are constant returns to scale. 
C) produce up to the point where average costs equal $46. 
D) not produce at all, since marginal costs are increasing. 
E) produce exactly 200 units. 
A) produce a level of output where marginal revenue equals marginal costs. 
B) produce as much output as possible since there are constant returns to scale. 
C) produce up to the point where average costs equal $46. 
D) not produce at all, since marginal costs are increasing. 
E) produce exactly 200 units.

Question 9

The weak axiom of profit-maximizing behavior states that in a modern mixed economy, firms have only a weak incentive to maximize profits.

Accepted Answer

A) True 
 B)False

Question 10

Diesel Dan is a contract truck driver.While his revenue is $1.50 per mile driven, the faster he drives, the greater the risk of a speeding ticket.The cost of driving his truck 1 hour at a speed of S miles per hour is C(S)= eS - (60/4).To maximize his profit, Dan should drive

Accepted Answer

A) 60.41 miles per hour. 
B) 61.62 miles per hour. 
C) 67.17 miles per hour. 
D) 60 miles per hour. 
E) 72.71 miles per hour. 
A) 60.41 miles per hour. 
B) 61.62 miles per hour. 
C) 67.17 miles per hour. 
D) 60 miles per hour. 
E) 72.71 miles per hour.

Question 11

A competitive firm uses a single input x to produce its output y.The firm's production function is given by y =x3/2 for quantities of x between 0 and 4.For quantities of a greater than 4, the firm's output is y = 4 + x.If the price of the output y is $1 and the price of the input x is $3, how much x should the firm use to maximize its profit?

Accepted Answer

A) 16/9 
B) 4 
C) 0 
D) 4/9 
E) 9/2 
A) 16/9 
B) 4 
C) 0 
D) 4/9 
E) 9/2

Question 12

The production function is f(x1, x2)= x1/21x1/22.If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

Accepted Answer

A) x1 = 1.50x2. 
B) x1 = x2. 
C) x1 = 15x2. 
D) x1 = 0.67x2. 
E) We can't tell without knowing the price of the output. 
A) x1 = 1.50x2. 
B) x1 = x2. 
C) x1 = 15x2. 
D) x1 = 0.67x2. 
E) We can't tell without knowing the price of the output.

Question 13

A competitive firm produces output using three fixed factors and one variable factor.The firm's short-run production function is q = 154x - 5x2, where x is the amount of variable factor used.The price of the output is $2 per unit and the price of the variable factor is $8 per unit.In the short run, how many units of x should the firm use?

Accepted Answer

A) 15 
B) 30 
C) 17 
D) 7 
E) None of the above. 
A) 15 
B) 30 
C) 17 
D) 7 
E) None of the above.

Exam 18: Profit Maximization-Part A

If a profit-maximizing competitive firm has constant returns to scale, then its long-run profits must be zero.

The production function is given by F(L)= 6L2/3.Suppose that the cost per unit of labor is $16 and the price of output is $16.How many units of labor will the firm hire?

The production function is given by f(x)=4x1/2.If the price of the commodity produced is $80 per unit and the cost of the input is $40 per unit, how much profits will the firm make if it maximizes profits?

The marginal product of a factor is just the derivative of the production function with respect to the amount of this factor, holding the amounts of other factor inputs constant.

During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.20.Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

If the value of the marginal product of factor x increases as the quantity of x increases and the value of the marginal product of x is equal to the wage rate, then the profit-maximizing amount of x is being used.

If the short-run marginal costs of producing a good are $40 for the first 200 units and $50 for each additional unit beyond 200, then in the short run, if the market price of output is $46, a profit-maximizing firm will

The weak axiom of profit-maximizing behavior states that in a modern mixed economy, firms have only a weak incentive to maximize profits.

Diesel Dan is a contract truck driver.While his revenue is $1.50 per mile driven, the faster he drives, the greater the risk of a speeding ticket.The cost of driving his truck 1 hour at a speed of S miles per hour is C(S)= eS - (60/4).To maximize his profit, Dan should drive

The production function is f(x1, x2)= x1/21x1/22.If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part A

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

The production function is given by F(L)= 6L^2/3.Suppose that the cost per unit of labor is $16 and the price of output is $16.How many units of labor will the firm hire?

The production function is given by f(x)=4x^1/2.If the price of the commodity produced is $80 per unit and the cost of the input is $40 per unit, how much profits will the firm make if it maximizes profits?

Diesel Dan is a contract truck driver.While his revenue is $1.50 per mile driven, the faster he drives, the greater the risk of a speeding ticket.The cost of driving his truck 1 hour at a speed of S miles per hour is C(S)= e^S^-^(60/4).To maximize his profit, Dan should drive

The production function is f(x₁, x₂)= x^1/2₁x^1/2₂.If the price of factor 1 is $10 and the price of factor 2 is $15, in what proportions should the firm use factors 1 and 2 if it wants to maximize profits?