Question 1

If the price of flour (P₂) decreased to $1/lb, draw a graph to show how the equilibrium will change, if expenditure is constant. Will the bakery purchase more or less flour? Will the bakery purchase more or less sugar? Explain why.

Accepted Answer

If the price of flour decreases to $1/lb, the equilibrium in the market will change. Assuming that the expenditure on flour is constant, the bakery will now be able to purchase more flour for the same amount of money. This means that the quantity of flour demanded by the bakery will increase, leading to a rightward shift in the demand curve for flour.

As for sugar, the decrease in the price of flour may also impact the demand for sugar. Since flour and sugar are often used together in baking, the decrease in the price of flour may lead the bakery to purchase more flour and subsequently increase their production of baked goods. This increase in production may also lead to an increase in the demand for sugar, as more sugar will be needed to maintain the same ratio of ingredients in the baked goods.

Therefore, the bakery will likely purchase more flour and more sugar as a result of the decrease in the price of flour. This is because the decrease in the price of flour has made it more affordable for the bakery to purchase, leading to an increase in the quantity demanded.

Question 2

An isoquant shape is derived from:

Accepted Answer

A)   the Law of Diminishing Marginal Returns
B)   scarcity
C)   profit-maximization
D)   decisions on which inputs to buy A

Question 3

Perfect substitutes in production have:

Accepted Answer

A)   straight-line isoquants
B)   L-shaped isoquants
C)   curved isoquants
D)   substitutes in production do not have isoquants A

Question 4

Draw an isoquant in the graph above, and show an equilibrium point.

Accepted Answer

The answer of Draw an isoquant in the graph above,...

Question 5

Two isoquants can never:

Accepted Answer

A)   intersect
B)   be L-shaped
C)   be positive
D)   be negative

Question 6

Sugar (=X₁, in oz) and flour (=X₂, in lbs) are used to produce bread (loaves). The price of sugar is P₁=$5/oz, and the price of flour is P₂=$2/lb. Expenditures for this bakery are equal to $100. Graph the isocost line for this bakery.

Accepted Answer

The answer of Sugar (=X₁, in oz) and flour (=X₂,...

Question 7

Coke and Pepsi will purchase sucrose or fructose based on:

Accepted Answer

A)   sales revenue
B)   relative prices
C)   technology of soft drink production
D)   the PPF

Question 8

Nuts and bolts are:

Accepted Answer

A)   complements in production
B)   substitutes in production
C)   neither complements nor substitutes in production
D)   either complements and substitutes in production, depending on the situation

Question 9

If the price of the input on the horizontal axis (X1) increases, then

Accepted Answer

A)   the slope of the isocost line will become steeper
B)   the slope of the isocost line will become less steep
C)   the slope of the isoquant will become steeper
D)   the slope of the isoquant will become less steep

Question 10

Most inputs in production processes can be:

Accepted Answer

A)   substituted for each other, but not perfectly
B)   substituted for each other, perfectly
C)   not substituted for each other
D)   not enough information to know

Question 11

A business firm will choose which outputs to produce based on:

Accepted Answer

A)   relative prices
B)   absolute prices
C)   utility maximization
D)   not enough information to answer

Question 12

The isocost line:

Accepted Answer

A)   is another name for an isoquant
B)   has the same slope as the isoquant at all points
C)   has the same slope as the isoquant in equilibrium
D)   has a slope of MRTS

Question 13

Perfect complements are:

Accepted Answer

A)   used together in production
B)   used either/or in production
C)   not used in production
D)   nice things to say to another person

Question 14

Perfect substitutes:

Accepted Answer

A)   do not exist in the real world
B)   are used together
C)   are used separately, one or the other
D)   not enough information to answer

Question 15

An isoquant is:

Accepted Answer

A)   all combinations of two inputs that produce the same level of output
B)   all combinations of two outputs that produce the same level of input
C)   all combinations of two inputs that can be purchased at the same cost
D)   all combinations of two outputs that can be produced with fixed inputs

Question 16

MRTS is equal to:

Accepted Answer

A)   ΔX2/ΔX1
B)   Δ1/ΔX2
C)   ΔY/ΔX
D)   ΔX/ΔY

Question 17

Define and explain MRTS carefully.

Accepted Answer

The answer of Define and explain MRTS carefully....

Question 18

In sub-Saharan Africa, the choice of labor over machines is due to:

Accepted Answer

A)   low income levels
B)   relative prices
C)   lack of technical knowledge
D)   political factors beyond the ability of farmers to change

Question 19

Labor and agrochemicals are:

Accepted Answer

A)   complements in production
B)   substitutes in production
C)   neither complements nor substitutes in production
D)   both complements and substitutes in production

Question 20

Equilibrium is:

Accepted Answer

A)   ceteris paribus
B)   sanity; balance
C)   a point where there is no tendency to change
D)   does not change when relative prices change

Exam 5: Optimal Input Selection

If the price of flour (P₂) decreased to $1/lb, draw a graph to show how the equilibrium will change, if expenditure is constant. Will the bakery purchase more or less flour? Will the bakery purchase more or less sugar? Explain why.

An isoquant shape is derived from:

Perfect substitutes in production have:

Draw an isoquant in the graph above, and show an equilibrium point.

Two isoquants can never:

Sugar (=X₁, in oz) and flour (=X₂, in lbs) are used to produce bread (loaves). The price of sugar is P₁=$5/oz, and the price of flour is P₂=$2/lb. Expenditures for this bakery are equal to $100. Graph the isocost line for this bakery.

Coke and Pepsi will purchase sucrose or fructose based on:

Nuts and bolts are:

If the price of the input on the horizontal axis (X₁) increases, then

Most inputs in production processes can be:

A business firm will choose which outputs to produce based on:

The isocost line:

Perfect complements are:

Perfect substitutes:

An isoquant is:

MRTS is equal to:

Define and explain MRTS carefully.

In sub-Saharan Africa, the choice of labor over machines is due to:

Labor and agrochemicals are:

Equilibrium is:

Exam 5: Optimal Input Selection

If the price of flour (P2) decreased to $1/lb, draw a graph to show how the equilibrium will change, if expenditure is constant. Will the bakery purchase more or less flour? Will the bakery purchase more or less sugar? Explain why.

An isoquant shape is derived from:

Perfect substitutes in production have:

Draw an isoquant in the graph above, and show an equilibrium point.

Two isoquants can never:

Sugar (=X1, in oz) and flour (=X2, in lbs) are used to produce bread (loaves). The price of sugar is P1=$5/oz, and the price of flour is P2=$2/lb. Expenditures for this bakery are equal to $100. Graph the isocost line for this bakery.

Coke and Pepsi will purchase sucrose or fructose based on:

Nuts and bolts are:

If the price of the input on the horizontal axis (X1) increases, then

Most inputs in production processes can be:

A business firm will choose which outputs to produce based on:

The isocost line:

Perfect complements are:

Perfect substitutes:

An isoquant is:

MRTS is equal to:

Define and explain MRTS carefully.

In sub-Saharan Africa, the choice of labor over machines is due to:

Labor and agrochemicals are:

Equilibrium is:

If the price of flour (P₂) decreased to $1/lb, draw a graph to show how the equilibrium will change, if expenditure is constant. Will the bakery purchase more or less flour? Will the bakery purchase more or less sugar? Explain why.

Sugar (=X₁, in oz) and flour (=X₂, in lbs) are used to produce bread (loaves). The price of sugar is P₁=$5/oz, and the price of flour is P₂=$2/lb. Expenditures for this bakery are equal to $100. Graph the isocost line for this bakery.

If the price of the input on the horizontal axis (X₁) increases, then