Deck 7: Costs

Question 1

Suppose the production function for coffee (C)is C = min(B,W)where B = beans in pounds and W = water in gallons and the price of water is $.10 per gallon and the price of beans is $10 per pound.The expansion path

A) depends on the price of beans only.
B) depends on the price of water only
C) depends on the price of neither beans nor water.
D) depends of the costs of both beans and water.

Answer 1

C

Question 2

Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.The expansion path depends

A) on the price of corn based feed only.
B) on the price of soybean based feed only.
C) on neither the price of corn based or soybean based feed.
D) on whether the price of corn based feed is greater than or less than 2/5 the price of soybean based feed.

Answer 2

D

Question 3

The accountant's cost of producing a bicycle refers to

A) the out-of-pocket payments made to produce the bicycle.
B) the value of the goods that were given up to produce the bicycle.
C) the bicycle's retail price.
D) the marginal cost of the last bicycle produced.

Answer 3

A

Question 4

Suppose a cost function is TC = Aq³ + bq² + cq + d then the average total cost is

A) Aq² + bq + cq +d/q
B) Aq² + bq + c
C) Aq³ + bq² + cq
D) d

Question 5

Suppose a production function is q = K^1/2L^1/3 and in the short run capital (K)is fixed at 100.If the wage is $10 and the rental rate on capital is $20,the short run marginal cost is

A) 1000 + q³
B)
C) q³
D) 2q³

Question 6

Suppose a cost function is TC = Aq³ + bq² + cq + d then the total fixed cost is

A) Aq² + bq + cq +d/q
B) Aq² + bq + c
C) Aq³ + bq² + cq
D) d

Question 7

Suppose the production function for coffee (C)is C = min(B,W)where B = beans in pounds and W = water in gallons and the price of water is $.10 per gallon and the price of beans is $10 per pound.The expansion path is

A) B = 10W
B) B = .1W
C) B = W
D) -10 = B + W

Question 8

Suppose a production function is q = K^1/2L^1/3 and in the short run capital (K)is fixed at 100.If the wage is $10 and the rental rate on capital is $20,the short run production function is

A) q = 10L^1/3
B) q = 100L^1/3
C) q = L^1/3
D) q = 100

Question 9

Suppose a cost function is TC = Aq³ + bq² + cq + d then the average variable cost is

A) Aq² + bq + cq +d/q
B) Aq² + bq + c
C) Aq³ + bq² + cq
D) d

Question 10

Suppose a production function is q = K^1/2L^1/3 and in the short run capital (K)is fixed at 100.If the wage is $10 and the rental rate on capital is $20,the fixed cost is

A) $2,000
B) $200
C) $20,000
D) $0

Question 11

The opportunity cost of producing a bicycle refers to

A) the out-of-pocket payments made to produce the bicycle.
B) the value of the goods that were given up to produce the bicycle.
C) the bicycle's retail price.
D) the marginal cost of the last bicycle produced.

Question 12

Suppose MP_L = 40 and MP_K = 20 and the rental rate on capital is $10.If the level of production is currently efficient the wage rate must be

A) $10
B) $5
C) $20
D) $40

Question 13

Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.If the price of corn feed is $4 and corn feed is on the horizontal axis,and the price of soybean feed is $5 and soybean feed lies on the vertical axis,what is expansion path?

A) C = S
B) S = C
C) the horizontal axis
D) the vertical axis

Question 14

Suppose the production function for coffee (C)is C = min(B,W)where B = beans in pounds and W = water in gallons and the price of water is $.10 per gallon and the price of beans is $10 per pound.the cost minimizing combination of beans and water for C = 200 is

A) B = 200, W = 2000
B) B = 2000, W = 200
C) B = 100, W = 100
D) B = 200, W = 200

Question 15

Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.If the price of corn feed is $2 and the price of soybean feed is $6,what is the cost minimizing combination of producing P = 200?

A) C = 100
B) S = 40
C) C = 50, S = 20
D) All points on the isoquant would cost the same, Q = 200.

Question 16

Suppose that a lawn mowing services production function for lawns mowed in a week is M = (LK)^1/2 where L is labor hours and K is the amount of capital (mowers and trimmers).The expansion path depends on

A) the wage rate only.
B) the rental rate only.
C) both the wage and rental rates.
D) neither the wage nor rental rates.

Question 17

Suppose MP_L = 20 and MP_K = 40 and the rental rate on capital is $10.If the level of production is currently efficient the wage rate must be

A) $10
B) $5
C) $20
D) $40

Question 18

Suppose a production function is q = K^1/2L^1/3 and in the short run capital (K)is fixed at 100.If the wage is $10 and the rental rate on capital is $20,the short run average cost is

A) SAC =
B) SC = + 10q²
C) SC = 2000/q
D) SC = q²

Question 19

Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.If the price of corn feed is $2 and the price of soybean feed is $5,what is the cost minimizing combination of producing P = 100?

A) C = 50
B) S = 20
C) C = 25, S = 10
D) All points on the P = 100 isoquant, including those listed in a-c would cost the same.

Question 20

Suppose pigs (P)can be fed corn-based feed (C)or soybean-based feed (S)such that the production function is P = 2C + 5S.If the price of corn feed is $4 and the price of soybean feed is $5,what is the cost minimizing combination of producing P = 200?

A) C = 100
B) S = 40
C) C = 50, S = 20
D) C = 20, S = 50

Question 21

In the long run

A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed.
D) production levels never change.

Question 22

A firm's marginal cost curve

A) is always U-shaped.
B) always has a positive slope.
C) is always below its average cost curve.
D) always intersects its average cost curve at its minimum point.

Question 23

A firm's short-run average cost is defined as

A) the ratio of total output to short-run total cost.
B) the ratio of short-run total cost to total output.
C) the additional cost of producing one more unit of output while some input is fixed.
D) the additional cost of producing one more unit of output while all inputs are fixed.

Question 24

As long as marginal cost is below average cost,average cost will be

A) falling
B) rising.
C) constant.
D) changing in a direction that cannot be determined without more information.

Question 25

For any given output level,a firm's long-run costs

A) are always greater than or equal to its short-run costs.
B) are usually greater than or equal to its short-run costs except in the case of diminishing returns to scale.
C) are always less than or equal to its short-run costs.
D) are usually less than or equal to its short-run costs except in the case of diminishing returns to scale.

Question 26

The firm's expansion path records

A) profit-maximizing output choices for every possible price.
B) cost-minimizing input choices for all possible output levels for when input rental rates expand along with production.
C) cost-minimizing input choices for all possible output levels for a fixed set of input prices.
D) cost-minimizing input choices for profit-maximizing output levels.

Question 27

A firm's marginal cost is defined as

A) the ratio of total cost to total output.
B) the ratio of total output to total cost.
C) the additional cost of producing one more unit of output.
D) the reciprocal of total average cost.

Question 28

A linear total cost curve which passes through the origin implies that

A) average cost is constant and marginal cost is variable.
B) average cost is variable and marginal cost is constant.
C) average and marginal costs are constant and equal.
D) need more information to answer question.

Question 29

The shape of a firm's expansion path depends upon

A) the cost of labor input.
B) the cost of capital input.
C) the shape of the firm's production function.
D) all of these factors.

Question 30

For a constant returns to scale production function

A) marginal costs are constant but the average cost curve has a U-shape.
B) both average and marginal costs are constant.
C) marginal cost has a U-shape; average costs are constant.
D) both average and marginal cost curves are U-shaped.

Question 31

Technical progress will

A) shift a firm's production function and its related cost curves.
B) not affect the production function, but may shift cost curves.
C) shift a firm's production function and alter its marginal revenue curve.
D) shift a firm's production function and cause more capital (and less labor) to be hired.

Question 32

The expansion path for a constant returns to scale production function

A) is a straight line through the origin with a slope greater than one if w > v.
B) is a straight line through the origin with a slope less than one if w < v.
C) is a straight line through the origin though its slope cannot be determined by w and v alone.
D) has a positive slope but is not necessarily a straight line.

Question 33

In the short run

A) all inputs are fixed.
B) all inputs are variable.
C) some inputs are fixed.
D) no production occurs.

Question 34

Short-run total cost is the sum of

A) short-run fixed cost plus short-run variable cost, and short-run marginal costs.
B) short-run fixed cost and short-run marginal costs.
C) short-run variable cost and short-run costs.
D) short-run fixed cost and short-run variable cost.

Question 35

An increase in the wage rate will have a greater effect on average costs

A) the larger the proportion labor costs are of total costs and the easier it is to substitute capital for labor.
B) the larger the proportion labor costs are of total costs and the harder it is to substitute capital for labor.
C) the greater is the diminishing marginal product of labor.
D) the greater are returns to scale.

Question 36

A firm whose production function displays increasing returns to scale will have a total cost curve that is

A) a straight line through the origin.
B) a curve with a positive and continually decreasing slope.
C) a curve with a positive and continually increasing slope.
D) a curve with a negative and continually decreasing slope.

Question 37

In order to minimize the cost of a particular level of output,a firm should produce where

A) labor input equals capital input.
B) the RTS (of L for K) =
C) the RTS (of L for K)
D) the MRS =

Question 38

A firm's economic profits are given by

A) total revenue minus total accounting cost.
B) the owner's opportunity cost.
C) total revenue minus total economic cost.
D) total revenue minus the cost of capital.

Question 39

The shape of a firm's long-run average cost curve is determined by

A) the degree to which each input encounters diminishing marginal productivity.
B) the underlying nature of the firm's production function when all inputs are able to be varied.
C) how much the firm decides to produce.
D) the way in which the firm's expansion path reacts to changes in the rental rate on capital.