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EC 308 Final
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Terms in this set (67)
In the long run
A. All inputs are fixed
B. Only capital inputs are fixed
C. All intermediate goods are fixed
D. All inputs are variable
D. All inputs are variable
The short run is defined as that period of time during which
A. One or more inputs cannot be freely varied
B. All inputs are variable
C. All inputs are fixed
D. Labor is counted as a fixed input
A. One or more inputs cannot be freely varied
If equal amounts of a variable input are sequentially added to the fixed input in a typical production function,
A. The increments to output will decrease first and then increase
B. The additions to output will be constant
C. Increments to output will increase indefinitely
D. Increments to output will first increase at an increasing rate and then at a decreasing rate
D. Increments to output will first increase at an increasing rate and then at a decreasing rate
The law of diminishing returns to an input says that if other inputs are fixed
A. output eventually will decrease with increases of the variable input
B. change in output will eventually decrease with increases in the variable input
C. revenue will eventually decrease with increases in the variable input.
D. the variable input will eventually decrease with more output
B. change in output will eventually decrease with increases in the variable input
The average product of a variable input
A. Decreases at an increasing rate
B. Constantly rises over the relevant range of production
C. Is the change in the total product that occurs when the variable input increases one unit
D. Is defined as the total product divided by the quantity of the variable input
D. Is defined as the total product divided by the quantity of the variable input
Geometrically, the marginal product
A. Is the slope of the line joining the origin to the corresponding point on the total product curve
B. At any point is the slope of the total product curve at that point
C. Is that point at which the total product curve exhibits diminishing returns
D. Is the slope of the average product curve
B. At any point is the slope of the total product curve at that point
In a short-run production function before diminishing returns set in,
A. Both MPL and APL will have positive slopes and MPL will lie above APL
B. Both MPL and APL will have positive slopes and APL will lie above MPL
C. Both MPL and APL will have negative slopes and MPL will lie above APL
D. Both MPL and APL will have negative slopes and APL will lie above MPL
A. Both MPL and APL will have positive slopes and MPL will lie above APL
Say you are the owner of a Pizza place. You know that when your produce 10 pizzas, the average product of each of your workers is 10, and the marginal product of your last worker is 15. From this information you know that:
A. the marginal product is increasing
B. the average product is increasing
C. the average product is decreasing
D. the marginal product is decreasing
B. the average product is increasing
When the marginal product curve lies below the average product curve,
A. The average product curve must be falling
B. The total product curve must be falling
C. The average product curve must be rising
D. The marginal product curve must be rising
A. The average product curve must be falling
The rate at which one input can be exchanged for another without altering output is called
A. The slope of the total product curve
B. The marginal rate of technical substitution
C. The slope of the marginal product of labor
D. The law of diminishing returns of labor
B. The marginal rate of technical substitution
Say you own a Mexican place that produces, among other things, Mexican burritos. Your production of burritos is given by the equation Q = 5K1/2L1/2, where Q is the amount of burritos, K is the amount of capital and L is the amount of labor. How many workers you would need to use in order to minimize the cost of producing 100 burritos when the capital is, K, is 100?
A. 1
B. 2
C. 4
D. 0
C. 4
A production function for which proportional changes in all inputs leads to a less-than- proportional change in output is said to exhibit
A. Diminishing returns
B. Decreasing returns to scale
C. Constant returns to scale
D. Increasing returns to scale
B. Decreasing returns to scale
For any constant returns production function, the isoquants for Q = 1, Q = 2, Q = 3, etc. will
A. All be inversely proportional to the inputs
B. Exhibit diminishing returns in the long run
C. Be straight lines
D. Be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.
D. Be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc.
Returns to scale refers to
A. What happens to output when at least one input is fixed and one is varied
B. What happens to output when all inputs are held fixed
C. What happens to output when all inputs are varied in some proportion
D. The law of diminishing returns
C. What happens to output when all inputs are varied in some proportion
On the next exam for this course you can study for a maximum of four hours. If you don't study at all you will get a score of 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in?
A. The first because the score was the lowest of the studying options
B. The second because your gain is less than the previous hour
C. The third because your score peaked there
D. The fourth because you had a drop in points in this hour
B. The second because your gain is less than the previous hour
(Appendix) Which of the following production functions exhibits decreasing returns to scale?
A. Q = K1/2Ll/2
B. Q = Kl/2L2/3
C. Q = Kl/4Ll/3
D. Q = K/L
C. Q = Kl/4Ll/3
Suppose that at a firm's current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be:
A. 5
B. 20
C. 10
D. It is not possible to say with the information given in the problem
B. 20
In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles. From this information we know that the production of bicycles exhibits:
A. Diminishing marginal returns
B. Decreasing returns to scale
C. Increasing returns to scale
D. Constant returns to scale
B. Decreasing returns to scale
The variable costs of producing an output, Q, of 200 would be equal to:
A. $70
B. $50
C. $100
D. $1,000
D. $1,000
The average fixed costs of producing an output, Q, of 200 would equal to:
A. $1
B. $20
C. $0.5
D. $200
A. $1
A firm that is trying to produce a given level of output Q0 at the lowest possible cost will
A. Select the input combination at which an isocost line is tangent to the Q0 isoquant
B. Select the input combination at which an isocost line is above the Q0 isoquant
C. Select the input combination at which an isocost line is below the Q0 isoquant
D. Choose to produce at a level where variable costs are less than or equal to fixed costs
A. Select the input combination at which an isocost line is tangent to the Q0 isoquant
When costs are at a minimum,
A. The ratio of the MPL/MPK < Price L/Price K
B. MPL= MPK
C. The extra output we get from the last dollar spent on an input must be the same for all inputs
D. Price L = Price K
C. The extra output we get from the last dollar spent on an input must be the same for all inputs
For a given firm, whenever the ratio of marginal product to input price differs across inputs,
A. The market will adjust the price of the higher priced input
B. It will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions)
C. It will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio
D. The market will adjust the price of the lower priced input
C. It will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio
In the short-run, total cost is broken down into two components:
A. Average cost and marginal cost
B. Average cost and fixed cost
C. Variable cost and marginal cost
D. Variable cost and fixed cost
D. Variable cost and fixed cost
Once we enter the region of diminishing returns,
A. Variable cost increases at a decreasing rate
B. Variable cost increases at an increasing rate
C. Variable cost decreases at a decreasing rate
D. Variable cost decreases at an increasing rate
B. Variable cost increases at an increasing rate
The vertical distance between the total variable cost and total cost curves
A. Is everywhere equal to zero
B. Is everywhere equal to marginal cost
C. Is everywhere equal to total fixed cost
D. Increases at a decreasing rate
C. Is everywhere equal to total fixed cost
The variable cost of zero units of output is equal to
A. Total cost
B. Total fixed cost
C. Zero
D. One
C. Zero
The slope of a ray from the origin to a point on the total cost curve is
A. The average fixed cost of producing the corresponding level of output
B. The average total cost of producing the corresponding level of output
C. The marginal cost of producing the corresponding level of output
D. The variable cost of producing the corresponding level of output
B. The average total cost of producing the corresponding level of output
Geometrically, marginal cost at any level of output may be interpreted as the slope of
A. A ray to the total cost curve at that level of output
B. The average variable cost curve at that level of output
C. The total cost curve at that level of output
D. The isoquant at that level of output
C. The total cost curve at that level of output
When marginal cost is less than average total cost ______ as output increases.
A. Average total cost must be increasing
B. Average variable cost must be decreasing
C. Average fixed cost must be increasing
D. Average total cost must be decreasing
D. Average total cost must be decreasing
Producing an additional unit whose marginal cost exceeds the average total cost incurred thus far has the effect of pulling the
A. Fixed cost up
B. Average cost up
C. Average cost down
D. Total cost down
B. Average cost up
Markets characterized by declining long-run average costs are often referred to as
A. Perfect competition
B. Diseconomies of scale
C. Natural monopolies
D. Nonprofit organizations
C. Natural monopolies
If the variable cost curve is a straight line then
A. The marginal cost curve will be U-shaped
B. The marginal cost curve may be U-shaped
C. The marginal cost curve will be horizontal
D. The marginal cost curve is upward sloping
C. The marginal cost curve will be horizontal
Let TC(Q) = 10 + Q; MC equals
A. 10
B. 1
C. 11
D. It cannot be determined from the information given
B. 1
Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be expressed as
A. 20 + 5Q
B. 20
C. 5Q
D. 5
C. 5Q
Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as
A. 6
B. 6Q
C. 0
D. It can not be determined with the information given
C. 0
With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is
A. Horizontal
B. A straight line
C. U-shaped
D. Zero
B. A straight line
Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output?
A. $40
B. $20
C. $10
D. It is impossible to say with the information given
B. $20
The minimum efficient scale of production is the level of production required for the
A. Long run average curve to reach its minimum
B. Variable cost curve to reach its minimum
C. Marginal cost curve to reach its minimum
D. Average cost curve to reach its minimum
A. Long run average curve to reach its minimum
If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for ATC
ATC=10Q2 -50Q+1000+500/Q
If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for MC
MC = 30Q2 - 100Q + 1000
If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for AFC
AFC = 500/Q
If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for AVC
AVC = 10Q2 - 50Q + 1000
Which of the following is not a condition for perfect competition?
A. Firms take prices as given
B. Firms sell a standardized product
C. Firms are protected by barriers to entry
D. Firms have perfect information
C. Firms are protected by barriers to entry
When the perfectly competitive firm maximizes profits the price of its product always equal
A. average revenue
B. marginal revenue
C. marginal costs
D. all the choices are correct
D. all the choices are correct
The demand curve facing a perfectly competitive firm is
A. Infinitely elastic
B. Perfectly inelastic
C. Downward sloping
D. Perfectly elastic
A. Infinitely elastic
Say a competitive firm is producing at point where ATC = $10, AVC = $2. If the firm charges $5 for its output, the in the short-run this firm should:
A. Shutdown production
B. Exit the industry
C. Continue to operate
D. Try to reduce its fixed costs
C. Continue to operate
The relationship between producer surplus and consumer surplus is.
A. Producer surplus is always greater
B. Consumer surplus is always greater
C. Producer and consumer surplus are always equal
D. Producer surplus may be greater, equal or less than consumer surplus
D. Producer surplus may be greater, equal or less than consumer surplus
If free entry and exit were not possible,
A. In the long run firms would lose money
B. In the long run firms would make money
C. In the long run firms would break even
D. It is impossible to tell what would happen without more cost and revenue information
D. It is impossible to tell what would happen without more cost and revenue information
Ceteris paribus, In the long run, a tax placed on a perfectly competitive industry will
A. Increase the price of the good by an amount equal to the tax
B. Increase the price of the good by an amount less than the tax
C. Be borne entirely by the firm
D. Be entirely borne by the consumer
A. Increase the price of the good by an amount equal to the tax
In the short run, a tax placed on a perfectly competitive industry should
A. Increase the total amount of the good sold
B. Decrease the total amount of the good sold
C. Not affect the total amount of the good sold
D. Always increase the price
B. Decrease the total amount of the good sold
You have a small business that makes $50,000 accounting and economic profit for you. As a disabled person, you must work at home and you did not have other opportunities until your neighbor offers you a job you like equally well for $50,000 and you can do it at home. This means
A. Your accounting profit has gone down and your economic profit has gone up
B. Your economic profit has gone down and your accounting profit has gone up
C. Both your accounting and economic profit have gone down
D. Both your accounting and economic profit have gone up
E. Your economic profit has gone down and your accounting profit has stayed the same
E. Your economic profit has gone down and your accounting profit has stayed the same
A firm is currently selling its product at $20 each. It estimates that its average total cost of production is $100 and its average fixed cost is $40. In the short run the firm should
A. Shutdown
B. Continue production at a point where P = MC
C. Hire more employees
D. Buy more capital
A. Shutdown
Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q.
What is the industry supply curve?
A. P = 500 + Q
B. P = 50 + 0.1Q
C. P = -500 + 10P
D. P = 50 + 10 Q
B. P = 50 + 0.1Q
Suppose an industry has 100 firms, each with supply curve P = 50 + 10Q. Furthermore, suppose the market demand curve is given by P = 200 - 0.9Q.
How many units of output will be produced by each firm operating in this market?
A. 1.5
B. 5
C. 0.70
D. It is impossible to answer with the information given
A. 1.5
The expansion of the car manufacturing industry causes an improvement in the assembly line, so reducing charges to each firm in that industry. This is an example of
A. Constant returns to scale
B. A decreasing-cost industry
C. A decreasing returns to scale
D. An increasing-cost industry
B. A decreasing-cost industry
Monopoly is characterized by
A. Many close substitutes
B. No barriers to entry
C. A downward sloping demand curve
D. A horizontal demand curve
C. A downward sloping demand curve
A natural monopoly always has
A. A downward sloping long run average cost curve
B. A downward sloping marginal cost curve
C. Its profit maximization point where price = marginal cost
D. Patent rights
A. A downward sloping long run average cost curve
The total revenue curve for a firm is given by TR = 2Q.
A. The firm is definitely a monopolist
B. The firm is definitely not a monopolist
C. The firm may be a monopolist or a perfectly competitive firm
D. One can not tell from the equation what market form applies
B. The firm is definitely not a monopolist
A monopolist has a marginal revenue curve given by MR = 102 - Q, and a total cost curve given by TC = Q2+ 16. The monopolist's profit maximizing price and quantity are ___, _____ respectively.
A. 85,34
B. 52,50
C. 100,2
D. 77,50
A. 85,34
The marginal revenue curve of a single price monopolist
A. Lies above the demand curve
B. Lies below the demand curve
C. Lies along the demand curve
D. Is a horizontal line
B. Lies below the demand curve
If the demand curve for a single price monopolist always is a downward sloping straight line, then marginal revenue
A. Will be a straight line with a negative slope of twice the demand curve slope
B. Will be a straight line with a negative slope of one-half the demand curve slope
C. Will be identical to the demand curve
D. Will be a horizontal line
A. Will be a straight line with a negative slope of twice the demand curve slope
The demand equation for a single price monopolist is P = 50 - Q. The marginal revenue equation for this monopolist is
A. 25 - Q
B. 50 - 2Q
C. 50 - Q
D. 100 - Q
B. 50 - 2Q
Say a monopolist knew that at the current price for its product demand is inelastic. If marginal costs for this firm are zero, then in order to maximize profits this monopolist should:
A. increase output
B. reduce output
C. keep output at the same level
D. decrease its price
B. reduce output
A profit maximizing monopolist faces the following information: P = $10, MR = $5, ATC = $6, MC = $5. The firm should
A. Shut down
B. Decrease output
C. Increase output
D. Stay at its current level of output
D. Stay at its current level of output
All of the following are true about a monopolist except:
A. Average and marginal revenues are not the same
B. Marginal revenue is greater than price
C. Marginal revenue decreases with increases in output
D. Marginal revenue can be negative
B. Marginal revenue is greater than price
If a monopolist had no costs, its best possible price would be where demand is
A. Infinitely elastic
B. Relatively (but not perfectly) elastic
C. Unit elastic
D. Relatively (but not completely) inelastic
C. Unit elastic
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