Midterm II Practice Test

A toxic work environment lowers the productivity of all workers. What happens to the average costs?
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A toxic work environment lowers the productivity of all workers. What happens to the average costs?
Average cost increases.
A firm with only fixed costs will have which of the following average cost relationships? As production increases, average total cost will:
decrease
If marginal productivity of labor is falling, by hiring another unit of labor (all else held the same) we know that:
Marginal cost must be rising.
Frank's Fajitas can produce 45 fajitas per hour with five workers and one grill. One more worker will increase output by 6 fajitas per hour. If one more worker is hired, the average variable cost of production at Frank's Fajitas will:
Increase
A change in technology that (once implemented) makes each unit of labor more productive is likely to ______________ the marginal cost of production at each level of output (assuming all wages remain the same).
Decrease
A firm has a fixed rent cost of $1,000 each month. They spend $2,000 on labor and produce 100 units. If the rent goes up to $1200, how much is the change in the average variable cost?
0
A firm produces 100 units with 10 people and 121 units with 11 people. The average product of the 11th person is ______ units.
11
If the marginal productivity of labor is rising at a certain level of output (while all other inputs remain unchanged), marginal cost must be:
Falling at that level of output.
The law of diminishing marginal returns means that when one uses more and more of an input:
Output will eventually increase at a decreasing rate.
Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 400. The cost of capital is r = 80, and the wage rate is w = 10. The firm would use more labor to expand production only if the marginal product of labor is greater than _____.
50
If a market has small firms and no large firms, what is most likely true about the market?It has diseconomies of scale beginning at low levels of output.Diminishing returns occurs when:Both A and B.A pool-cleaning firm employs cleaning machines and cleaning workers. If local wages fall and robots become more effective, the firm should employ:One cannot tell.Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 500. The cost of capital is r = 50, and the wage rate is w = 20. The firm would use more labor to expand production only if the marginal product of labor is greater than _____.200In a market with firms experiencing economies of scale, we will likely see which of the following?Most of the firms will tend to be large.Which of the following set of characteristics applies to a firm in a perfectly competitive market?Many firms with identical products and no control over the market price.Consider a market where competitive producers are making trucks and SUVs with basically the same resources. The demand for trucks decreases. What is likely to happen in the market for SUVs?The equilibrium quantity will increase; the equilibrium price will decrease.A firm producing where price equals marginal cost that has variable costs equaling $60 million; fixed costs equaling $40 million; and revenues equaling $50 million should:shut down now and leave the industry in the long run.The perfectly competitive market price of bananas is $0.79 per pound. Marcy sells 100 pounds of bananas. Her total revenue for selling bananas is __________. Her marginal revenue for selling the 100th pound of bananas is __________.$79.00; $0.79In the long run, a perfectly competitive firm maximizing profit will produce where:average cost is at a minimum.In the short run, a perfectly competitive firm that is maximizing profits will produce where,price is equal to marginal cost.If the average cost is always increasing, which of the following must be true?Marginal cost is above the average cosst.In the long run, if a firm is operating with diseconomies of scale, it is on the _______ portion of its LRAC.upward-slopingConsider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPL = 60. The cost of capital is r = 100, and the wage rate is w = 10. The firm would use more capital to expand production only if the marginal product of capital is greater than _____.600Given the following data, what should the firm do?Current production = 1,000Current price = $10Marginal cost = $10Total costs = $15,000Fixed cost = $6,000Continue to produce in the short run, but close down in the long run.A firm's marginal product will be at a maximum at which of the following levels of output?less than the quantity where average cost is a minimum.If the rent on factory space (a fixed input) increases, at all levels of output: (Hint: a change in fixed costs will influence total costs but not variable or marginal costs.)Total costs will increase, average total costs will increase, average variable costs will remain the same, and marginal costs will remain the same in the short run.To make a decision about introducing a new product, what is the relevant cost? $10 million has been spent to date on research and development. The results of the research and development can be sold to another company for $12 million. Additional labor and other costs necessary to complete the project equal $7 million. Remember sunk costs.$19 millionA Norwegian salmon fish farm employs 5 automatic fish feeding machines and 2 fish feeding specialist workers. The machines can each feed 300 fish per hour at a cost of $20 per hour, and the workers can each feed 150 fish per hour at a cost of $10 per hour. The fish farm should:Preserve the existing proportion of machines to workers.Average cost is defined as:Total cost divided by quantity produced.An economy is on its production possibilities frontier. If the economy faces diminishing marginal returns, what will happen to the opportunity cost as the production of one of the categories of goods increases?The opportunity cost will increase as it takes more to produce the good.