1.
Farmer Jones bought his farm for $75,000 in 1980 and wants to sell it. Today (2014) the farm is worth $500,000, and the interest rate is 10 percent. ABC Corporation has offered to buy the farm today for $510,000 and XYZ Corporation has offered to buy the farm for $540,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all of his expenses) if he farms the land this year. What should he do?
A.
B.
Farm the land for another year and sell to XYZ Corporation
C.
Accept either offer as they are equivalent.
D.
E.
2.
The difference between the economic and accounting costs of a firm are:
A.
B.
The corporate taxes on profits
C.
The opportunity costs of the factors of production that the firm owns
D.
He sunk costs incurred by the firm
E.
The explicit costs of the firm
3.
Scenario 1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produce.
Refer to Scenario 1. The total cost to produce 50 cookies is:
4.
Scenario 1:
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced
Refer to Scenario 1. For 100 cookies, the average total cost is:
A.
B.
C.
Neither rising nor falling
D.
Less than average fixed cost
5.
For any given level of output:
A.
Marginal cost must be greater than average cost.
B.
Average variable cost must be greater than average fixed cost.
C.
Average fixed cost must be greater than average variable cost
D.
Fixed cost must be greater than variable cost.
E.
None of the above is necessarily correct.
6.
Consider the following statements when answering this question
I). Whenever a firm's average variable costs are falling as output rises, marginal costs must be falling too.
II). Whenever a firm's average total costs are rising as output rises, average variable costs must be rising too.
A.
I is true, and II is false.
B.
I is false, and II is true
C.
D.
7.
Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be:
8.
Which of the following is NOT an expression for the cost minimizing combination of inputs?
9.
The total cost of producing a given level of output is
A.
Maximized when a corner solution exists.
B.
Minimized when the ratio of marginal product to input price is equal for all inputs.
C.
Minimized when the marginal products of all inputs are equal.
D.
Minimized when marginal product multiplied by input price is equal for all inputs.
10.
At the optimum combination of two inputs:
A.
The slopes of the isoquant and isocost curves are equal.
B.
Costs are minimized for the production of a given output
C.
The marginal rate of technical substitution equals the ratio of input prices.
D.
E.
11.
Suppose that the price of labor ( ) is $10 and the price of capital ( ) is $20. What is the equation of the isocost line corresponding to a total cost of $100?
12.
A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm:
A.
Is producing its current output level at the minimum cost.
B.
Could reduce the cost of producing its current output level by employing more capital and less labor.
C.
Could reduce the cost of producing its current output level by employing more labor and less capital.
D.
Could increase its output at no extra cost by employing more capital and less labor.
E.
Both (b) and (d) are true.
13.
Consider the following statements when answering this question
I). If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too.
II). If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises.
A.
I is true, and II is false.
B.
I is false, and II is true.
C.
D.
14.
Scenario 2: The production function for earthquake detectors (Q) is given as follows:
Q = 4K^{1/2}L^{1/2}, where K is the amount of capital employed and L is the amount of labor employed. The price of capital, P_{K}, is $18 and the price of labor, P_{L}, is $2.
Refer to Scenario 2. Suppose that you receive an order for 60 earthquake detectors. How much labor will you use to minimize the cost of 60 earthquake detectors?
15.
Scenario 2: The production function for earthquake detectors (Q) is given as follows:
Q = 4K^{1/2}L^{1/2}, where K is the amount of capital employed and L is the amount of labor employed. The price of capital, P_{K}, is $18 and the price of labor, P_{L}, is $2
Refer to Scenario 2. Suppose that in order to produce Q=48 detectors 16 units of labor and 9 units of capital were being used. What is marginal rate of technical substitution of labor for capital, MRTSLK, when 9 units of capital and 16 units of labor were employed ?
16.
A firm's short-run average cost curve is U‑shaped. Which of these conclusions can be reached regarding the firm's returns to scale?
A.
The firm experiences increasing, constant, and decreasing returns to scale in that order.
B.
The firm experiences first decreasing, then increasing returns to scale.
C.
The short-run average cost curve reveals nothing regarding returns to scale.
D.
The firm experiences decreasing returns to scale.
E.
The firm experiences increasing returns to scale.
17.
Output for a simple production process is given by Q = 2KL, where K denotes capital, and L denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run. The price of labor is $5 per unit. What is the total cost of producing 80 units of output?
18.
Suppose that the production function can be written as Q = K^{0.6} L^{0.3}. In the long run,
A.
LRAC is negatively sloped for all levels of output.
B.
The firm hires twice as much capital as labor.
C.
LRAC is positively sloped for all levels of output.
D.
The marginal product of capital is twice the marginal product of labor.
E.
19.
A firm's short-run marginal cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale?
A.
The firm experiences increasing returns to scale.
B.
The firm experiences increasing, constant, and decreasing returns in that order.
C.
The firm experiences first decreasing, then increasing returns to scale.
D.
The short-run marginal cost curve reveals nothing regarding returns to scale.
20.
Refer to the above diagram. At output level Q total variable cost is:
21.
Refer to the above diagram. At output level Q total fixed cost is:
22.
Refer to the above diagram. At output level Q total cost is:
23.
Refer to the above diagram. At output level Q average fixed cost:
A.
B.
C.
Is measured by both QF and ED.
D.
Cannot be determined from the information given.
24.
Refer to the above diagram. At output level Q:
A.
Marginal product is falling.
B.
Marginal product is rising.
C.
Marginal product is negative
D.
One cannot determine whether marginal product is falling or rising.
25.
Refer to the above diagram. The vertical distance between ATC and AVC reflects:
A.
The law of diminishing returns.
B.
The average fixed cost at each level of output.
C.
Marginal cost at each level of output.
D.
The presence of economies of scale.
E.