30 Questions
| Attempts: 337

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Questions and Answers

- 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.
Sell to ABC Corporation

- B.
Farm the land for another year and sell to XYZ Corporation

- C.
Accept either offer as they are equivalent.

- D.
Reject both offers.

- E.
None of these

- 2.The difference between the economic and accounting costs of a firm are:
- A.
The accountant's fees

- 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.
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:__Scenario 1:__- A.
$20

- B.
$25

- C.
$50

- D.
$60

- E.
Indeterminate

- 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.
Falling

- B.
Rising

- 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.
I and II are both true.

- D.
I and II are both false.

- 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:
- A.
500

- B.
25/500

- C.
-0.8

- D.
-0.5

- E.
25/20 or 1/4

- 8.Which of the following is NOT an expression for the cost minimizing combination of inputs?
- A.
MRTS = MPL /MPK

- B.
MPL/w = MPK/r

- C.
MRTS = w/r.

- D.
MPL/MPK = w/r

- E.
None of these.

- 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.
All of the above.

- E.
(a) and (c) only.

- 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?
- A.
PL + 20PK

- B.
100 = 10L + 20K

- C.
100 = 30(L+K)

- D.
100 + 30 (PL + PK)

- E.
None of the above

- 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.
I and II are both true.

- D.
I and II are both false.

- 14.
The production function for earthquake detectors (Q) is given as follows: Q = 4K__Scenario 2:__^{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?- A.
1

- B.
5

- C.
10

- D.
45

- E.
None of the above

- 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 ?- A.
1.78

- B.
0.5625

- C.
6.0

- D.
0.2222

- E.
None of the above

- 16.A firm's short-run average cost curve is Uâ€‘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?
- A.
$525

- B.
$200

- C.
$225

- D.
$25

- E.
None of the above

- 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.
None of the above.

- 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:- A.
0BEQ

- B.
BCDE

- C.
0CDQ

- D.
0AFQ

- 21.Refer to the above diagram. At output level
*Q*total fixed cost is:- A.
0BEQ

- B.
BCDE

- C.
0BEQ-0AFQ

- D.
0CDQ

- 22.Refer to the above diagram. At output level
*Q*total cost is:- A.
0BEQ

- B.
BCDE

- C.
0BEQ plus BCDE

- D.
0AFQ plus BCDE

- 23.Refer to the above diagram. At output level
*Q*average fixed cost:- A.
Is equal to EF.

- B.
Is equal to QE.

- 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.
None of the above.

ABM 311 Intermediate Microeconomics Theory Preliminary Examination
ABM 311 Intermediate Microeconomics Theory Preliminary Examination

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