Do You Have Enough Knowledge On Microeconomics To Pass This Quiz?

30 Questions | Total Attempts: 90

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Do You Have Enough Knowledge On Microeconomics To Pass This Quiz?

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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. 
    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:
    • 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. 
    • 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. 
    • 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. 

      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. 
    Scenario 2:    The production function for earthquake detectors (Q) is given as follows: Q = 4K1/2L1/2, where K is the amount of capital employed and L is the amount of labor employed.  The price of capital, PK, is $18 and the price of labor, PL, 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 = 4K1/2L1/2, where K is the amount of capital employed and L is the amount of labor employed.  The price of capital, PK, is $18 and the price of labor, PL, is $2. Refer to Scenario 2. Suppose that you receive an order for 80 earthquake detectors. How much capital will you use to minimize the cost of 80 earthquake detectors?
    • A. 

      20/3

    • B. 

      5

    • C. 

      2/3

    • D. 

      80/18

    • E. 

      None of the above

  • 16. 
    Scenario 2: The production function for earthquake detectors (Q) is given as follows: Q = 4K1/2L1/2, where K is the amount of capital employed and L is the amount of labor employed. The price of capital, PK, is $18 and the price of labor, PL, 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

  • 17. 
    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.

  • 18. 
    • A. 

      $525

    • B. 

      $200

    • C. 

      $225

    • D. 

      $25

    • E. 

      None of the above

  • 19. 
    Suppose that the production function can be written as Q = K0.6 L0.3. 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.

  • 20. 
    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.

  • 21. 
    Refer to the above diagram. At output level Q total variable cost is:         
    • A. 

      0BEQ

    • B. 

      BCDE

    • C. 

      0CDQ

    • D. 

      0AFQ

  • 22. 
    Refer to the above diagram. At output level Q total fixed cost is:
    • A. 

      0BEQ

    • B. 

      BCDE

    • C. 

      0BEQ-0AFQ

    • D. 

      0CDQ

  • 23. 
    Refer to the above diagram. At output level Q total cost is:
    • A. 

      0BEQ

    • B. 

      BCDE

    • C. 

      0BEQ plus BCDE

    • D. 

      0AFQ plus BCDE

  • 24. 
    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.

  • 25. 
    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.