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

30 Questions | Total Attempts: 283  Settings  .

• 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.
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.
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 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 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?
• A.

\$525

• B.

\$200

• C.

\$225

• D.

\$25

• E.

None of the above

• 18.
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.

• 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.

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