question
An investment will return $100, $25, or $-60 (a loss) with probabilities of 0.3, 0.25, and 0.45 respectively. The expected return from this investment is ______.
The variance of returns equals _______.
The standard deviation of returns equals ______.
The variance of returns equals _______.
The standard deviation of returns equals ______.
answer
$9.25
4,690.69
68.50
4,690.69
68.50
question
George has $6,000 to invest in a mutual fund. The expected return on mutual fund A is 15 percent and the expected return on mutual fund B is 10 percent. Should George pick mutual fund A or fund B?
answer
There is not enough information to make the determination because the decision also depends on the variability of the expected return and George's attitude toward risk.
question
A risk averse person
answer
has diminishing marginal utility for income.
question
Assume that two investment opportunities have identical expected values of $100,000. Investment A has a variance of 25,000, while investment B's variance is 10,000. We would expect most investors (who dislike risk) to prefer investment opportunity
answer
B because it has less risk.
question
Blanca would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information,
answer
we can infer that Blanca is risk averse.
question
The difference between the utility of expected income and expected utility from income is
answer
that expected utility from income is calculated by summing the utilities of possible incomes, weighted by their probability of occurring, and the utility of expected income is calculated by summing the possible incomes, weighted by their probability of occurring, and finding the utility of that figure.
question
Lakisha has a utility function for income given by U(I)= √(I). Lakisha is_____.
Lakisha is considering an investment that would give her an income of $10,000 with a probability of 0.35 or an income of $15,000 with a probability of 0.65. The expected utility of this investment is _______.
Lakisha is also considering a safe investment that returns a certain income of $12,000. Given her utility function, Lakisha would prefer the _____.
Lakisha is considering an investment that would give her an income of $10,000 with a probability of 0.35 or an income of $15,000 with a probability of 0.65. The expected utility of this investment is _______.
Lakisha is also considering a safe investment that returns a certain income of $12,000. Given her utility function, Lakisha would prefer the _____.
answer
Risk Averse
114.61
Investment with the uncertain income.
114.61
Investment with the uncertain income.
question
Suppose your utility function for income takes the form U(I) =√(I), and you are considering a self-employment opportunity that may pay $10,000 per year or $40,000 per year with equal probabilities. What certain income would provide the same satisfaction as the expected utility from the self-employed position?
answer
$22,500
question
An individual with a constant marginal utility of income will be
answer
Risk Neutral
question
Amos Long's marginal utility of income function is given as:
MU(I) = I^1.5,
where I represents income. From this, you would say that he is
MU(I) = I^1.5,
where I represents income. From this, you would say that he is
answer
Risk loving
question
A risk-averse individual prefers
answer
the utility of expected income of a risky gamble to the expected utility of income of the same risky gamble.
question
Any risk-averse individual would always
answer
take a sure $10 rather than a 10% chance at $100.
question
Other things equal, expected income can be used as a direct measure of well-being
answer
if and only if individuals are risk neutral.
question
One reason individuals are willing to pay for information in uncertain situations is that information
answer
can reduce uncertainty.
question
We may not be able to fully remove risk by diversification if
answer
the asset returns in our portfolio are positively correlated.
question
How does the diversification of an investor's portfolio avoid risk?
answer
If an investor buys stocks that are negatively correlated, as the number of stocks held increases, the overall variance of the portfolio decreases.
question
Which of the following is not a way to reduce risk?
A. Buying insurance.
B. Diversifying investments.
C. Obtaining more information about choices and payoffs.
D. By considering fewer alternatives.
A. Buying insurance.
B. Diversifying investments.
C. Obtaining more information about choices and payoffs.
D. By considering fewer alternatives.
answer
D. By considering fewer alternatives.
question
A production input that can be varied in both the short run and the long run is called a ______.
A production input that can only be varied in the long run is called a ______.
A production input that can only be varied in the long run is called a ______.
answer
Variable Input
Fixed Input
Fixed Input
question
The marginal product of an input is
answer
the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
question
The slope of the total product curve is the
answer
Marginal Product
question
Use the following two statements to answer this question:
I. The marginal product of labor is the slope of the line from the origin to the total product curve at that level of labor usage.
II. The average product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage.
I. The marginal product of labor is the slope of the line from the origin to the total product curve at that level of labor usage.
II. The average product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage.
answer
Both I and II are false.
question
When the average product is decreasing, marginal product
answer
is less than average product.
question
Joe owns a coffee house and produces coffee drinks under the production function:
q = 5KL
where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor?
q = 5KL
where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor?
answer
MP=5K
question
In a certain textile firm, labor is the only short-term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that
answer
the average product of labor is always equal to the marginal product of labor.
question
Marginal product crosses the horizontal axis (is equal to zero) at the point where
answer
total product is maximized.
question
The law of diminishing marginal returns refers to a
answer
a declining marginal product.
question
An isoquant is a curve that shows
answer
all the combinations of inputs that yield the same total output.
question
When capital is plotted on the vertical axis and labor is plotted along the horizontal axis, the marginal rate of technical substitution (MRTS) of labor for capital along a convex isoquant
A. declines as more and more labor is used.
B. equals the negative of the slope of the isoquant.
C. equals the marginal product of labor divided by the marginal product of capital.
D. All of the above are correct.
A. declines as more and more labor is used.
B. equals the negative of the slope of the isoquant.
C. equals the marginal product of labor divided by the marginal product of capital.
D. All of the above are correct.
answer
D. All of the above are correct.
question
If a production function has straight line isoquants, then
answer
the inputs are perfect substitutes.
question
Explain the term "marginal rate of technical substitution."
What does a MRTS = 5 mean? It means that if the input on the horizontal axis is increased by one unit, then the input on the vertical axis _____ by 5 units and output will ______.
What does a MRTS = 5 mean? It means that if the input on the horizontal axis is increased by one unit, then the input on the vertical axis _____ by 5 units and output will ______.
answer
The MRTS gives the amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant.
Decreases
Not Change
Decreases
Not Change
question
Within some range, a declining number of units of one input can be substituted for a unit of the other input, and output can be maintained at the same level. In this case, the MRTS is diminishing as we move down along the isoquant.
answer
Convex isoquant
question
The slope, or the MRTS, is constant. This means that the same number of units of one input can always be exchanged for a unit of the other input and output can be maintained. The inputs are perfect substitutes.
answer
Linear isoquant
question
The inputs are perfect complements, or that the firm is producing under a fixed proportions type of technology. In this case, the firm cannot give up one input in exchange for the other and still maintain the same level of output.
answer
L-shaped isoquant
question
Technological improvement
A. can hide the presence of diminishing returns.
B. can be shown as a shift in the total product curve.
C. allows more output to be produced with the same combination of inputs.
D. All of the above are true.
A. can hide the presence of diminishing returns.
B. can be shown as a shift in the total product curve.
C. allows more output to be produced with the same combination of inputs.
D. All of the above are true.
answer
D. All of the above are true.
question
Assume that average product for six workers is fifteen. If the marginal product of the seventh worker is eighteen,
answer
average product is rising.
question
Consider the following statements when answering this question:
I. Whenever the marginal product of labor curve is a downward-sloping curve, the average product of labor curve is also a downward-sloping curve that lies above the marginal product of labor curve.
II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands.
I. Whenever the marginal product of labor curve is a downward-sloping curve, the average product of labor curve is also a downward-sloping curve that lies above the marginal product of labor curve.
II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands.
answer
I is false, and II is true.
question
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case?
answer
No, the marginal product of labor is constant (for a given K).
question
The marginal product of labor in the production of computer chips is 30 chips per hour. The marginal rate of technical substitution (MRTS) of hours of labor for hours of machine capital is 0.50. What is the marginal product of capital?
The marginal product of capital is _____ chips per hour.
The marginal product of capital is _____ chips per hour.
answer
60
question
A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor but does not want its output quantity to change, the firm should
answer
use 0.8 fewer units of capital.
question
If the isoquants are straight lines, then
answer
the marginal rate of technical substitution of inputs is constant.
question
Which of the following is NOT related to the slope of isoquants?
answer
The fact that input prices are positive
question
A construction company builds roads with machinery (capital, K) and labor (L). If we plot the isoquants for the production function so that labor is on the horizontal axis, then a point on the isoquant with a small MRTS (in absolute value) is associated with high __________ use and low __________ use.
answer
labor
capital
capital
question
For Figure 6.9 in the textbook, MRTS = K/(4L) with capital (K) on the vertical axis of the isoquant map. Suppose L = 100 hours and K = 400 machine hours at the current level of output. How much additional labor is required to maintain output if we reduce capital by one machine hour?
answer
One Hour
question
A firm's production function is q=√(3L+12K), where L is the number of workers used and K is the number of units of capital used by the firm.
The firm's production function exhibits ______ returns to scale.
The isoquants for this production function are ______.
The firm's production function exhibits ______ returns to scale.
The isoquants for this production function are ______.
answer
Decreasing
Straight Lines
Straight Lines
question
In a production process, all inputs are increased by 10% but output increases less than 10%. This means that the firm experiences
answer
decreasing returns to scale.
question
The production function q=22(K^0.6)x(L^0.5) exhibits
answer
increasing returns to scale.
question
Increasing returns to scale in production means
answer
less than twice as much of all inputs are required to double output.
question
Please explain whether the following statements are true or false.
If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.
If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.
answer
True, because economic costs include opportunity costs such as the value of the business owner's time
question
Please explain whether the following statements are true or false.
A firm that has positive accounting profit does not necessarily have positive economic profit.
A firm that has positive accounting profit does not necessarily have positive economic profit.
answer
True, because economic costs will be greater than accounting costs if implicit costs exist
question
Please explain whether the following statements are true or false.
If a firm hires a currently unemployed worker, the opportunity cost of utilizing the worker's services is zero.
If a firm hires a currently unemployed worker, the opportunity cost of utilizing the worker's services is zero.
answer
False, because the worker's time otherwise spent in unpaid household work has value
question
A firm has a fixed production cost of $5,000 and a constant marginal cost of production of $900 per unit produced.
What is the firm's total cost function?
What is the firm's total cost function?
answer
TC = 5,000 + (900q)
question
A firm has a fixed production cost of $5,000 and a constant marginal cost of production of $900 per unit produced.
The firm's average total cost (ATC) of production is
The firm's average total cost (ATC) of production is
answer
ATC = (5,000 + (900q))/q
question
A firm has a fixed production cost of $5,000 and a constant marginal cost of production of $900 per unit produced.
If the firm wanted to minimize the average total cost, would it choose to be very large or very small? Explain.
If the firm wanted to minimize the average total cost, would it choose to be very large or very small? Explain.
answer
Very large because the average total cost of production falls with output.
question
Suppose that labor is the only variable input to the production process. If the marginal cost of production is diminishing as more units of output are produced, what can you say about the marginal product of labor?
If the marginal cost of production is diminishing as more units of output are produced, then the marginal product of labor
If the marginal cost of production is diminishing as more units of output are produced, then the marginal product of labor
answer
increasing
question
Assume that the marginal cost of production is less than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing? Explain.
If the marginal cost of production is less than the average variable cost of production, then
If the marginal cost of production is less than the average variable cost of production, then
answer
average variable cost is falling because the cost of the last unit produced is adding less to total variable cost than previous units did on average.
question
At the point where average variable cost reaches its minimum value
answer
Average variable cost equals marginal cost
question
Use the following two statements to answer this question:
I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output.
II. The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that level of output.
I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output.
II. The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that level of output.
answer
Both I and II are true
question
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.
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.
answer
I is false, and II i true
question
Suppose the short-run production function is q = 10*L. If the wage rate is $10 per unit of labor, then AVC equals
answer
1
question
Why are isocost lines straight lines?
Isocost lines are straight because the slope of such lines _______
Isocost lines are straight because the slope of such lines _______
answer
Equals the ratio of input prices, and this ratio is fixed
question
An isocost line shows
answer
all the input combinations that can be purchased at a given total cost.
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