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.