ECO 625 Exam One - Assignment Essays

Q: If MPLw > MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs. If MPLw < MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs.

less capital and more labor more capital and less labor

question

The measure of output per unit of input is called _____.

answer

average product

question

A firm that always employs two workers for each unit of capital follows which type of production function?

answer

Leontief

question

Marginal Product of Capital (MPk) is given by:

answer

MPk = ΔQ/ΔK

question

Marginal Product of Labor (MPl) is given by:

answer

MPl = ΔQ/ΔL

question

What is the marginal product of labor (MPL) and marginal product of capital (MPK) for the following linear production function?

Q = F(K,L) = αK + βL

answer

MPL = β
MPK = α

question

In the production process, the manager must do which of the following?

answer

Establish the correct level of inputs
Ensure the firm operates on the production function

question

What is the analytical tool that defines a combination of inputs that yields the same output?

answer

Isoquant

question

The value of the output produced by the last unit of a particular input is called

answer

value marginal product.

question

What is the term given to the ratio of the marginal products of labor and capital?

answer

Marginal rate of technical substitution (MRTS)

The MRTS of capital and labor is the absolute value of the slope of the isoquant and is simply the ratio of the marginal products:

MRTSkl = MPL / MPK

question

Suppose the linear production function of a firm is given by
Q = F(K, L) = aK + bL, where a and b are constants. Suppose it takes workers (L) 4 hours to produce what a machine (K) can make in 1 hour. Which of the following equations correctly states the production function of the firm?

answer

Q = 4K +L

question

What is another name for the Leontief production function?

answer

Fixed proportions production function

question

For a linear production function, Q = αK + βL, what is the marginal rate of technical substitution (MRTS)?

answer

β/α

question

What must be true about combinations of labor and capital along a given isoquant?

answer

They all must produce the same amount of output

question

If MPLw > MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs.

If MPLw < MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs.

answer

less capital and more labor

more capital and less labor

question

Insert one word OR the mathematical operator into the following expression to demonstrate the cost-minimizing input rule.
MPL/MPK ___________ w/r (ratio of input prices).

answer

question

Which of the following describes the rate at which labor and capital can be substituted for each other?

answer

Marginal rate of technical substitution

question

When the price of labor rises, firms have a tendency to use

answer

less labor and more capital.

question

Suppose the linear production function for a firm is given by:
Q = F(K,L,) = 3K + 2L. If the firm employs 3 machines and 5 workers, output is equal to

answer

19
(33) + (25)

question

Costs that do not change when output changes are called ____________ costs.

answer

fixed

question

The Leontief production function implies that isoquants are what shape?

answer

L-shaped

question

The minimum possible cost of producing each output level with fixed and variable factors is given by

answer

the short-run cost function

question

Which of the following statements is correct?

answer

Average fixed costs decline continuously as output expands.

question

To minimize the cost of producing a given level of output, the marginal product per dollar spent should be _______ for all inputs.

answer

question

Suppose a firm produces 1000 units of a good. If fixed costs (FC) equal $2500 and variable costs (VC) equal $3700 at that output level, average total cost (ATC) of each unit is equal to $_____________.

answer

$6.20

ATC = TC / Q = ($2500 + $3700) / 1000

question

Suppose capital, K, is on the vertical axis and labor, L, is on the horizontal axis in a graph. Which of the following would be true if the price of labor, w, increased?

answer

the isocost line rotates clockwise

question

Where does the marginal cost (MC) curve intersect the average variable cost (AVC) curve?

answer

At minimum AVC.

question

Costs that change when output changes are called ____________ costs.

answer

variable

question

The sum of all variable and fixed costs is the firm's ___________.

answer

cost function

question

As output increases, what happens to the difference between ATC and AVC?

answer

decreases

question

The expression, FC/Q , defines

answer

average fixed cost

question

A cost that is incurred and unrecoverable is called a _________ cost.

answer

sunk

question

C(Q)/Q , defines

answer

average total cost

question

Given the cost function, C(Q) = f + aQ + bQ^2 + cQ^3, which of the following equations defines the Marginal Cost (MC) function?
Multiple choice question.

answer

C(Q) = a + 2bQ + 3cQ^2

question

When average total cost (ATC) is at its minimum, marginal cost (MC) __________ average total cost (ATC).

answer

equals

question

With respect to the short-run average cost curves, what is true of the long-run average cost curve?
Multiple select question.

answer

It lies above no point of the short-run average cost curves.
It equals short-run average cost when short-run curves use fixed inputs optimally.

question

Suppose a firm expands its output and experiences higher long-run average cost. What is this condition called?

answer

Diseconomies of scale

question

What happens to average fixed cost (AFC) as output declines?

answer

AFC increases

AFC and output move in opposite directions -- as one increases the other decreases and vice-versa.

question

If a cost function is given by, C(Q) = f + aQ + bQ^2 + cQ^3, then the marginal cost is given by which of the following?

answer

MC(Q) = dC/dQ

question

The multiproduct cost function assumes that all inputs are utilized _______________-.

answer

efficiently

question

When a firm experiences economies of scale, increasing the size of the operation ______________ the minimum average cost.

answer

decreases

question

When C(Qv1,0) + C(Qv2, 0) > C(Qv1, Qv2), we say that _____________________ exists.

answer

economies of scope

total cost of producing Q1 and Q2 together is less than producing them separately.

question

ΔMC1(Q1,Q2)/ΔQ2 < 0 describes cost

answer

complementarity

question

The following Quadratic Multiproduct Cost Function:
C(Qv1, Qv2) = f + aQv1Qv2 + (Qv1)^2 + (Qv2)^2
exhibits Economies of Scope when

answer

f - aQ1Q2 > 0

question

Which function defines the cost of producing at least two types of output?

answer

Multiproduct cost function

question

Suppose it is cheaper for an auto maker to produce hybrid vehicles and diesel SUVs in the same factory than it is to have two separate facilities for each vehicle. What condition exists?

answer

Economies of scope

question

What exists when an increase in the output of one product reduces the marginal cost of a second product?

answer

Cost complementarity

question

The following Quadratic Multiproduct Cost Function:
C(Qv1, Qv2) = f + aQv1Qv2 + (Qv1)^2 + (Qv2)^2
exhibits cost complementarity when

answer

a < 0

question

Managerial economics is best defined as

answer

the study of how to allocate scarce resources to achieve managerial goals.

question

Firms that earn the business of scarce customers with a high-quality, lower-price product engage in

answer

Producer-producer rivalry

question

If a new canning technology costs $300,000 in the last 6 years, and generates year-end, cost savings of $50,000 in each of the first 3 years and $60,000 in each of the last 3 years, should the firm buy the technology if the interest rate of 5.0%?

answer

No. The manager would do better to invest the $300,000 at 5%.
No. The net present value of the technology is negative.

question

True or false: If the growth rate in profits is less than the interest rate and both are constant, maximizing short-term profits is the same as maximizing long-term profits.

answer

True

question

Net benefits are maximized at a level of output, (Q), where MB = MC. What is one reason why?

answer

If MB > MC, increasing (Q) adds more to total benefit than total cost.

1 of 52

question

The measure of output per unit of input is called _____.

answer

average product

question

A firm that always employs two workers for each unit of capital follows which type of production function?

answer

Leontief

question

Marginal Product of Capital (MPk) is given by:

answer

MPk = ΔQ/ΔK

question

Marginal Product of Labor (MPl) is given by:

answer

MPl = ΔQ/ΔL

question

What is the marginal product of labor (MPL) and marginal product of capital (MPK) for the following linear production function?

Q = F(K,L) = αK + βL

answer

MPL = β
MPK = α

question

In the production process, the manager must do which of the following?

answer

Establish the correct level of inputs
Ensure the firm operates on the production function

question

What is the analytical tool that defines a combination of inputs that yields the same output?

answer

Isoquant

question

The value of the output produced by the last unit of a particular input is called

answer

value marginal product.

question

What is the term given to the ratio of the marginal products of labor and capital?

answer

Marginal rate of technical substitution (MRTS)

The MRTS of capital and labor is the absolute value of the slope of the isoquant and is simply the ratio of the marginal products:

MRTSkl = MPL / MPK

question

answer

Q = 4K +L

question

What is another name for the Leontief production function?

answer

Fixed proportions production function

question

For a linear production function, Q = αK + βL, what is the marginal rate of technical substitution (MRTS)?

answer

β/α

question

What must be true about combinations of labor and capital along a given isoquant?

answer

They all must produce the same amount of output

question

If MPLw > MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs.

If MPLw < MPKr, the firm should use (less/more) capital and (less/more) labor to minimize costs.

answer

less capital and more labor

more capital and less labor

question

Insert one word OR the mathematical operator into the following expression to demonstrate the cost-minimizing input rule.
MPL/MPK ___________ w/r (ratio of input prices).

answer

question

Which of the following describes the rate at which labor and capital can be substituted for each other?

answer

Marginal rate of technical substitution

question

When the price of labor rises, firms have a tendency to use

answer

less labor and more capital.

question

Suppose the linear production function for a firm is given by:
Q = F(K,L,) = 3K + 2L. If the firm employs 3 machines and 5 workers, output is equal to

answer

19
(33) + (25)

question

Costs that do not change when output changes are called ____________ costs.

answer

fixed

question

The Leontief production function implies that isoquants are what shape?

answer

L-shaped

question

The minimum possible cost of producing each output level with fixed and variable factors is given by

answer

the short-run cost function

question

Which of the following statements is correct?

answer

Average fixed costs decline continuously as output expands.

question

To minimize the cost of producing a given level of output, the marginal product per dollar spent should be _______ for all inputs.

answer

question

answer

$6.20

ATC = TC / Q = ($2500 + $3700) / 1000

question

Suppose capital, K, is on the vertical axis and labor, L, is on the horizontal axis in a graph. Which of the following would be true if the price of labor, w, increased?

answer

the isocost line rotates clockwise

question

Where does the marginal cost (MC) curve intersect the average variable cost (AVC) curve?

answer

At minimum AVC.

question

Costs that change when output changes are called ____________ costs.

answer

variable

question

The sum of all variable and fixed costs is the firm's ___________.

answer

cost function

question

As output increases, what happens to the difference between ATC and AVC?

answer

decreases

question

The expression, FC/Q , defines

answer

average fixed cost

question

A cost that is incurred and unrecoverable is called a _________ cost.

answer

sunk

question

C(Q)/Q , defines

answer

average total cost

question

Given the cost function, C(Q) = f + aQ + bQ^2 + cQ^3, which of the following equations defines the Marginal Cost (MC) function?
Multiple choice question.

answer

C(Q) = a + 2bQ + 3cQ^2

question

When average total cost (ATC) is at its minimum, marginal cost (MC) __________ average total cost (ATC).

answer

equals

question

With respect to the short-run average cost curves, what is true of the long-run average cost curve?
Multiple select question.

answer

It lies above no point of the short-run average cost curves.
It equals short-run average cost when short-run curves use fixed inputs optimally.

question

Suppose a firm expands its output and experiences higher long-run average cost. What is this condition called?

answer

Diseconomies of scale

question

What happens to average fixed cost (AFC) as output declines?

answer

AFC increases

AFC and output move in opposite directions -- as one increases the other decreases and vice-versa.

question

If a cost function is given by, C(Q) = f + aQ + bQ^2 + cQ^3, then the marginal cost is given by which of the following?

answer

MC(Q) = dC/dQ

question

The multiproduct cost function assumes that all inputs are utilized _______________-.

answer

efficiently

question

When a firm experiences economies of scale, increasing the size of the operation ______________ the minimum average cost.

answer

decreases

question

When C(Qv1,0) + C(Qv2, 0) > C(Qv1, Qv2), we say that _____________________ exists.

answer

economies of scope

total cost of producing Q1 and Q2 together is less than producing them separately.

question

ΔMC1(Q1,Q2)/ΔQ2 < 0 describes cost

answer

complementarity

question

The following Quadratic Multiproduct Cost Function:
C(Qv1, Qv2) = f + aQv1Qv2 + (Qv1)^2 + (Qv2)^2
exhibits Economies of Scope when

answer

f - aQ1Q2 > 0

question

Which function defines the cost of producing at least two types of output?

answer

Multiproduct cost function

question

Suppose it is cheaper for an auto maker to produce hybrid vehicles and diesel SUVs in the same factory than it is to have two separate facilities for each vehicle. What condition exists?

answer

Economies of scope

question

What exists when an increase in the output of one product reduces the marginal cost of a second product?

answer

Cost complementarity

question

The following Quadratic Multiproduct Cost Function:
C(Qv1, Qv2) = f + aQv1Qv2 + (Qv1)^2 + (Qv2)^2
exhibits cost complementarity when

answer

a < 0

question

Managerial economics is best defined as

answer

the study of how to allocate scarce resources to achieve managerial goals.

question

Firms that earn the business of scarce customers with a high-quality, lower-price product engage in

answer

Producer-producer rivalry

question

answer

No. The manager would do better to invest the $300,000 at 5%.
No. The net present value of the technology is negative.

question

True or false: If the growth rate in profits is less than the interest rate and both are constant, maximizing short-term profits is the same as maximizing long-term profits.

answer

True

question

Net benefits are maximized at a level of output, (Q), where MB = MC. What is one reason why?

answer

If MB > MC, increasing (Q) adds more to total benefit than total cost.

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