question
A function that relates firm output to inputs, provided a given technology, is called
A) an isoquant.
B) a production possibility frontier.
C) a production function.
D) an isocost function.
A) an isoquant.
B) a production possibility frontier.
C) a production function.
D) an isocost function.
answer
C) a production function.
question
The short run is
A) less than a year.
B) three years.
C) however long it takes to produce the planned output.
D) a time period in which at least one input is fixed.
A) less than a year.
B) three years.
C) however long it takes to produce the planned output.
D) a time period in which at least one input is fixed.
answer
D) a time period in which at least one input is fixed.
question
Which of following is a key assumption of a perfectly competitive market?
A) Firms can influence market price.
B) Commodities have few sellers.
C) It is difficult for new sellers to enter the market.
D) Each seller has a very small share of the market.
A) Firms can influence market price.
B) Commodities have few sellers.
C) It is difficult for new sellers to enter the market.
D) Each seller has a very small share of the market.
answer
D) Each seller has a very small share of the market.
question
The perfectly competitive firm's marginal revenue curve is
A) exactly the same as the marginal cost curve.
B) downward-sloping, at twice the (negative) slope of the market demand curve.
C) vertical.
D) equal to the market price
E) upward-sloping.
A) exactly the same as the marginal cost curve.
B) downward-sloping, at twice the (negative) slope of the market demand curve.
C) vertical.
D) equal to the market price
E) upward-sloping.
answer
D) equal to the market price
question
A monopolist charging a single price maximizes profit by selecting output such that the following condition holds:
A) Average Total Cost equals Price
B) The Price equals Marginal Cost
C) Marginal Revenue equals Marginal Cost
D) Average Variable Cost equals Total Revenue
A) Average Total Cost equals Price
B) The Price equals Marginal Cost
C) Marginal Revenue equals Marginal Cost
D) Average Variable Cost equals Total Revenue
answer
C) Marginal Revenue equals Marginal Cost
question
The slope of the total product curve is the
A) average product.
B) slope of a line from the origin to the point.
C) marginal product curve.
D) marginal rate of technical substitution.
A) average product.
B) slope of a line from the origin to the point.
C) marginal product curve.
D) marginal rate of technical substitution.
answer
C) marginal product curve.
question
The marginal product of an input is
A) total product divided by the amount of the input used to produce this amount of output.
B) the addition to total output that adds nothing to total revenue.
C) the addition to total output that adds nothing to profit.
D) the addition to total output due to the addition of one unit of all other inputs.
E) the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
A) total product divided by the amount of the input used to produce this amount of output.
B) the addition to total output that adds nothing to total revenue.
C) the addition to total output that adds nothing to profit.
D) the addition to total output due to the addition of one unit of all other inputs.
E) the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
answer
E) the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
question
According to the law of diminishing returns
A) the total product of an input will eventually be negative.
B) the total product of an input will eventually decline.
C) the marginal product of an input will eventually be negative.
D) the marginal product of an input will eventually decline.
E) none of the above
A) the total product of an input will eventually be negative.
B) the total product of an input will eventually decline.
C) the marginal product of an input will eventually be negative.
D) the marginal product of an input will eventually decline.
E) none of the above
answer
D) the marginal product of an input will eventually decline.
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?
A) MP = 5
B) MP = 5K
C) MP = 5L
D) MP = 5K/L
A) MP = 5
B) MP = 5K
C) MP = 5L
D) MP = 5K/L
answer
B) MP = 5K
question
An isoquant
A) must be linear.
B) cannot have a negative slope.
C) is a curve that shows all the combinations of inputs that yield the same total output.
D) is a curve that shows the maximum total output as a function of the level of labor input.
E) is a curve that shows all possible output levels that can be produced at the same cost.
A) must be linear.
B) cannot have a negative slope.
C) is a curve that shows all the combinations of inputs that yield the same total output.
D) is a curve that shows the maximum total output as a function of the level of labor input.
E) is a curve that shows all possible output levels that can be produced at the same cost.
answer
C) is a curve that shows all the combinations of inputs that yield the same total output.
question
The marginal rate of technical substitution is equal to the
A) slope of the total product curve.
B) change in output minus the change in labor.
C) change in output divided by the change in labor.
D) ratio of the marginal products of the inputs.
A) slope of the total product curve.
B) change in output minus the change in labor.
C) change in output divided by the change in labor.
D) ratio of the marginal products of the inputs.
answer
D) ratio of the marginal products of the inputs.
question
In a production process, all inputs are doubled; but output increases by less than double. This means that the firm experiences
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) negative returns to scale.
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) negative returns to scale.
answer
A) decreasing returns to scale.
question
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) the sunk costs incurred by the firm.
E) the explicit costs of the firm.
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) the sunk costs incurred by the firm.
E) the explicit costs of the firm.
answer
C) the opportunity costs of the factors of production that the firm owns.
question
Which of the following costs always declines as output increases?
A) Average cost
B) Marginal cost
C) Fixed cost
D) Average fixed cost
E) Average variable cost
A) Average cost
B) Marginal cost
C) Fixed cost
D) Average fixed cost
E) Average variable cost
answer
D) Average fixed cost
question
The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?
A) 200
B) 5Q
C) 5
D) 5 + (200/Q)
E) none of the above
A) 200
B) 5Q
C) 5
D) 5 + (200/Q)
E) none of the above
answer
C) 5
question
An isocost line reveals the
A) costs of inputs needed to produce along an isoquant.
B) costs of inputs needed to produce along an expansion path.
C) input combinations that can be purchased with a given outlay of funds.
D) output combinations that can be produced with a given outlay of funds.
A) costs of inputs needed to produce along an isoquant.
B) costs of inputs needed to produce along an expansion path.
C) input combinations that can be purchased with a given outlay of funds.
D) output combinations that can be produced with a given outlay of funds.
answer
C) input combinations that can be purchased with a given outlay of funds.
question
When an isocost line is just tangent to an isoquant, we know that
A) output is being produced at minimum cost.
B) output is not being produced at minimum cost.
C) the two products are being produced at the least input cost to the firm.
D) the two products are being produced at the highest input cost to the firm.
A) output is being produced at minimum cost.
B) output is not being produced at minimum cost.
C) the two products are being produced at the least input cost to the firm.
D) the two products are being produced at the highest input cost to the firm.
answer
A) output is being produced at minimum cost.
question
Suppose a cost minimizing firm can hire men for $10/hr or women for $8/hr. If men and women are perfect substitutes in production, how many men and women will the firm hire?
A) The firm will hire 50% men and 50% women.
B) The firm will hire 100% men.
C) The firm will hire 100% women.
D) The firm will hire any mix of men and women, they are equally productive.
A) The firm will hire 50% men and 50% women.
B) The firm will hire 100% men.
C) The firm will hire 100% women.
D) The firm will hire any mix of men and women, they are equally productive.
answer
C) The firm will hire 100% women.
question
Firm revenue is equal to
A) price times quantity.
B) price times quantity minus total cost.
C) price times quantity minus average cost.
D) price times quantity minus marginal cost.
E) expenditure on production of output.
A) price times quantity.
B) price times quantity minus total cost.
C) price times quantity minus average cost.
D) price times quantity minus marginal cost.
E) expenditure on production of output.
answer
A) price times quantity.
question
A perfectly competitive firm maximizes profit by operating at the level of output where
A) average revenue equals average cost.
B) average revenue equals average variable cost.
C) total costs are minimized.
D) marginal revenue equals marginal cost.
A) average revenue equals average cost.
B) average revenue equals average variable cost.
C) total costs are minimized.
D) marginal revenue equals marginal cost.
answer
D) marginal revenue equals marginal cost.
question
In a perfectly competitive market, if the firm is earning a negative economic profit, then it will ________.
A) Continue to operate at a loss.
B) Shutdown
C) Reduce its output but continue operating.
D) There is not enough information.
A) Continue to operate at a loss.
B) Shutdown
C) Reduce its output but continue operating.
D) There is not enough information.
answer
A) Continue to operate at a loss.
question
Deadweight loss refers to
A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.
A) losses in consumer surplus associated with excess government regulations.
B) situations where market prices fail to capture all of the costs and benefits of a policy.
C) net losses in total surplus.
D) losses due to the policies of labor unions.
answer
C) net losses in total surplus.
question
Suppose that the government imposes an excise tax on a market with a perfectly inelastic demand. What is the tax incidence (pass through) on the buyer?
A) The buyer bears the full amount of the tax.
B) The seller bears the full amount of the tax.
C) The buyer and seller evenly split the amount of the tax.
D) The buyer and seller split the amount of the tax, but not in the same proportion.
A) The buyer bears the full amount of the tax.
B) The seller bears the full amount of the tax.
C) The buyer and seller evenly split the amount of the tax.
D) The buyer and seller split the amount of the tax, but not in the same proportion.
answer
B) The seller bears the full amount of the tax.
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