Deck 5: The Production Process and Costs

Question 1

For a cost function C = 100 + 10Q + Q², the average variable cost of producing 20 units of output is

A)10.
B)20.
C)30.
D)none of the statements associated with this question are correct.

Answer 1

C

Question 2

Suppose the marginal product of labor is 8 and the marginal product of capital is 2.If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use

A)more capital and less labor.
B)more labor and less capital.
C)three times more capital than labor.
D)none of the statements associated with this question are correct.

Answer 2

B

Question 3

Suppose the production function is given by Q = 3K + 4L.What is the average product of capital when 5 units of capital and 10 units of labor are employed?

A)3.
B)4.
C)11.
D)45.

Answer 3

C

Question 4

If a firm's production function is Leontief and the wage rate goes up the

A)firm must use more labor in order to minimize the cost of producing a given level of output.
B)firm must use more capital in order to minimize the cost of producing a given level of output.
C)firm must use less labor in order to minimize the cost of producing a given level of output.
D)cost minimizing combination of capital and labor does not change.

Question 5

Suppose the production function is Q = min {K, 2L}.How much output is produced when 4 units of labor and 9 units of capital are employed?

A)2.
B)4.
C)8.
D)9.

Question 6

The production function for a competitive firm is Q = K.⁵L.⁵.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at 25 units.The profit-maximizing quantity of labor is

A)1.
B)2.
C)10.
D)none of the statements associated with this question are correct.

Question 7

Suppose the production function is given by Q = 3K + 4L.What is the average product of capital when 10 units of capital and 10 units of labor are employed?

A)3.
B)4.
C)7.
D)45.

Question 8

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs.The firm produces and sells a given output.If w = $40, r = $100, MP_L = 20, and MP_K = 40 the firm:

A)is cost minimizing.
B)should use less L and more K to cost minimize.
C)should use more L and less K to cost minimize.
D)is profit maximizing but not cost minimizing.

Question 9

Which of the following statements is incorrect?

A)Fixed costs do not vary with output.
B)Sunk costs are those costs that are forever lost after they have been paid.
C)Fixed costs are always greater than sunk costs.
D)Fixed costs could be positive when sunk costs are zero.

Question 10

For the cost function C(Q) = 100 + 2Q + 3Q², the marginal cost of producing 2 units of output is

A)2.
B)3.
C)12.
D)14.

Question 11

For the cost function C(Q) = 100 + 2Q + 3Q², the average fixed cost of producing 2 units of output is

A)100.
B)50.
C)3.
D)2.

Question 12

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs.The firm produces and sells a given output.If w = $40, r = $100, MP_L = 4, and MP_K = 40 the firm:

A)is cost minimizing.
B)should use less L and more K to cost minimize.
C)should use more K and less L to cost minimize.
D)is profit maximizing but not cost minimizing.

Question 13

If the production function is Q = K^.5L^.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is

A)2/5.
B)1/5.
C)10.
D)none of the statements associated with this question are correct.

Question 14

Suppose the production function is given by Q = 3K + 4L.What is the marginal product of capital when 10 units of capital and 10 units of labor are employed?

A)3.
B)4.
C)11.
D)45.

Question 15

For the cost function C(Q) = 100 + 2Q + 3Q², the total variable cost of producing 2 units of output is

A)16.
B)12.
C)4.
D)none of the statements associated with this question are correct.

Question 16

Suppose the production function is given by Q = 3K + 4L.What is the marginal product of capital when 5 units of capital and 10 units of labor are employed?

A)3.
B)4.
C)11.
D)45.

Question 17

The production function Q = L^.5K^.5 is called

A)Cobb Douglas.
B)Leontief.
C)Linear.
D)none of the statements associated with this question are correct.

Question 18

Suppose the production function is given by Q = min{K, L}.How much output is produced when 10 units of labor and 9 units of capital are employed?

A)0.
B)4.
C)9.
D)13.

Question 19

Suppose the production function is given by Q = min {K, L}.How much output is produced when 4 units of labor and 9 units of capital are employed?

A)0.
B)4.
C)9.
D)13.

Question 20

For a cost function C = 100 + 10Q + Q², the marginal cost of producing 10 units of output is

A)10.
B)200.
C)210.
D)none of the statements associated with this question are correct.

Question 21

The creation of a new product is referred to as:

A)Process innovation.
B)Independent research and development.
C)Product innovation.
D)Patent disclosure.

Question 22

The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:

A)Production function.
B)Technological constraint.
C)Research and development schedule.
D)Total product.

Question 23

Total product begins to fall when:

A)Marginal product is maximized.
B)Average product is below zero.
C)Average product is negative.
D)Marginal product is zero.

Question 24

What is the value marginal product of labor if: P = $10, MP_L = $25, and AP_L = 40?

A)$10,000.
B)$1,000.
C)$400.
D)$250.

Question 25

For a cost function C = 100 + 10Q + Q², the average fixed cost of producing 10 units of output is

A)10.
B)5.
C)1.
D)none of the statements associated with this question are correct.

Question 26

Which of the following is not a means of acquiring product and process innovations?

A)Independent research and development.
B)Mass production of the existing product.
C)Reverse engineering.
D)Hiring employees of innovating firms.

Question 27

If the last unit of input increases total product we know that the marginal product is:

A)positive.
B)negative.
C)zero.
D)indeterminate.

Question 28

If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is

A)¼.
B)1/10.
C)15.
D)none of the statements associated with this question are correct.

Question 29

Given the following table, how many workers should be hired to maximize profits?

A)1.
B)2.
C)3.
D)4.

Question 30

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

A)The MRTS is equal to the ratio of input prices.
B)The marginal product per dollar spent on all inputs is equal.
C)The marginal products of all inputs are equal.
D)The MRTS is equal to the ratio of input prices and the marginal product per dollar spent on all inputs is equal.

Question 31

The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by:

A)Land.
B)Production.
C)Capital.
D)Technology.

Question 32

Firm managers should use inputs at levels where the:

A)Marginal benefit equals marginal cost.
B)Price equals marginal product.
C)Value marginal product of labor equals wage.
D)Marginal benefit equals marginal cost and value marginal product of labor equals wage.

Question 33

What is the average product of labor, given that the level of labor equals 10, total output equals 1200 and the marginal product of labor equals 200?

A)20.
B)120.
C)6.
D)2000.

Question 34

Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized?

A)600 units.
B)800 units.
C)500 units.
D)1000 units.

Question 35

It is profitable to hire units of labor as long as the value of marginal product

A)is less than wage.
B)exceeds average product.
C)equals price.
D)exceeds wage.

Question 36

The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at one unit.The maximum profits are

A)5.
B)10.
C)15.
D)none of the statements associated with this question are correct.

Question 37

Inputs a manager may adjust in order to alter production are:

A)All factors.
B)Variable factors.
C)Long-run factors.
D)Fixed factors.

Question 38

The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at one unit.The profit-maximizing quantity of labor is

A)2/5.
B)1.
C)10.
D)none of the statements associated with this question are correct.

Question 39

The change in total output attributable to the last unit of an input is the:

A)Total product.
B)Average product.
C)Marginal product.
D)Marginal return.

Question 40

Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when K = 40 and L = 35?

A)220.
B)234.5.
C)192.5.
D)268.

Question 41

The production function is Q = K^.6 L^.4.The marginal rate of technical substitution is:

A)2/3 K^-1 L.
B)K^-1 L^-1.
C)2/3 K L^-1.
D)K^.4 L^-.6.

Question 42

Suppose you are a manager of a factory.You purchase five (5) new machines at one million dollars each.If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

A)$5 million.
B)$500,000.
C)$3.4 million.
D)$1.6 million.

Question 43

Suppose the production function is given by Q = K^1/2L^1/2, and that Q = 30 and K = 25.How much labor is employed by the firm?

A)49.
B)6.
C)36.
D)25.

Question 44

The Leontief production function implies:

A)Straight line isoquants.
B)Convex shaped isoquants.
C)A positive MRTS.
D)L-shaped isoquants.

Question 45

The combinations of inputs that produce a given level of output are depicted by:

A)Indifference curves.
B)Budget lines.
C)Isocost curves.
D)Isoquants.

Question 46

In order for isoquants to have a diminishing marginal rate of substitution they must be:

A)L-shaped.
B)Straight lines.
C)Vertical.
D)None of the statements associated with this question are correct.

Question 47

Changes in the price of an input cause:

A)Isoquants to become steeper.
B)Slope changes in the isocost line.
C)Parallel shifts of the isocost lines.
D)Changes in both the isoquants and isocosts of equal magnitude.

Question 48

Isoquants are normally drawn with a convex shape because:

A)Inputs are perfectly substitutable.
B)Inputs are perfectly complementary.
C)Inputs are not perfectly substitutable.
D)Inputs are not perfectly complementary.

Question 49

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

A)Its price rises.
B)Its price falls.
C)Its price remains the same.
D)The price of other inputs fall.

Question 50

Costs that change as output changes are:

A)Variable costs.
B)Fixed costs.
C)Sunk costs.
D)None of the statements associated with this question are correct.

Question 51

What is the total cost of producing 125 units of output?

A)1000.
B)2050.
C)1400.
D)2400.

Question 52

What is the average variable cost of producing 50 units of output?

A)21.
B)34.
C)14.
D)20.

Question 53

What is the marginal cost of producing 90 units of output?

A)5.32.
B)8.75.
C)11.67.
D)21.00.

Question 54

Costs that are forever lost after they have been paid are:

A)Production costs.
B)Fixed costs.
C)Sunk costs.
D)Variable costs.

Question 55

Given the production function Q = min {4K, 3L}, what is the average product of capital when 8 units of capital and 16 units of labor are used?

A)16.
B)2.
C)4.
D)32.

Question 56

What is the average total cost of producing 160 units of output?

A)12.98.
B)16.31.
C)22.04.
D)19.38.

Question 57

The absolute value of the slope of the isoquant is the:

A)Marginal rate of technical substitution.
B)Marginal product of capital.
C)Marginal rate of substitution.
D)Value marginal product of labor.

Question 58

For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MP_K is:

A)16.
B)5.2.
C)3.8.
D)12.

Question 59

Which of the following sets of economic data is minimizing the cost of producing a given level of output?

A)MP_L = 20, MP_K = 40, w = $16, r = $32.
B)MP_L = 20, MP_K = 40, w = $32, r = $16.
C)MP_L = 40, MP_K = 20, w = $16, r = $32.
D)MP_L = 40, MP_K = 40, w = $16, r = $32.

Question 60

Fixed costs exist only in:

A)The long run.
B)Capital intensive markets.
C)The short run.
D)Labor intensive markets.

Question 61

The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:

A)Long run average total cost curve.
B)Short run average fixed cost curve.
C)Short run marginal cost curve.
D)Long run marginal cost curve.

Question 62

As the usage of an input increases, marginal product

A)initially increases then begins to decline.
B)initially decreases then begins to increase.
C)consistently decreases.
D)consistently increases.

Question 63

For the multiproduct cost function C(Q₁,Q₂) = 100 + 2Q₁Q₂ + 4Q₁², what is the marginal cost function for good one?

A)MC₁ = 2Q₂ + 4Q₁ - Q₂².
B)MC₁ = 2Q₂ + 8Q₁.
C)MC₁ = 100 + 2Q₁Q₂ + 4Q₁².
D)MC₁ = 4Q₁² - 2 Q₂².

Question 64

Which of the following is the most common source of technology?

A)Independent R&D.
B)Licensing technology.
C)Publications or technical meetings.
D)Reverse engineering.

Question 65

Which curve(s) does the marginal cost curve intersect at the (their) minimum point?

A)Average total cost curve.
B)Average fixed cost curve.
C)Average variable cost curve.
D)Average total cost curve and average variable cost curve.

Question 66

At what level of output is marginal cost minimized:

A)90.
B)50.
C)125.
D)160.

Question 67

What is implied when the total cost of producing Q₁ and Q₂ together is less than the total cost of producing Q₁ and Q₂ separately?

A)Economies of scale.
B)Diminishing average fixed costs.
C)Cost complementarity.
D)Economies of scope.

Question 68

The long-run is defined as

A)the horizon in which the manager can adjust all factors of production.
B)the horizon in which there are only fixed factors of production.
C)the horizon in which there are both fixed and variable factors of production.
D)greater than one year.

Question 69

The short-run is defined as the time-frame

A)in which there are no fixed factors of production.
B)in which there are fixed factors of production.
C)less than one year.
D)less than three years.

Question 70

The marginal product of an input is defined as the change in

A)average output attributable to the last unit of an input.
B)total output attributable to the last unit of an input.
C)total input attributable to the last unit of an output.
D)average output attributable to the last unit of an output.

Question 71

Which of the following is not a measure of productivity?

A)total product.
B)marginal product.
C)average advertising.
D)input-output ratio.

Question 72

Variable factors of production are the inputs that a manager

A)may adjust in order to alter sales.
B)may adjust in order to alter production.
C)cannot adjust in the short-run.
D)cannot adjust in the long-run.

Question 73

Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced?

A) C = 50 - 5Q₁Q₂ + 0.5Q₁² + Q₂².
B) C = 10 + 4Q₁Q₂ + Q₁² + Q₂².
C) C = 15 + 5Q₁Q₂ + 2Q₁ + 4Q₂.
D) C = 5 + Q₁Q₂ + Q₁² Q₂².

Question 74

A production function

A)defines the minimum amount of output that can be produced with inputs such as capital and labor.
B)defines the average amount of output that can be produced with inputs such as capital and labor.
C)represents the technology available for turning inputs into output.
D)is determined only by the expenditures on R&D.

Question 75

For the cost function C(Q) = 200 + 3Q + 8Q² + 4Q³, what is the average fixed cost of producing six units of output?

A)18.31.
B)212.61.
C)42.12.
D)33.33.

Question 76

As long as marginal product is increasing, marginal product is

A)less than average product.
B)greater than average product.
C)equal to average output.
D)equal to total product.

Question 77

Which of the following cost functions exhibits cost complementarity?

A)-4Q₁Q₂ + 8Q₁.
B)-4Q₂ + 8Q₁.
C)6Q₁Q₂ - Q₁.
D)4Q₂Q₁ + 8Q₁.

Question 78

For the cost function C(Q) = 1000 + 14Q + 9Q² + 3Q³, what is the marginal cost of producing the fourth unit of output?

A)$42.
B)$295.
C)$230.
D)$116.

Question 79

If a firm is operating on the production function, then workers

A)must be putting forth maximal effort.
B)may not be putting forth maximal effort.
C)are usually putting forth average effort.
D)are usually putting forth minimal effort.

Question 80

Given a cost function C(Q) = 200 + 14Q + 8Q², what is the marginal cost function?

A)14 + 16Q.
B)14Q + 8Q².
C)200 + 8Q².
D)14 + 16Q².