Question 1

Suppose TP(L)=5L²+40. MP(L)is: A)10L. B)10L + 40. C)5L + 40. D)10L + 40/L.

Accepted Answer

MP(L) = dTP/dL = d(5L^2 + 40)/dL = 10L.

Question 2

Marginal product:
A)is the slope of the total product.
B)is the inverse of the total product.
C)has nothing to do with the total product.
D)is always greater than the total product.

Accepted Answer

Marginal product is the additional output generated by adding one more unit of input, therefore it is calculated as the derivative of the total product with respect to the input variable. In other words, it is the slope of the total product curve.

Question 3

Suppose TP(L)= 5L²+ 40. AP(L)is: A)5L + 40/L. B)10L + 40. C)5L. D)5L + 40.

Accepted Answer

AP(L) is calculated as TP(L)/L, which simplifies to 5L + 40/L when TP(L) = 5L²+ 40.

Question 4

Given the production function y = min (z₁- 2, z₂- 4), the efficient number of units of output when there are 20 units of z₁and 30 units of z₂available is A)30 B)18 C)26 D)13

Accepted Answer

To find the efficient number of units of output, we need to compare the output produced by each factor and choose the minimum one. 
For the first factor: zS1U1B11S1U1B0- 2, we have 20 units of zS1U1B11S1U1B0 available, so the output produced by this factor is:
20*(S1U1B11)^1*(S1U1B0)^1 = 20*S1U1B11*S1U1B0
For the second factor: zS1U1B12S1U1B0S1U1B1 S1U1B0- 4, we have 30 units of zS1U1B12S1U1B0 available, so the output produced by this factor is:
30*(S1U1B12)^1*(S1U1B0)^1*(S1U1B1)^1*(S1U1B0)^(-4) = 30*S1U1B12*S1U1B1/S1U1B0^4
To maximize the output, we have to choose the minimum output produced by these two factors, which is the first one:
20*S1U1B11*S1U1B0
To find the efficient number of units of output, we need to set this expression equal to y (the total output) and solve for S1U1B11 and S1U1B0:
y = min (20*S1U1B11*S1U1B0, 30*S1U1B12*S1U1B1/S1U1B0^4)
20*S1U1B11*S1U1B0 = y
S1U1B0 = (y/20)^(1/2)
30*S1U1B12*S1U1B1/S1U1B0^4 = y
S1U1B1 = (y*S1U1B0^4)/(30*S1U1B12)
Substituting S1U1B1 and S1U1B0 back into the first equation:
S1U1B11 = y/(20*S1U1B0)
S1U1B11 = y/[20*(y/20)^(1/2)]
S1U1B11 = (y/20)^(1/2)
Therefore, the efficient number of units of output is y = 20*S1U1B11*S1U1B0 = 20*(y/20)^(1/2)*(y/20)^(1/2) = 20*(y/20) = y = 20*S1U1B11*S1U1B0 = 20*(y/20)^(1/2)*(y/20)^(1/2) = 20*(y/20) = y = 360, which gives us an efficient number of units of output of 18 (y = 20*S1U1B11*S1U1B0 = 20*(2/3)*(3/2)). Therefore, the best choice is B.

Question 5

The cost to a cab driver of taking the day off increases when:
A)it rains.
B)the price of gasoline rises.
C)it is sunny.
D)more cabs enter the business.

Accepted Answer

The cost to a cab driver of taking the day off increases when it rains because demand for cabs is likely to be higher on rainy days, leading to potentially higher earnings that are foregone by taking the day off.

Question 6

If MC in plant 1 is 5 and MC in plant 2 is 4, a firm wanting to produce two units should:
A)contract them out.
B)produce them both in plant 2.
C)both them both in plant 1.
D)split them between the two plants.

Accepted Answer

Producing both units in plant 2 minimizes total marginal costs since plant 2 has a lower marginal cost (4) compared to plant 1 (5).

Question 7

The US "cash for clunkers" program took roughly 7 million cars off the road. Economists would consider this a colossal failure because:
A)the total number of cars was not reduced
B)7 million cars was not enough to put a dent in global warming
C)those 7 million cars had economic value
D)the program reduced the price of recycled steel

Accepted Answer

Economists would consider the "cash for clunkers" program a failure because the 7 million cars that were taken off the road had economic value, which was destroyed as part of the program. This destruction of economic value outweighed any potential benefits the program may have had. Additionally, the program did not actually reduce the total number of cars on the road, as the program's incentives led consumers to buy more cars to replace the clunkers they traded in.

Question 8

Advertising costs are:
A)avoidable and fixed.
B)fixed and sunk.
C)variable and sunk.
D)avoidable and variable.

Accepted Answer

Advertising costs are considered fixed because they do not change with the level of production or sales, and they are sunk because once incurred, they cannot be recovered.

Question 9

The higher the level of FC:
A)the lower the level of output which minimizes SMC.
B)the lower the profit, ceteris paribus.
C)the higher the level of output at which AFC reaches a minimum.
D)the more likely a firm will substitute variables for fixed factors.

Accepted Answer

Higher fixed costs reduce profit, assuming all other factors remain constant (ceteris paribus), because they increase total costs without affecting revenue.

Question 10

K and L are perfect substitutes in production in the following production function:
A)KL/2.
B)K + L.
C)min(K,L).
D)max(K,L).

Accepted Answer

Perfect substitutes in production means that one input can be substituted for another at a constant rate without affecting output. The production function K + L implies that K and L can be substituted one-for-one, making them perfect substitutes.

Question 11

Figure 6A

-At point B in Figure 6A, the MP and AP are equal to each other because:
A)the total product function has reached its maximum.
B)the variable resource is most productive.
C)the slopes of a ray from the origin and of the TP are equal.
D)the fixed resources are no longer productive.

Accepted Answer

At point B, the marginal product (MP) and average product (AP) are equal because the slope of a ray from the origin to the total product (TP) curve at that point is equal to the slope of the TP curve itself. This indicates that the efficiency of resource use is maximized, as both the MP and AP reach their peak at the same level of output.

Question 12

SMC may be defined as the rate at which:
A)variable cost increases as output increases.
B)variable cost increases as more variable inputs are used.
C)TC increases as marginal increments in all inputs are used.
D)variable cost increases as the firm produces more products.

Accepted Answer

The answer of SMC may be defined as the rate...

Question 13

Which of the following is not true of fixed costs?
A)Average fixed costs diminish as output increases.
B)Fixed costs increase AVC.
C)Fixed costs are the difference between SAC and AVC.
D)Fixed costs have no effect on marginal cost.

Accepted Answer

Fixed costs do not directly increase Average Variable Costs (AVC) because AVC is calculated based on variable costs alone, not including fixed costs. Fixed costs are constant regardless of the level of output, whereas AVC changes with the level of output.

Question 14

Suppose that a firm uses a technology for which the MP of a variable factor is initially rising. Then:
A)the firm will never reach diminishing marginal productivity.
B)MP is maximized before AP.
C)MP is maximized when AP is falling.
D)total and AP are maximized when MP is zero.

Accepted Answer

When the MP of a variable factor is initially rising, it means that the additional output produced by an additional unit of that factor is increasing. However, as the firm uses more and more of that factor, the MP will eventually start to decrease due to diminishing marginal productivity. Therefore, the MP will be maximized before the AP reaches its maximum, and the MP will start to fall before the AP starts to fall. Hence, option B is correct.

Question 15

Suppose that a particular good, y, is produced according to the following production function y = min(ax₁,bx₂)where x₁and x₂are inputs, and a and b are positive constants. Suppose further that x₁/x₂currently equals b/a. Then: A)an additional unit of x₁or x₂will not increase output. B)the current ratio of input- usage is technically inefficient. C)if a > b, the production of any output level requires more x₁than x₂. D)an additional unit of x₁will increase output.

Accepted Answer

Given the production function y = min(ax₁, bx₂) and the current input ratio x₁/x₂ = b/a, the production is at an efficient point where both terms inside the min() function are equal. Adding an additional unit of either input will not increase output because the production is determined by the minimum of the two terms, which are currently balanced.

Question 16

When a firm produces its product using the quantity of the variable resource which maximizes its average product:
A)marginal cost is minimized.
B)average cost equals marginal cost.
C)marginal product is also maximized.
D)average cost is maximized.

Accepted Answer

The answer of When a firm produces its product using...

Question 17

If STC = 7q³+ 3q + 7, then VC is: A)7q²+ 3. B)7q³+ 3q + 7. C)7q^3. D)7q³+ 3q.

Accepted Answer

VC (Variable Cost) is the part of the STC (Short-Run Total Cost) that varies with output, which is 7q^3 + 3q in this case.

Question 18

The law of diminishing returns to a variable input:
A)implies that total output must eventually decline.
B)implies that the MP of an input must rise initially.
C)implies that the MP of an input declines.
D)assumes that there are just two inputs.

Accepted Answer

The law of diminishing returns to a variable input states that as we increase the quantity of one input while holding all other inputs constant, there will come a point where the marginal product (MP) of that input starts to decline. This means that each additional unit of the input will contribute less and less to overall output. Therefore, choice C is correct as it implies that the MP of an input declines.

Question 19

If a firm uses a fixed- proportions production technology to produce its final output:
A)the AP of the variable factor is constant.
B)the cost curves are obtained in a similar fashion with the non- fixed- proportion technologies.
C)it will always employ the same amount of the variable factor.
D)the law of diminishing marginal productivity does not apply.

Accepted Answer

With fixed-proportions production technology, the firm must use a fixed ratio of inputs to produce a unit of output. As a result, the firm's cost curves will be different from those of non-fixed-proportions technologies. However, the law of diminishing marginal productivity still applies, and the firm may need to adjust the amount of the variable factor employed as output changes. The AP of the variable factor is not necessarily constant, as it depends on the particular fixed-proportions technology being used.

Question 20

A variable- proportions production function is one in which:
A)increasing the use of an input requires decreasing another by the same amount.
B)more of one input can be substituted for less of another.
C)isoquants are smooth.
D)inputs are perfect substitutes.

Accepted Answer

A variable-proportions production function allows for substitutions between inputs where more of one input can be used in place of less of another. This is reflected in the smooth isoquants of the production function. Option A describes a fixed proportions production function where inputs must be used in exact proportions. Option D describes a case of perfect substitution where any amount of one input can be replaced by an equivalent amount of another input.

Quiz 6: Production Cost: One Variable Input

Suppose TP(L) =5L²+40. MP(L) is:

Marginal product:

Suppose TP(L) = 5L²+ 40. AP(L) is:

Given the production function y = min (z₁- 2, z₂- 4) , the efficient number of units of output when there are 20 units of z₁and 30 units of z₂available is

The cost to a cab driver of taking the day off increases when:

If MC in plant 1 is 5 and MC in plant 2 is 4, a firm wanting to produce two units should:

The US "cash for clunkers" program took roughly 7 million cars off the road. Economists would consider this a colossal failure because:

Advertising costs are:

The higher the level of FC:

K and L are perfect substitutes in production in the following production function:

Figure 6A -At point B in Figure 6A, the MP and AP are equal to each other because:

SMC may be defined as the rate at which:

Which of the following is not true of fixed costs?

Suppose that a firm uses a technology for which the MP of a variable factor is initially rising. Then:

Suppose that a particular good, y, is produced according to the following production function y = min(ax₁,bx₂) where x₁and x₂are inputs, and a and b are positive constants. Suppose further that x₁/x₂currently equals b/a. Then:

When a firm produces its product using the quantity of the variable resource which maximizes its average product:

If STC = 7q³+ 3q + 7, then VC is:

The law of diminishing returns to a variable input:

If a firm uses a fixed- proportions production technology to produce its final output:

A variable- proportions production function is one in which: