Question 1

Let the production function be f(L)=6L^2/3. Suppose that the cost per unit of labor is 8 and the price of output is 8, how many units of labour will the firm hire? A)192 B)128 C)64 D)32

Accepted Answer

The firm will hire labor until the marginal product of labor (MPL) equals the wage rate divided by the price of output. The production function is $f(L) = 6L^{1/2}$. The MPL is the derivative of $f(L)$ with respect to $L$, which is $3L^{-1/2}$. Setting the MPL equal to the wage rate (8) divided by the price of output (8) gives $3L^{-1/2} = 1$. Solving for $L$ gives $L = 9$, but this does not match any of the provided options. Given the options and the context, it seems there might have been a misunderstanding in the interpretation of the question or a mistake in the calculation. Re-evaluating with the correct approach for profit maximization or cost minimization in mind, and assuming a potential typo or misinterpretation, the correct answer within the provided context is not directly derivable from the given explanation. Therefore, the correct approach involves setting the marginal cost equal to the marginal revenue product, but without the specific details on how the options relate to the given function, an accurate recalculation is necessary.

Question 2

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid
$2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?
A)$5.50
B)$6.75
C)$3.00
D)$4.25

Accepted Answer

The cost of the smokie is $3. Adding the cost of the bus ride ($2.50) brings the total to $5.50. However, the question only asks for the cost of the smokie, so the answer is $3. Therefore, the best choice is D.

Question 3

Slaves in the deep South typically ate better than free whites because
A)slaves were considered assets
B)slaves always had to have positive marginal products
C)slave owners were altruistic
D)free people value leisure time more than slaves

Accepted Answer

Slaves were considered assets by their owners and were therefore often given enough food to maintain their physical health and productivity. In contrast, free whites did not have the same value as assets and were not provided with the same level of economic support.

Question 4

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

Accepted Answer

The answer of If STC = 7q³+ 3q +...

Question 5

Which of the following statements is necessarily true for a production process that employs one variable input?
A)If AP is rising, SAC is falling.
B)If MP is zero, SMC equals AVC.
C)If AP is falling, SMC is falling.
D)The AVC function is U- shaped.

Accepted Answer

The answer of Which of the following statements is necessarily...

Question 6

Which of the following is the most reasonable production function for bicycles (b)made of frames (f), handlebars (h), seats (s), and wheels (w)? (Note: frames include pedals, gears, and other parts.)
A)b = min(f,h,s,w/2)
B)b = fhsw/2
C)b = min(f,h,s,2w)
D)b = max(f,h,s,w/2)

Accepted Answer

Option A is not reasonable as it assumes that the number of wheels will limit the number of bicycles produced. Option B is also not reasonable as it assumes that every bicycle produced will have the same combination of frames, handlebars, seats, and wheels which is not practical. Option D is also not reasonable as it does not take into account the fact that a bicycle needs all four components to be functional. Option C is the most reasonable as it assumes that the minimum quantity of each component required to produce a bicycle is frames, handlebars, seats, and 2 wheels.

Question 7

Which of the following cost relationships hold in the short- run?
A)If ATC exceeds AVC, AVC is falling.
B)If AVC is constant, then ATC is also constant, but at a higher level.
C)For positive FC, AVC approaches ATC as output increases.
D)If SRMC is rising, both AVC and AFC are rising.

Accepted Answer

In the short-run, fixed costs cannot be changed, so as output increases, the fixed costs are spread over a larger quantity of output, causing average fixed costs to decrease. As long as average variable costs are also decreasing with increased output, then average total costs will approach average variable costs as output increases (i.e. AVC approaches ATC).

A, B, and D are incorrect because they do not hold true in all situations in the short-run.

Question 8

In the short- run, a firm increases its labour input from 10 to 11 workers and output increases from 500 to 560 units. Which of the following statements is correct?
A)The marginal product of the 11th worker is 50.
B)The average product of 11 workers is 60.
C)The marginal product of the 11th worker is 60.
D)The average product of 11 workers is 50.

Accepted Answer

Marginal product of labor (MPL) is the additional output produced as a result of employing an additional unit of labor, keeping all other factors constant. In this problem, we can calculate the marginal product of the 11th worker as follows:
MPL = (Change in output) / (Change in labor)
MPL = (560 - 500) / (11 - 10)
MPL = 60
Therefore, the correct statement is that the marginal product of the 11th worker is 60.

Question 9

The costs that influence decisions to supply are always:
A)average costs.
B)avoidable costs.
C)sunk costs.
D)costs not yet incurred.

Accepted Answer

Avoidable costs are costs that can be avoided by not engaging in a particular activity, such as supplying a product. These are the costs that are relevant to decision-making regarding supply, as they represent the costs that can be saved by not supplying. Average costs, sunk costs, and costs not yet incurred are not directly relevant to the decision to supply.

Question 10

If STC = 7q³+ 3q + 7, then AFC is: A)7q³+ 3q. B)3q + 7. C)7. D)7/q.

Accepted Answer

AFC (Average Fixed Cost) is the fixed cost per unit of output. In the given expression, STC (Short-Run Total Cost) is 7q^3 + 3q + 7, where 7 is the fixed cost. Therefore, AFC is 7.

Question 11

The diminishing marginal product of labour refers to:
A)that as more and more workers are hired holding the level of capital fixed, the additional output will decrease.
B)a decline in our educational system.
C)workers getting lazy with age.
D)that as more and more workers are hired holding the level of capital fixed, the total output will decrease.

Accepted Answer

The concept of diminishing marginal product of labour states that as more and more workers are hired holding the level of capital fixed, the additional output that each worker produces will eventually decrease. This is due to factors such as limited workspace, capital constraints, and less supervision, leading to a decrease in productivity. Therefore, choice A is the best answer. Choices B and C are unrelated, and choice D is incorrect because total output will initially increase, but at a diminishing rate.

Question 12

Let y^*denote the level of output for which AP of a variable input reaches a maximum. Then: A)for y = y^*, short run SMC is zero. B)for y > y^*, the input's SMP exceeds its AP. C)for y > y^*, SMC exceeds AVC. D)for y < y^*, the input's AP exceeds its SMP.

Accepted Answer

In the short run, when output exceeds the level where average product (AP) is maximized, marginal cost (SMC) typically exceeds average variable cost (AVC) due to diminishing returns.

Question 13

Let the production be f(x,y)= x^1/2y^1/2. If the price of x is 8 and the price of y is 16, in what proportions should the firm use x and y if it wants to maximize profits? A)x=y B)x=2y C)x=0.5y D)Cannot tell without knowing the price of output.

Accepted Answer

The answer of Let the production be f(x,y)= x^1/2y^1/2. If...

Question 14

Figure 6A

-Which level of the variable input in Figure 6A will a firm choose if it wishes to maximize output?
A)D
B)C
C)A
D)B

Accepted Answer

At level B, the marginal product of the variable input is highest, indicating that output can be increased the most with an additional unit of the variable input. Therefore, a firm wishing to maximize output would choose level B.

Question 15

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should
A)decrease output in both plants.
B)increase output in both plants.
C)increase output in the first plant and decrease it in the second plant.
D)decrease output in the first plant and increase it in the second plant.

Accepted Answer

Since the marginal cost at the first plant is above market price, it is not profitable to produce more output from the first plant. On the other hand, since the marginal cost at the second plant is less than market price, it is profitable to produce more output from the second plant. Therefore, the best choice to increase profit would be to decrease output in the first plant and increase it in the second plant.

Question 16

If STC = q²- q + 3, then: A)AVC = q - 1 and FC = 3. B)AVC = q- 1 + 3/q and SMC = 2q - 1. C)SMC = 2q - 1 and VC = q². D)FC = - q + 3 and AVC = q.

Accepted Answer

STC stands for Short-Term Costs, which can be broken down into Fixed Costs (FC) and Variable Costs (VC). The equation given suggests that STC equals a variable component (q²) plus a constant (-q + 3). Therefore, FC, which does not depend on q, is -q + 3 when q is 0, simplifying to 3. AVC (Average Variable Cost) is the variable part of the cost divided by q, which simplifies to q - 1 when excluding the constant term.

Question 17

Capital inputs may cause confusion if they are purchased because firms must:
A)pay interest on borrowed money.
B)choose whether to rent or buy.
C)determine the equivalent rental price.
D)determine whether the input is a lemon.

Accepted Answer

When firms purchase capital inputs, they must determine the equivalent rental price in order to make an informed decision. This involves calculating the cost of ownership (purchase price and maintenance costs) and comparing it to the cost of renting the same input. This can be a complex calculation that requires consideration of the expected lifespan of the input, the interest rate on borrowed funds, and the opportunity cost of using funds to purchase rather than invest elsewhere.

Question 18

A production function measures how:
A)an individual maximizes utility.
B)a firm minimizes cost.
C)a firm transforms inputs into output.
D)a firm transforms output into input.

Accepted Answer

The answer of A production function measures how:
A)an individual maximizes...

Question 19

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?
A)SMC is less than AVC.
B)SAC will fall.
C)AP will increase.
D)AFC will increase.

Accepted Answer

If the MP of a variable input exceeds its AP, it means that the last unit of input added is contributing more to output than the average of all units of input. This implies that the AP will increase if one more unit of the variable input is used, thus option C is true.

However, using one more unit of variable input will not affect the SMC. It will remain the same as the cost of producing an additional unit of output depends on the cost of all the inputs, not just the variable input. Thus, option A is false.

The SAC will depend on the relationship between the cost of the variable and fixed inputs. If the cost of the variable input is increasing, SAC will increase, but if it is constant, SAC will remain the same or fall. Therefore, option B is not necessarily true.

Finally, using one more unit of variable input will reduce the AFC because the fixed cost is spread over a larger quantity of output. Therefore, option D is false.

Question 20

Which of the following statements is necessarily false?
A)AP falls when it is less than MP.
B)AFC is horizontal.
C)MP is constant when it equals AP.
D)MP falls when it exceeds AP.

Accepted Answer

When AP is less than MP, AP is actually increasing, not falling, because the marginal product (MP) is adding more to the total output than the average product (AP) up to that point, which pulls the average up.

Quiz 6: Production Cost: One Variable Input

Let the production function be f(L) =6L^2/3. Suppose that the cost per unit of labor is 8 and the price of output is 8, how many units of labour will the firm hire?

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid $2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?

Slaves in the deep South typically ate better than free whites because

If STC = 7q³+ 3q + 7, then AVC is:

Which of the following statements is necessarily true for a production process that employs one variable input?

Which of the following is the most reasonable production function for bicycles (b) made of frames (f) , handlebars (h) , seats (s) , and wheels (w) ? (Note: frames include pedals, gears, and other parts.)

Which of the following cost relationships hold in the short- run?

In the short- run, a firm increases its labour input from 10 to 11 workers and output increases from 500 to 560 units. Which of the following statements is correct?

The costs that influence decisions to supply are always:

If STC = 7q³+ 3q + 7, then AFC is:

The diminishing marginal product of labour refers to:

Let y^*denote the level of output for which AP of a variable input reaches a maximum. Then:

Let the production be f(x,y) = x^1/2y^1/2. If the price of x is 8 and the price of y is 16, in what proportions should the firm use x and y if it wants to maximize profits?

Figure 6A -Which level of the variable input in Figure 6A will a firm choose if it wishes to maximize output?

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should

If STC = q²- q + 3, then:

Capital inputs may cause confusion if they are purchased because firms must:

A production function measures how:

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?

Which of the following statements is necessarily false?