Question 1

The equation Q = 0.5KL - (0.4)L + 2L2 is an example of

Accepted Answer

The equation Q = 0.5KL - (0.4)L + 2L2 is a production function because it shows the relationship between inputs (K and L) and output (Q).

Question 2

Suppose a firm is producing 250 units of output.At this level of output,average fixed costs are $20 per unit and average variable costs are $80 per unit.It can be concluded that total cost is

Accepted Answer

Total cost is calculated by adding total fixed costs and total variable costs. Total fixed costs are 250 units * $20 = $5000, and total variable costs are 250 units * $80 = $20000. Therefore, total cost is $5000 + $20000 = $25000.

Question 3

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array} { | c | c | } 
\hline \text { Labour per unit of time } & \text { Total output } \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$$ TABLE 7- 4
-Refer to Table 7- 4.The average total cost of producing 75 units of output is

Accepted Answer

The average total cost is calculated by dividing the total cost by the total output. For 75 units, the total cost is the cost of 2 units of labor ($25 each) plus the fixed capital cost ($100), which equals $150. Dividing $150 by 75 units gives an average total cost of $2 per unit.

Question 4

Consider a basket- producing firm with fixed capital.If the firm can produce 36 baskets per day with 3 workers and then increases productivity to 44 baskets per day with 4 workers,then which of the following statements is true?

Accepted Answer

The statement "the firm has passed the point of diminishing average productivity" is true because the average product of labor has increased from 12 (36/3) to 11 (44/4), indicating that adding the fourth worker has not increased productivity enough to offset the additional cost of labor. However, none of the other statements can be inferred from the information given.

Question 5

Consider a firm's short- run cost curves.Which one of the following types of cost declines over the whole range of output?

Accepted Answer

Average fixed cost declines over the whole range of output because it is calculated by dividing total fixed cost by the quantity of output, meaning that as output increases, average fixed cost decreases. This is due to the fixed cost being spread over a greater quantity of output, resulting in a lower per-unit cost.

Question 6

The vertical distance between the total cost curve and the total variable cost curve is

Accepted Answer

The vertical distance between the total cost curve and the total variable cost curve represents the total fixed cost, as total cost is the sum of total variable cost and total fixed cost.

Question 7

The table below provides the annual revenues and costs for a family- owned firm producing catered meals. $\begin{array}{|l|l|}
\hline \text { Total Revenues }(\$) & 500000 \
\hline & \
\hline \text { Total Costs }(\$) & \
\hline \text { wages and salaries } & 200000 \
\hline \text { risk-free return of } 6 \% \text { on owners' capital of } 250000 & 15000 \
\hline \text { rent } & 105000 \
\hline \text { depreciation of capital equipment } & 25000 \
\hline \text { risk premium of } 8 \% \text { on owners' capital of } 250000 & 20000 \
\hline \text { intermediate inputs } & 150000 \
\hline \text { forgone wages of owners in alternative employment } & 80000 \
\hline \text { interest on bank loan } & 10000 \
\hline
\end{array}$ TABLE 7- 1
-Refer to Table 7- 1.To an accountant,this family- owned catering company is earning .To an economist,the same firm is earning _ .

Accepted Answer

The answer of The table below provides the annual revenues...

Question 8

A firm can raise financial capital without incurring debt by

Accepted Answer

Issuing new shares is a way in which a firm can raise financial capital without incurring debt. By issuing new shares, the firm is selling ownership in the company to new investors, which in turn provides the firm with the necessary capital to finance its operations or investments. Unlike issuing bonds or increasing bank loans, issuing new shares do not increase the firm's debt burden, as shareholders have an equity stake in the company rather than being creditors. Investing in new capital equipment or making extra dividend payments are not ways in which a firm can raise financial capital.

Question 9

Suppose a firm is producing 500 units of output,incurring a total cost of $700 000 and total fixed cost of $100 000.It can be concluded that average variable cost is

Accepted Answer

Average variable cost = Total variable cost / Output = (Total cost - Total fixed cost) / Output = ($700,000 - $100,000) / 500 = $1,200

Question 10

The following data show the total output for a firm when specified amounts of labour are combined with a fixed amount of capital.When answering the questions,you are to assume that the wage per unit of labour is $25 and the cost of the capital is $100. $$\begin{array} { | c | c | } 
\hline \text { Labour per unit of time } & \text { Total output } \
\hline 0 & 0 \
\hline 1 & 25 \
\hline 2 & 75 \
\hline 3 & 175 \
\hline 4 & 250 \
\hline 5 & 305 \
\hline
\end{array}$$ TABLE 7- 4
-Refer to Table 7- 4.Diminishing marginal productivity of labour is first observed when the firm changes the amount of labour hired from

Accepted Answer

The answer of The following data show the total output...

Question 11

Economists use the notation Q = f(L,K)to describe

Accepted Answer

The notation Q = f(L,K) describes the technological relationship between the inputs (labour and capital) that a firm uses and the output it produces. This means that it shows how changes in the inputs will affect the level of output.

Question 12

A firm's capacity is defined as the level of output where

Accepted Answer

A firm's capacity is defined as the level of output where the short-run average total cost is at its minimum, indicating the most efficient scale of production.

Question 13

A firm that is maximizing its profits by producing a certain level of output must also be

Accepted Answer

In order to maximize profits, a firm needs to produce at the point where marginal cost equals marginal revenue. At this level of production, the firm is producing output at the lowest possible cost, which means it is also minimizing its cost of producing that output. Therefore, option A is the correct choice. B, C, D, and E may be necessary conditions for profit maximization, but they are not sufficient conditions.

Question 14

When a corporation issues a bond

Accepted Answer

When a corporation issues a bond, it is making a promise to pay interest each year and to repay the principal at a stated time in the future. This is known as debt financing, in which the corporation raises money by borrowing from investors through the issuance of bonds. The purchaser of the bond does not assume ownership rights in the corporation, nor is the issuance of a bond considered equity capital. Financing through the stock market typically involves the issuance of stocks or shares, not bonds.

Question 15

A firm's short- run cost curves,as conventionally drawn,show that

Accepted Answer

The ATC curve initially decreases as output increases because the fixed costs are spread over larger and larger output. However, at some point, the diminishing marginal returns and increasing marginal costs cause the ATC curve to increase. This is known as the U-shaped ATC curve. The other statements are either incorrect (A, C, D) or tautological (E).

Question 16

The opportunity cost to a firm of using an asset is zero if

Accepted Answer

The opportunity cost is zero if the asset has no alternative uses, as there are no foregone benefits from using it in its current capacity.

Question 17

Short- run cost curves for a firm are eventually upward- sloping because of the effects of

Accepted Answer

In the short run, a firm's fixed costs are fixed, so any increased production beyond a certain point will result in diminishing marginal product. This means that each additional unit of variable input (such as labor) will result in a smaller increase in output, which leads to higher marginal costs and eventually upward-sloping cost curves.

Question 18

Jodi recently went into business producing widgets.Which of the following would be a fixed cost for her firm? 1.labour costs of $1000 per month
2.raw material costs of $5000 per month
3.a one- year lease on a building of $12 000

Accepted Answer

A fixed cost is a cost that remains constant regardless of the quantity of goods or services produced. In this case, the one-year lease on a building is a fixed cost as it remains the same no matter how many widgets Jodi produces. The labour cost and raw material cost are variable costs, as they change with the level of production.

Question 19

Real capital includes

Accepted Answer

Real capital refers to a firm's physical assets, such as equipment, land, and buildings. Owner's equity (A) is considered financial capital, and a firm's balance in its bank account (B) is a financial asset. Corporate bonds (D) and corporate stock (E) are also considered financial assets.

Question 20

A limited partnership differs from an ordinary partnership by

Accepted Answer

A limited partnership includes both general partners who have unlimited liability and limited partners whose liability is restricted to the amount they invested in the firm. This is different from an ordinary partnership where all partners have unlimited liability. Choice B is incorrect because there can be a large number of limited partners in a limited partnership, and choice C is incorrect because all partners do not have limited liability in a limited partnership. Choice D is partially correct, but it is not the defining difference between a limited partnership and an ordinary partnership. Choice E is incorrect because not all partners have unlimited liability in a limited partnership.

Quiz 7: Producers in the Short Run

The equation Q = 0.5KL - (0.4) L + 2L2 is an example of