Economics 101-5

Practice Questions Exam 3

1A firm's production function indicates the

a. / minimum level of output that could be produced with different combinations of inputs
b. / relationship between output and total cost
c. / relationship between output and total revenue
d. / maximum level of output that could be produced with different combinations of inputs
e. / relationship between output and profit
  1. If the physical plant for a corporation is considered to be a fixed input, then

a. / it is held constant in the long run
b. / it can be changed in the long run
c. / labor must be a variable input
d. / technology must be changing
e. / the firm will lose money in the short run except under perfect competition
  1. In the short run,

a. / utilization of any input can be varied
b. / the period of time must be less than one year
c. / all resources are limited in supply
d. / utilization of some inputs are assumed constant
e. / equilibrium cannot occur
  1. Fixed inputs are those whose

a. / quantity changes as the level of output changes
b. / costs are irreversible
c. / quantity remains constant regardless of the level of output
d. / quantity determines the level of profit
e. / appearance was damaged while being transported, but has been fixed
  1. Figure G-1 shows the amounts of coal that a mining company could produce per week by changing the number of workers while capital and technology remain constant. The marginal product of employing the fourth worker is

a. / 120 tons of coal
b. / 480 tons of coal
c. / 319 tons of coal
d. / 180 tons of coal
e. / 106.33 tons of coal
  1. Figure G-1 shows the production function of a mining company. How many workers could the mine hire before the marginal product of labor begins to decline?

a. / 1 worker
b. / 2 workers
c. / 3 workers
d. / 4 workers
e. / 5 workers

7. The law of diminishing marginal returns says that

a. / total product eventually falls as more of an input is added to production
b. / total revenue decreases as output increases, holding technology fixed
c. / marginal product eventually falls as more of an input is employed
d. / the quantity demanded of a good decreases as its price rises
e. / utility falls as more of a good is consumed
  1. When the marginal product of labor is positive,

a. / total product could be rising or falling
b. / average product must be falling
c. / average product must be rising
d. / average product must exceed marginal product
e. / total product must be rising
  1. A firm's explicit costs are

a. / the opportunity cost of the owners
b. / its depreciation costs
c. / the money paid for use of inputs
d. / its main source of depreciation costs
e. / irrelevant to the determination of economic profit
  1. Which of the following, necessarily, equals zero when the firm's short-run output level is zero?

a. / sunk costs
b. / fixed costs
c. / implicit costs
d. / variable costs
e. / opportunity costs
  1. Average fixed cost is

a. / the sum of variable and fixed costs
b. / total cost minus variable cost
c. / variable cost plus marginal cost
d. / total fixed cost per unit of output
e. / constant as output changes
  1. Which of the following formulas is not correct?

a. / ATC = AVC + (TFC/Q)
b. / TVC = TC/Q
c. / TC = TFC + TVC
d. / AFC = TFC/Q
e. / TVC = AVC  Q
  1. The change in cost to the firm from producing one additional unit of output is

a. / average total cost
b. / total variable cost
c. / average variable cost
d. / marginal cost
e. / total cost
  1. Figure G-7 shows the total cost for six different levels of output at a particular firm. What is the average total cost (ATC) of producing four units of output?

a. / $2,600
b. / $200
c. / $650
d. / $50
e. / $10,400
  1. Figure G-7 shows the total cost for six different levels of output at a particular firm. What is the marginal cost (MC) of the last unit of output listed in the table (i.e., the fifth unit of output)?

a. / $2,700
b. / $540
c. / $100
d. / $90
e. / $500
  1. If a firm increases its output level in the short run, then

a. / variable costs rise, but fixed costs remain unchanged
b. / both variable costs and fixed costs rise
c. / variable costs rise, but fixed costs fall
d. / both variable costs and fixed costs fall
e. / variable costs remain unchanged, but fixed costs rise
  1. If a firm's marginal product of labor curve is represented by Figure G-10, then the firm's marginal cost is

a. / steadily falling
b. / steadily rising
c. / rising and then falling
d. / falling and then rising
e. / constant
  1. If marginal cost is greater than average total cost then

a. / profits are increasing
b. / economies of scale are becoming greater
c. / average total cost remains constant
d. / average total cost is increasing
e. / average total cost is decreasing
  1. The total cost to the firm of producing zero units of output is

a. / zero in both the short run and the long run
b. / its fixed cost in the short run, zero in the long run
c. / its fixed cost in the long run, zero in the short run
d. / its fixed cost in both the short run and the long run
e. / its variable cost in both the short run and the long run
  1. Long-run average total cost must always be

a. / rising
b. / declining
c. / greater than or equal to the marginal unit of variable cost
d. / greater than or equal to the short run average total cost
e. / less than or equal to the short run average total cost
  1. The firm depicted in Figure G-13 has a larger plant size at point

a. / H than at point F
b. / F than at point H
c. / F than at point G
d. / G than at point H
e. / H than at point G
  1. Diseconomies of scale tend to occur in large firms because

a. / the many layers of management are cumbersome and because it is difficult to monitor employees
b. / such firms are operating at inappropriate plant sizes for their output levels
c. / such firms are operating at a point above their long-run average total cost curves
d. / their ability to adjust their plant sizes is constrained by the existence of fixed inputs
e. / they fail to garner all the possible gains from specialization
  1. Accounting profit is defined as

a. / total revenue minus opportunity cost
b. / total revenue minus all costs of production
c. / total revenue minus explicit costs
d. / the sum of marginal revenues received from all units produced
e. / the difference between marginal revenue and marginal cost
  1. A firm's total revenue

a. / can be read off the demand curve it faces, but only if we know total cost of production
b. / can be read off the demand curve it faces, but only if we know how must output the firm sells
c. / is found by multiplying price per unit by the number of units produced and sold
d. / is equal to profit when inputs are fixed in the short run
e. / will be positive at any level of output
  1. Under the total revenue and total cost approach to profit maximization,

a. / firms equate total cost and total revenue in order to maximize profit
b. / the profit-maximizing output level is equivalent to the total revenue-maximizing output level
c. / when total costs are minimized, profits are maximized
d. / firms choose the output level where TR - TC is greatest
e. / total cost must always exceed total revenue in the long run
  1. Figure H-3 shows the total revenue and total cost for a firm at selected output levels. Which is the profit-maximizing level of output for this firm?

a. / 100 units
b. / 200 units
c. / 500 units
d. / 300 units
e. / 400 units

The following table is for use with questions 27 and 38.

Production Data
x (Input) / y (Output) / APP / Discrete MPP
0 / 0 / –
1 / 9.75
2 / 19
3 / 27.75
4 / 36
5 / 43.75
6 / 51
7 / 57.75 / 8.25 / 6.75
8 / 64 / 6.25
9 / 69.75 / 7.75
10 / 75 / 7.5
11 / 79.75 / 7.25 / 4.75
12 / 84
14 / 91
16 / 96 / 6 / 2.5
18 / 99 / 5.5 / 1.5
20 / 100
22 / 99
24 / 96 / 4 / -1.5

27. What is the average product of x when x = 12 and y = 84?

  1. 6
  2. 7
  3. 7.5
  4. 4.5
  5. 4.25

28. What is the discrete marginal product of x when x = 20 and y = 100?

  1. 1
  2. 2
  3. -1
  4. 0.5
  5. 5

29. Consider the following production function

The price of x1 is $5 and the price of x2 is $2. Which of the following points is the minimum cost way to produce 606 units of output?

x1 / x2 / y / MP1 / MP2 / MRS / -w2 / w1
11.787 / 12.000 / 606.000 / 28.213 / 14.000 / -0.4962
11.500 / 13.000 / 28.500 / 13.500
10.845 / 14.000 / 29.155 / 13.000
10.411 / 15.000 / 29.589 / 12.500
10.000 / 16.000 / 30.000 / 12.000
9.611 / 17.000 / 30.389 / 11.500
9.000 / 18.000 / 31.000 / 11.000
8.895 / 19.000 / 606.000 / 31.105 / 10.500

a.x1 = 11.500, x2 = 13

b.x1 = 10.411, x2 = 15

c.x1 = 10.000, x2 = 16

d.x1 = 9.611, x2 = 17

e.x1 = 9.000, x2 = 18

Answers

1 / D
2 / B
3 / D
4 / C
5 / D
6 / D
7 / C
8 / E
9 / C
10 / D
11 / D
12 / B
13 / D
14 / C
15 / C
16 / A
17 / D
18 / D
19 / B
20 / E
21 / D
22 / A
23 / C
24 / C
25 / D
26 / D
27 / B
28 / D
29 / C