Question 1

Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery?

Accepted Answer

A)   Bubba adds more varied inputs to burger production.
B)   Bubba expands burger production, focusing on that one good.
C)   Bubba contracts burger production.
D)   Bubba adds grilled chicken sandwiches to the menu.
E)   Bubba cuts back on the diversity of the menu.

Question 2

A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm's long-run average cost curve over this range of output:

Accepted Answer

A)   is downward sloping.
B)   is upward sloping.
C)   is horizontal.
D)   may be any of the above.

Question 3

Fixed costs are fixed with respect to changes in:

Accepted Answer

A)   output.
B)   capital expenditure.
C)   wages.
D)   time.

Question 4

Scenario 7.3:
Use the production function: Q = 4L1/2K1/2.
-The production function in Scenario 7.3 exhibits:

Accepted Answer

A)   diminishing returns to labor.
B)   diminishing returns to capital.
C)   decreasing returns to scale.
D)   all of the above
E)   A and B, but not C.

Question 5

Duane breeds parrots for a living. He has discovered that the production function for parrot chicks (Q) is:
Q = K1/2L1/2 
where K is capital (for example nest boxes, cages and the like) and L is parrot food. The marginal products of capital and labor are as follows:
MPK = .5K-1/2L1/2 MPL = .5K1/2L-1/2 
The price of K is $8 and the price of L is $2.
a. What type of production function is this?
b. Does this production function exhibit constant, increasing or decreasing returns to scale? Explain.
c. What is the average product of capital?
d. Does capital obey the "law of diminishing returns?" Explain.
e. Suppose that Duane wants 144 parrot chicks, how much K and L should be employed to minimize costs, and what is the cost of producing 144 parrot chicks?
f. Suppose that Duane is faced with the same problem as in (f) except that he has a fixed amount of K. In fact, K = 16. How much L should be employed to minimize costs, and what is the total cost?

Accepted Answer

a.Cobb-Douglas.
b.This production functi...

Question 6

The total cost of producing a given level of output is:

Accepted Answer

A)   maximized when a corner solution exists.
B)   minimized when the ratio of marginal product to input price is equal for all inputs.
C)   minimized when the marginal products of all inputs are equal.
D)   minimized when marginal product multiplied by input price is equal for all inputs.

Question 7

Michael's dairy farm's cost function is  where q is the amount of output and A is the average age of Michael's employees. Currently, the average age of Michael's employees is 32. Next year, Michael expects the average age of his employees to decrease by 3 years due to job turnover. What happens to Michael's cost of production if he is correct?

Accepted Answer

Presently, Michael's costs are...

Question 8

Figure 7.4.3
-Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale.
II)  Economies of scale cause increasing returns to scale.

Accepted Answer

A)   Both I and II are true.
B)   I is true, and II is false.
C)   I is false, and II is true.
D)   Both I and II are false.

Question 9

Which of the following statements is true regarding the differences between economic and accounting costs?

Accepted Answer

A)   Accounting costs include all implicit and explicit costs.
B)   Economic costs include implied costs only.
C)   Accountants consider only implicit costs when calculating costs.
D)   Accounting costs include only explicit costs.

Question 10

Figure 7.5.1
-Refer to Figure 7.5.1 above. The combination of outputs in the figure describes a situation in which:

Accepted Answer

A)   a company specializing in cars and another in tractors would generate the same output as a single company producing both.
B)   joint production has advantages that enable a single company to produce more cars and tractors with the same resources than would two companies producing each product separately.
C)   a direct relationship between economies of scale and economies of scope.
D)   a two-output firm can enjoy economies of scope only if its production process does not involve diseconomies of scale.

Question 11

The scale economies index (SCI)  is equal to:

Accepted Answer

A)   the cost-output elasticity.
B)   one minus the cost-output elasticity.
C)   100 times the degree of economies of scope (S
C)  .
D)   marginal cost divided by average cost.

Question 12

Scenario 7.1:
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced.
-Refer to Scenario 7.1. The total cost to produce 100 cookies is:

Accepted Answer

A)   $0.10
B)   $0.25
C)   $25.00
D)   $100.00
E)   indeterminate

Question 13

The learning curve is graphically represented as a plot of:

Accepted Answer

A)   labor per unit on the horizontal axis and total cost on the vertical axis.
B)   labor per unit on the horizontal axis and total number of units produced on the vertical axis.
C)   total cost on the vertical axis and total number of units produced on the horizontal axis.
D)   labor per unit on the vertical axis and cumulative number of units produced on the horizontal axis.

Question 14

When an isocost line is just tangent to an isoquant, we know that:

Accepted Answer

A)   output is being produced at minimum cost.
B)   output is not being produced at minimum cost.
C)   the two products are being produced at the least input cost to the firm.
D)   the two products are being produced at the highest input cost to the firm.

Question 15

Use the following two statements to answer this question: I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present.
II)  A firm's average cost of production can decline over time if learning occurs as cumulative output increases.

Accepted Answer

A)   Both I and II are true.
B)   I is true, and II is false.
C)   I is false, and II is true.
D)   Both I and II are false.

Question 16

The total cost (TC)  of producing computer software diskettes (Q)  is given as:  . What is the variable cost?

Accepted Answer

A)   200
B)   5Q
C)   5
D)   5 + (200/Q) 
E)   none of the above

Question 17

From Equation (7.1)  in the book, the short-run marginal cost of production is MC = w/MPL. Based on this equation, which of the following statements is NOT true?

Accepted Answer

A)   If the marginal product of labor is constant, then MC is constant.
B)   If the marginal product of labor is a concave curve, then the MC curve is also concave.
C)   If the marginal product of labor is a concave curve, then the MC curve is U-shaped.
D)   MC increases as the marginal product of labor declines.

Question 18

Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is "buy low, sell high." Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have "bought high and sold low." Constantine's decision:

Accepted Answer

A)   is correct and shows a solid command of the nature of opportunity cost.
B)   is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold.
C)   is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares.
D)   is incorrect because it treats the price of the shares as an explicit cost.

Question 19

Estimates of the industry long-run average cost of producing a type of plastic hook were made in 1970 and again in 1985. Estimates of these relationships are presented as:
LAC70 = 10 - 0.3Q + 0.05Q2 
LAC85 = 8 - 0.6Q + 0.04Q2,
where Q is output in hundreds of cases per day, and LAC is average cost in dollars per unit. Assume that costs are expressed in inflation adjusted or constant dollars. From the information available, can you learn anything about economies of scope, economies of scale, and a learning curve in this industry? Explain. Do these curves reveal anything about the state of technology in this industry? Explain.

Accepted Answer

Nothing can be learned about economies o...

Question 20

For the firm's cost minimization problem, one of the key assumptions for each input is that:

Accepted Answer

A)   marginal product is constant.
B)   marginal product is increasing at a decreasing rate.
C)   marginal product is increasing at an increasing rate.
D)   marginal product is decreasing at an increasing rate.

Exam 7: The Cost of Production

Fixed costs are fixed with respect to changes in:

Correct Answer
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Correct Answer
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a.Cobb-Douglas.
b.This production functi...
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Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -The production function in Scenario 7.3 exhibits:

Correct Answer
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Correct Answer
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Presently, Michael's costs are...
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Figure 7.5.1 -Refer to Figure 7.5.1 above. The combination of outputs in the figure describes a situation in which:

Correct Answer
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Which of the following statements is true regarding the differences between economic and accounting costs?

Correct Answer
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Correct Answer
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Correct Answer
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The total cost (TC) of producing computer software diskettes (Q) is given as: . What is the variable cost?

Correct Answer
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The scale economies index (SCI) is equal to:

Correct Answer
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Figure 7.4.3 -Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II) Economies of scale cause increasing returns to scale.

Correct Answer
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For the firm's cost minimization problem, one of the key assumptions for each input is that:

Correct Answer
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The total cost of producing a given level of output is:

Correct Answer
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From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MP_L. Based on this equation, which of the following statements is NOT true?

Correct Answer
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Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. -Refer to Scenario 7.1. The total cost to produce 100 cookies is:

Correct Answer
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Correct Answer
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The learning curve is graphically represented as a plot of:

Correct Answer
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When an isocost line is just tangent to an isoquant, we know that:

Correct Answer
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Correct Answer
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Nothing can be learned about economies o...
View Answer

Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery?

Correct Answer
verified

Exam 7: The Cost of Production

Fixed costs are fixed with respect to changes in:

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Cobb-Douglas.b.This production functi...View AnswerShow Answer

Scenario 7.3: Use the production function: Q = 4L1/2K1/2. -The production function in Scenario 7.3 exhibits:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPresently, Michael's costs are...View AnswerShow Answer

Figure 7.5.1 -Refer to Figure 7.5.1 above. The combination of outputs in the figure describes a situation in which:

Correct AnswerverifiedShow Answer

Which of the following statements is true regarding the differences between economic and accounting costs?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The total cost (TC) of producing computer software diskettes (Q) is given as: . What is the variable cost?

Correct AnswerverifiedShow Answer

The scale economies index (SCI) is equal to:

Correct AnswerverifiedShow Answer

Figure 7.4.3 -Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II) Economies of scale cause increasing returns to scale.

Correct AnswerverifiedShow Answer

For the firm's cost minimization problem, one of the key assumptions for each input is that:

Correct AnswerverifiedShow Answer

The total cost of producing a given level of output is:

Correct AnswerverifiedShow Answer

From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MPL. Based on this equation, which of the following statements is NOT true?

Correct AnswerverifiedShow Answer

Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. -Refer to Scenario 7.1. The total cost to produce 100 cookies is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The learning curve is graphically represented as a plot of:

Correct AnswerverifiedShow Answer

When an isocost line is just tangent to an isoquant, we know that:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNothing can be learned about economies o...View AnswerShow Answer

Bubba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
a.Cobb-Douglas.
b.This production functi...
View Answer

Scenario 7.3: Use the production function: Q = 4L^1/2K^1/2. -The production function in Scenario 7.3 exhibits:

Correct Answer
verified

Correct Answer
verified
Presently, Michael's costs are...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MP_L. Based on this equation, which of the following statements is NOT true?

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Nothing can be learned about economies o...
View Answer

Correct Answer
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