Question 1

Which of the following will cause the marginal cost curve of making cigarettes to shift?

Accepted Answer

A)  a $5 million penalty charged to each cigarette maker
B)  a $1 per pack tax on cigarettes
C)  a $1 million advertising campaign by the American Cancer Society
D)  All of the above.

Question 2

The Cobb-Douglas production function for a beer manufacturer is q=1.52L0.6K0.4. Assume that the firm's capital is fixed at 250 units, the rental rate of capital is $5 per unit, and the wage rate is $10 per hour. The amount of labor needed to produce q units of output is

Accepted Answer

A)  0.0124q.
B)  13.832q0.6.
C)  0.0124q1.67.
D)  13.832q1.67.

Question 3

Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?

Accepted Answer

A)  $1
B)  $0.5
C)  $0.25
D)  It cannot be determined without more information.

Question 4

Travel websites such as Travelocity tend to offer reservation services for multiple travel modes. This is because

Accepted Answer

A)  the firms have contractual obligations to offer reservations for airlines and railroads, for example.
B)  the firms have statutory obligations to offer reservations for airlines and railroads, for example.
C)  once the firm has the reservation technology for airlines, there are economies of scale in offering the same service for railroads.
D)  once the firm has the reservation technology for airlines, there are economies of scope in offering the same service for railroads.

Question 5

A specific tax of $1 per unit of output will affect a firm's

Accepted Answer

A)  average total cost, average variable cost, average fixed cost, and marginal cost.
B)  average total cost, average variable cost, and average fixed cost.
C)  average total cost, average variable cost, and marginal cost.
D)  marginal cost only.

Question 6

A firm can minimize cost by

Accepted Answer

A)  picking the bundle of inputs where the lowest isocost line touches the isoquant.
B)  picking the bundle of inputs where the isoquant is tangent to the isocost line.
C)  picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input.
D)  All of the above.

Question 7

Average variable cost (AVC)

Accepted Answer

A)  is the variable cost divided by the average sales price of the final good.
B)  is the variable cost divided by the quantity of output produced.
C)  is equal to average fixed cost (AF
C)  when no output is produced.
D)  is always less than average fixed cost (AF
C)  .

Question 8

An accountant may amortize the expense of a durable good by dividing the total amount spent on the good by the number of years the good is expected to last. An economist may amortize the expense of a durable and never fully account for the total expense.

Accepted Answer

A) True 
 B)False

Question 9

Fixed costs are

Accepted Answer

A)  a production expense that does not vary with output.
B)  a production expense that changes with the quantity of output produced.
C)  equal to total cost divided by the units of output produced.
D)  the amount by which a firm's cost changes if the firm produces one more unit of output.

Question 10

If average cost is positive,

Accepted Answer

A)  marginal cost equals average cost.
B)  marginal cost exceeds average cost.
C)  marginal cost is less average cost.
D)  Not enough information is given.

Question 11

You have two career options. You can work for someone else for $50,000 a year, or, you can run your own business, with an annual revenue of $100,000, and explicit costs of $40,000 annually. Explain which career option a profit-maximizer would select and why.

Accepted Answer

In the absence of other implic...

Question 12

The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

Accepted Answer

A)  $0.
B)  $1 million.
C)  some amount greater than $0 but less than $1 million.
D)  equal to the cost of the factory that was planned to be built there.

Question 13

One problem with measuring a durable good's cost is

Accepted Answer

A)  how to allocate the initial purchase cost.
B)  how to account for depreciation of the good.
C)  that the good may break before the end of its estimated useful life.
D)  when to decide to throw it away for a newer model even if the cost has not been accounted for.

Question 14

If the cost of capital decreases, the isocost line will

Accepted Answer

A)  stay the same.
B)  shift outward in parallel fashion.
C)  rotate outward around the point where only labor is employed in production.
D)  shift inward in parallel fashion.

Question 15

Isocost lines

Accepted Answer

A)  represent the combinations of inputs that have the same marginal cost.
B)  represent the combinations of inputs that have the same total cost.
C)  are the inverse of the isoquant lines.
D)  represent supply and demand for inputs at a given cost.

Question 16

You purchase a pizza oven that is expected to last 10 years for $15,000. How do you account for the economic cost of the oven?

Accepted Answer

A)  Expense the oven, taking a write-off for the entire price in the first year.
B)  Amortize the cost over the 10-year life of the oven, resulting in a cost of $1,500 per year.
C)  Calculate the value of renting the oven to someone else and use that as your cost.
D)  The cost is the price of the oven minus any revenue made selling pizzas made in the oven.

Question 17

If increasing returns to scale are present, the long-run average cost increases as more output is produced.

Accepted Answer

A) True 
 B)False

Question 18

Marginal cost is

Accepted Answer

A)  positive or zero.
B)  negative or zero.
C)  positive or negative but not zero.
D)  positive, negative, or zero.

Question 19

Which of the following will cause the average cost curve of making cigarettes to shift?

Accepted Answer

A)  a $5 million penalty charged to each cigarette maker
B)  a $1 per pack tax on cigarettes
C)  a $1 an hour wage increase paid to all cigarette production workers
D)  All of the above.

Question 20

Which of the following is NOT a form of outsourcing?

Accepted Answer

A)  Hiring an accountant to do your taxes.
B)  Replacing the windshield wipers on your car.
C)  Paying your son to mow the lawn.
D)  Taking a taxi to the airport.

Exam 6: Costs

Marginal cost is

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If average cost is positive,

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Average variable cost (AVC)

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A firm can minimize cost by

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A specific tax of $1 per unit of output will affect a firm's

Correct AnswerverifiedShow Answer

The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

Correct AnswerverifiedShow Answer

If increasing returns to scale are present, the long-run average cost increases as more output is produced.

Correct AnswerverifiedShow Answer

Which of the following will cause the average cost curve of making cigarettes to shift?

Correct AnswerverifiedShow Answer

You purchase a pizza oven that is expected to last 10 years for $15,000. How do you account for the economic cost of the oven?

Correct AnswerverifiedShow Answer

Isocost lines

Correct AnswerverifiedShow Answer

One problem with measuring a durable good's cost is

Correct AnswerverifiedShow Answer

An accountant may amortize the expense of a durable good by dividing the total amount spent on the good by the number of years the good is expected to last. An economist may amortize the expense of a durable and never fully account for the total expense.

Correct AnswerverifiedShow Answer

Fixed costs are

Correct AnswerverifiedShow Answer

Travel websites such as Travelocity tend to offer reservation services for multiple travel modes. This is because

Correct AnswerverifiedShow Answer

Which of the following is NOT a form of outsourcing?

Correct AnswerverifiedShow Answer

Which of the following will cause the marginal cost curve of making cigarettes to shift?

Correct AnswerverifiedShow Answer

Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?

Correct AnswerverifiedShow Answer

You have two career options. You can work for someone else for $50,000 a year, or, you can run your own business, with an annual revenue of $100,000, and explicit costs of $40,000 annually. Explain which career option a profit-maximizer would select and why.

Correct AnswerverifiedIn the absence of other implic...View AnswerShow Answer

If the cost of capital decreases, the isocost line will

Correct AnswerverifiedShow Answer

The Cobb-Douglas production function for a beer manufacturer is q=1.52L0.6K0.4. Assume that the firm's capital is fixed at 250 units, the rental rate of capital is $5 per unit, and the wage rate is $10 per hour. The amount of labor needed to produce q units of output is

Correct AnswerverifiedShow Answer

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Suppose the short-run production function is q = L^0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?

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In the absence of other implic...
View Answer

Correct Answer
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The Cobb-Douglas production function for a beer manufacturer is q=1.52L^0.6K^0.4. Assume that the firm's capital is fixed at 250 units, the rental rate of capital is $5 per unit, and the wage rate is $10 per hour. The amount of labor needed to produce q units of output is

Correct Answer
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