EC 308 FINAL EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

EC 308 FINAL EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 In the long run A. All inputs are fixed B. Only capital inputs are fixed C. All intermediate goods are fixed D. All inputs are variable - Answers D. All inputs are variable The short run is defined as that period of time during which A. One or more inputs cannot be freely varied B. All inputs are variable C. All inputs are fixed D. Labor is counted as a fixed input - Answers A. One or more inputs cannot be freely varied If equal amounts of a variable input are sequentially added to the fixed input in a typical production function, A. The increments to output will decrease first and then increase B. The additions to output will be constant C. Increments to output will increase indefinitely D. Increments to output will first increase at an increasing rate and then at a decreasing rate - Answers D. Increments to output will first increase at an increasing rate and then at a decreasing rate The law of diminishing returns to an input says that if other inputs are fixed A. output eventually will decrease with increases of the variable input B. change in output will eventually decrease with increases in the variable input C. revenue will eventually decrease with increases in the variable input. D. the variable input will eventually decrease with more output - Answers B. change in output will eventually decrease with increases in the variable input The average product of a variable input A. Decreases at an increasing rate B. Constantly rises over the relevant range of production C. Is the change in the total product that occurs when the variable input increases one unit D. Is defined as the total product divided by the quantity of the variable input - Answers D. Is defined as the total product divided by the quantity of the variable input Geometrically, the marginal product A. Is the slope of the line joining the origin to the corresponding point on the total product curve B. At any point is the slope of the total product curve at that point C. Is that point at which the total product curve exhibits diminishing returns D. Is the slope of the average product curve - Answers B. At any point is the slope of the total product curve at that point In a short-run production function before diminishing returns set in, A. Both MPL and APL will have positive slopes and MPL will lie above APL B. Both MPL and APL will have positive slopes and APL will lie above MPL C. Both MPL and APL will have negative slopes and MPL will lie above APL D. Both MPL and APL will have negative slopes and APL will lie above MPL - Answers A. Both MPL and APL will have positive slopes and MPL will lie above APL Say you are the owner of a Pizza place. You know that when your produce 10 pizzas, the average product of each of your workers is 10, and the marginal product of your last worker is 15. From this information you know that: A. the marginal product is increasing B. the average product is increasing C. the average product is decreasing D. the marginal product is decreasing - Answers B. the average product is increasing When the marginal product curve lies below the average product curve, A. The average product curve must be falling B. The total product curve must be falling C. The average product curve must be rising D. The marginal product curve must be rising - Answers A. The average product curve must be falling The rate at which one input can be exchanged for another without altering output is called A. The slope of the total product curve B. The marginal rate of technical substitution C. The slope of the marginal product of labor D. The law of diminishing returns of labor - Answers B. The marginal rate of technical substitution Say you own a Mexican place that produces, among other things, Mexican burritos. Your production of burritos is given by the equation Q = 5K1/2L1/2, where Q is the amount of burritos, K is the amount of capital and L is the amount of labor. How many workers you would need to use in order to minimize the cost of producing 100 burritos when the capital is, K, is 100? A. 1 B. 2 C. 4 D. 0 - Answers C. 4 A production function for which proportional changes in all inputs leads to a less-than- proportional change in output is said to exhibit A. Diminishing returns B. Decreasing returns to scale C. Constant returns to scale D. Increasing returns to scale - Answers B. Decreasing returns to scale For any constant returns production function, the isoquants for Q = 1, Q = 2, Q = 3, etc. will A. All be inversely proportional to the inputs B. Exhibit diminishing returns in the long run C. Be straight lines D. Be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc. - Answers D. Be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and Q = 3, etc. Returns to scale refers to A. What happens to output when at least one input is fixed and one is varied B. What happens to output when all inputs are held fixed C. What happens to output when all inputs are varied in some proportion D. The law of diminishing returns - Answers C. What happens to output when all inputs are varied in some proportion On the next exam for this course you can study for a maximum of four hours. If you don't study at all you will get a score of 70. One hour would give you an 80, the second hour increased your score to 89, the third to 92. If you studied the fourth hour your score would be 87. In which hour did diminishing returns set in? A. The first because the score was the lowest of the studying options B. The second because your gain is less than the previous hour C. The third because your score peaked there D. The fourth because you had a drop in points in this hour - Answers B. The second because your gain is less than the previous hour (Appendix) Which of the following production functions exhibits decreasing returns to scale? A. Q = K1/2Ll/2 B. Q = Kl/2L2/3 C. Q = Kl/4Ll/3 D. Q = K/L - Answers C. Q = Kl/4Ll/3 Suppose that at a firm's current level of production the marginal product of capital is equal to 10 units, while the marginal rate of technical substitution between capital and labor is 2. Given this, we know the marginal product of labor must be: A. 5 B. 20 C. 10 D. It is not possible to say with the information given in the problem - Answers B. 20 In the production of bicycles an increase of 2 percent in the level of capital and labor respectively will generate an increase of 1 percent in the production of bicycles. From this information we know that the production of bicycles exhibits: A. Diminishing marginal returns B. Decreasing returns to scale C. Increasing returns to scale D. Constant returns to scale - Answers B. Decreasing returns to scale The variable costs of producing an output, Q, of 200 would be equal to: A. $70 B. $50 C. $100 D. $1,000 - Answers D. $1,000 The average fixed costs of producing an output, Q, of 200 would equal to: A. $1 B. $20 C. $0.5 D. $200 - Answers A. $1 A firm that is trying to produce a given level of output Q0 at the lowest possible cost will A. Select the input combination at which an isocost line is tangent to the Q0 isoquant B. Select the input combination at which an isocost line is above the Q0 isoquant C. Select the input combination at which an isocost line is below the Q0 isoquant D. Choose to produce at a level where variable costs are less than or equal to fixed costs - Answers A. Select the input combination at which an isocost line is tangent to the Q0 isoquant When costs are at a minimum, A. The ratio of the MPL/MPK Price L/Price K B. MPL= MPK C. The extra output we get from the last dollar spent on an input must be the same for all inputs D. Price L = Price K - Answers C. The extra output we get from the last dollar spent on an input must be the same for all inputs For a given firm, whenever the ratio of marginal product to input price differs across inputs, A. The market will adjust the price of the higher priced input B. It will always be possible to make a cost-saving substitution in favor of the input with the lower MP/P ratio (except in the case of corner solutions) C. It will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio D. The market will adjust the price of the lower priced input - Answers C. It will always be possible to make a cost-saving substitution in favor of the input with the higher MP/P ratio In the short-run, total cost is broken down into two components: A. Average cost and marginal cost B. Average cost and fixed cost C. Variable cost and marginal cost D. Variable cost and fixed cost - Answers D. Variable cost and fixed cost Once we enter the region of diminishing returns, A. Variable cost increases at a decreasing rate B. Variable cost increases at an increasing rate C. Variable cost decreases at a decreasing rate D. Variable cost decreases at an increasing rate - Answers B. Variable cost increases at an increasing rate The vertical distance between the total variable cost and total cost curves A. Is everywhere equal to zero B. Is everywhere equal to marginal cost C. Is everywhere equal to total fixed cost D. Increases at a decreasing rate - Answers C. Is everywhere equal to total fixed cost The variable cost of zero units of output is equal to A. Total cost B. Total fixed cost C. Zero D. One - Answers C. Zero The slope of a ray from the origin to a point on the total cost curve is A. The average fixed cost of producing the corresponding level of output B. The average total cost of producing the corresponding level of output C. The marginal cost of producing the corresponding level of output D. The variable cost of producing the corresponding level of output - Answers B. The average total cost of producing the corresponding level of output Geometrically, marginal cost at any level of output may be interpreted as the slope of A. A ray to the total cost curve at that level of output B. The average variable cost curve at that level of output C. The total cost curve at that level of output D. The isoquant at that level of output - Answers C. The total cost curve at that level of output When marginal cost is less than average total cost ______ as output increases. A. Average total cost must be increasing B. Average variable cost must be decreasing C. Average fixed cost must be increasing D. Average total cost must be decreasing - Answers D. Average total cost must be decreasing Producing an additional unit whose marginal cost exceeds the average total cost incurred thus far has the effect of pulling the A. Fixed cost up B. Average cost up C. Average cost down D. Total cost down - Answers B. Average cost up Markets characterized by declining long-run average costs are often referred to as A. Perfect competition B. Diseconomies of scale C. Natural monopolies D. Nonprofit organizations - Answers C. Natural monopolies If the variable cost curve is a straight line then A. The marginal cost curve will be U-shaped B. The marginal cost curve may be U-shaped C. The marginal cost curve will be horizontal D. The marginal cost curve is upward sloping - Answers C. The marginal cost curve will be horizontal Let TC(Q) = 10 + Q; MC equals A. 10 B. 1 C. 11 D. It cannot be determined from the information given - Answers B. 1 Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be expressed as A. 20 + 5Q B. 20 C. 5Q D. 5 - Answers C. 5Q Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as A. 6 B. 6Q C. 0 D. It can not be determined with the information given - Answers C. 0 With constant returns to scale and factor prices invariant with the amount of factors used, the long-run output expansion path is A. Horizontal B. A straight line C. U-shaped D. Zero - Answers B. A straight line Suppose output for a simple production process is given by Q = K + L, where K denotes capital, and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit. What would be the minimum costs of producing 10 units of output? A. $40 B. $20 C. $10 D. It is impossible to say with the information given - Answers B. $20 The minimum efficient scale of production is the level of production required for the A. Long run average curve to reach its minimum B. Variable cost curve to reach its minimum C. Marginal cost curve to reach its minimum D. Average cost curve to reach its minimum - Answers A. Long run average curve to reach its minimum If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for ATC - Answers ATC=10Q2 -50Q+1000+500/Q If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for MC - Answers MC = 30Q2 - 100Q + 1000 If the total cost function is TC = 10Q3 - 50Q2 + 1000Q + 500, what is the equation for AFC - Answers AFC = 500/Q