ECON 5370 Exam 3 | Questions with 100% Correct Answers

ECON 5370 Exam 3 | Questions with 100% Correct Answers Concerning the maximization of output subject to a cost constraint, which of the following statements (if any) are true? a. At the optimal input combination, the slope of the isoquant must equal the slope of the isocost line. b. The optimal solution occurs at the boundary of the feasible region of input combinations. c. The optimal solution occurs at the point where the isoquant is tangent to the isocost lines. d. all of the above e. none of the above Fill in the missing data to solve this problem. Variable Total Average Marginal Input Product Product Product 4 ? 70 ---- 5 ? ? 40 6 350 ? ? What is the total product for 5 units of input, and what is the marginal product for 6 units of input? a. 320 and 30 b. 430 and 8 c. 360 and 15 d. 350 and 20 e. 400 and 10 Given a Cobb-Douglas production function estimate of Q = 1.19L .72K .18 for a given industry, this industry would have: a. increasing returns to scale b. constant returns to scale c. decreasing returns to scale d. negative returns to scale e. none of the above Holding the total output constant, the rate at which one input X may be substituted for another input Y in a production process is: a. the slope of the isoquant curve b. the marginal rate of technical substitution (MRTS) c. equal to MPx/MPy d. all of the above e. none of the above If the marginal product of labor is 100 and the price of labor is 10, while the marginal product of capital is 200 and the price of capital is $30, then what should the firm? a. Using the Equimarginal Criterion, we can't determine the firm's efficiency level b. Both c and d c. The firm should use relatively more capital d. The firm should use relatively more labor e. The firm should not make any changes - they are currently efficient In a production process, an excessive amount of the variable input relative to the fixed input is being used to produce the desired output. This statement is true for: a. stage II b. stages I and II c. when Ep = 1 d. stage III e. In a relationship among total, average and marginal products, where TP is maximized: a. AP is maximized b. AP is equal to zero c. MP is maximized d. MP is equal to zero e. none of the above In production and cost analysis, the short run is the period of time in which one (or more) of the resources employed in the production process is fixed or incapable of being varied. a. true b. false In the Cobb-Douglas production function (Q = α L^β1 K^ β2): a. the average product of labor (L) is equal to β2 b. the marginal product of labor (L) is equal to β1 c. a and c d. a and b e. if the amount of labor input (L) is increased by 1 percent, the output will increase by β1 percent Marginal factor cost is defined as the amount that an additional unit of the variable input adds to ____. a. marginal cost b. variable cost c. marginal rate of technical substitution d. total cost e. none of the above Marginal revenue product is defined as the amount that an additional unit of the variable input adds to ____. a. marginal revenue b. total output c. total revenue d. marginal product e. none of the above Marginal revenue product is: a. a and b b. a and c c. defined as the amount that an additional unit of the variable input adds to the total revenue d. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained e. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained Suppose you have a Cobb-Douglas function with a capital elasticity of output (á) of 0.28 and a labor elasticity of output (â) of 0.84. What statement is correct? a. There are increasing returns to scale b. If the amount of labor input (L) is increased by 1%, the output will increase by 0.84% c. If the amount of capital input (K) is decreased by 1%, the output will decrease by 0.28% d. The sum of the exponents in the Cobb-Douglas function is 1.12. e. All of the above The Cobb-Douglas production function has which of the following properties? a. output is a linear increasing function of each of the inputs b. it provides a good fit to the traditional S-shaped production function c. the elasticity of production is constant and equal to 1 minus the exponent of the appropriate variable d. all of the above e. none of the above The Cobb-Douglas production function is: Q = 1.4L 0.6K 0.5. What would be the percentage change in output (%?Q) if labor grows by 3.0% and capital is cut by 5.0%?[HINT: %?Q = (E L %?L) + (E K %?K)] a. %?Q = - 5.0% b. %?Q = + 3.0% c. %?Q = - 0.70% d. %?Q = + 5.0% e. %?Q = - 2.50% The combinations of inputs costing a constant C dollars is called: a. an isocost line b. an isoquant curve c. the MRTS d. an isorevenue line e. none of the above The following is a Cobb-Douglas production function: Q = 1.75K 0.5·L 0.5. What is correct here? a. This production function displays constant returns to scale b. A one-percent change in L will cause Q to change by one percent c. This production function displays decreasing returns to scale d. This production function displays increasing returns to scale e. A one-percent change in K will cause Q to change by two percent The isoquants for inputs that are perfect complements for one another consist of a series of: a. right angles b. parallel lines c. concentric circles d. right triangles e. none of the above The isoquants for inputs that are perfect substitutes for one another consist of a series of: a. right angles b. parallel lines c. concentric circles d. right triangles e. none of the above The law of diminishing marginal returns: a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns b. is a mathematical theorem that can be logically proved or disproved c. is the rate at which one input may be substituted for another input in the production process d. none of the above The marginal product is defined as: a. The ratio of total output to the amount of the variable input used in producing the output b. The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process c. The percentage change in output resulting from a given percentage change in the amount d. The amount of fixed cost involved. e. None of the above The marginal product is the incremental change in total output that can be obtained from the use of one more unit of an input in the production process, while varying all other inputs. True False A cottage industry exists in the home-manufacture of 'country crafts'. Especially treasured are handmade quilts. If the fourth completed quilt took 30 hours to make, and the eighth quilt took 28 hours. What is the percentage learning? Hint: Percentage learning = 100% - (c 2/c 1)•100%. a. 5% b. 100% c. 122% d. 10% e. 6.7% According to the theory of cost, specialization in the use of variable resources in the short-run results initially in: a. decreasing returns and declining average and marginal costs b. increasing returns and declining average and marginal costs c. increasing returns and increasing average and marginal costs d. decreasing returns and increasing average and marginal costs e. none of the above Economies of scale exist whenever long-run average costs: a. Increase as output is increased b. Remain constant as output is increased c. Decrease as output is increased d. Decline and then rise as output is increased e. None of the above For a short-run cost function which of the following statements is (are) not true? a. The average fixed cost function is monotonically decreasing. b. The marginal cost function intersects the average fixed cost function where the average variable cost function is a minimum. c. The marginal cost function intersects the average variable cost function where the average variable cost function is a minimum. d. The marginal cost function intersects the average total cost function where the average total cost function is a minimum. e. b and c If TC = 321 + 55Q - 5Q 2, then average total cost at Q = 10 is: a. 321 b. 10.2 c. 102 d. 37.1 e. 371 Possible sources of economies of scale (size) within a production plant include: a. specialization in the use of capital and labor b. imperfections in the labor market c. transportation costs d. a and b e. a and c Regarding costs, accountants _____; economists _____. a. identify stable and predictable costs for decision-making purposes; measure costs for financial reporting purposes b. identify stable and predictable costs for financial reporting purposes; measure costs for decision making purposes c. do not include opportunity costs; include opportunity costs d. include opportunity costs; do not include opportunity costs e. both b and c f. both a and d Regarding costs, which of the following statements is true? a. costs can be measured in different ways b. sunk costs should always be considered in making operating decisions c. costs appropriate for financial reporting purposes are appropriate for decision-making purposes d. the relevant cost in economic decision making is the initial cost e. none of these is true Suppose that total cost is given by TC = 200 + 5Q - 0.4Q 2 + 0.001Q 3 a. Fixed cost (FC) is $200 b. Variable cost (VC) is 5Q - 0.4Q2 + 0.001Q3 c. Average variable cost (AVC) is 5 - 0.4Q + 0.001Q2 d. Marginal cost (MC) is 5 - 0.8Q +.003Q2 e. All of the above are correct The cost function is: a. a means for expressing output as a function of cost b. a schedule or mathematical relationship showing the total cost of producing various quantities of output c. similar to a profit and loss statement d. incapable in being developed from statistical regression analysis e. none of the above The existence of diseconomies of scale (size) for the firm is hypothesized to result from: a. transportation costs b. imperfections in the labor market c. imperfections in the capital markets d. problems of coordination and control encountered by management e. All of the above The relevant cost in economic decision-making is the opportunity cost of the resources rather than the outlay of funds required to obtain the resources. a. true b. false The three concepts of optimal capacity utilization are: