University of Louisiana at Lafayette Econ 528- Managerial Economics Final Exam Sample questions with answers.

University of Louisiana at Lafayette Econ |\ |\ |\ |\ |\ |\




528: Managerial Economics Final Exam:|\ |\ |\ |\ |\




Sample questions with answers |\ |\ |\




If the marginal product of labor is 2, the marginal product
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of capital is 4, the wage rate is $3, the rental price of
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capital is $6, and the price of output is $1.50, then the
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firm should |\




a. Increase output by hiring more labor, more capital, or
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both. |\




b. Hold output constant, but hire more labor and less
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capital. |\




c. Decrease output by reducing the quantity of capital,
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reducing the number of units of labor, or both. |\ |\ |\ |\ |\ |\ |\ |\ |\




d. None of the above is correct. - CORRECT ANSWERS
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✔✔D. none of the above |\ |\ |\ |\ |\




Explanation:
The cost minimizing principle of the firm is that the firm
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will choose its two inputs upto the point where the
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following condition is satisfied: |\ |\ |\

, MP of Labor / Wage = MP of Capital / Rental Price of
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Capital
If this ratio is not met, the firm needs to adjust its use of
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inputs by changing the level of their use. In the question
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above, MP of Labor/Wage=2/3=MP of Capital/Rental Price
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of Capital= 4/6 =2/3
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Therefore, no adjustment is necessary for the level of |\ |\ |\ |\ |\ |\ |\ |\ |\



inputs. Hence, the correct answer is D.
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When adding another unit of labor leads to an increase in
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output that is smaller than the increases in output that
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resulted from adding previous units of labor, the firm is
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experiencing




a. diminishing labor.
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b. diminishing output.
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c. diminishing marginal product.
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d. negative marginal product. - CORRECT ANSWERS ✔✔C.
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diminishing marginal product
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Which of the following explains why long-run average cost
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at first decreases as output increases?
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a. dis economies of scale
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b. less-efficient use of inputs
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