Deck 8: Cost Functions

Question 1

The firm's expansion path records:

A)profit-maximizing output choices for every possible price.
B)cost-minimizing input choices for all possible output levels for when input rental rates expand along with production.
C)cost-minimizing input choices for all possible output levels for a fixed set of input prices.
D)cost-minimizing input choices for profit-maximizing output levels.

Answer 1

cost-minimizing input choices for all possible output levels for a fixed set of input prices.

Question 2

As long as marginal cost is below average cost,average cost will be:

A)falling.
B)rising.
C)constant.
D)changing in a direction that cannot be determined without more information.

Answer 2

falling.

Question 3

For any given output level,a firm's long-run costs:

A)are always greater than or equal to its short-run costs.
B)are usually greater than or equal to its short-run costs except in the case of diminishing returns to scale.
C)are always less than or equal to its short-run costs.
D)are usually less than or equal to its short-run costs except in the case of diminishing returns to scale.

Answer 3

are always less than or equal to its short-run costs.

Question 4

The average fixed cost curve always has a negative slope because:

A)marginal costs are below average fixed costs.
B)average variable costs exceed marginal costs.
C)total fixed costs always decrease.
D)total fixed costs do not change as output increases.

Question 5

An increase in the wage rate will have a greater effect on average costs:

A)the larger the proportion labor costs are of total costs and the easier it is to substitute capital for labor.
B)the larger the proportion labor costs are of total costs and the harder it is to substitute capital for labor.
C)the greater is the diminishing marginal product of labor.
D)the greater are returns to scale.

Question 6

For a constant returns to scale production function:

A)marginal costs are constant but the average cost curve has a U-shape.
B)both average and marginal costs are constant.
C)marginal cost has a U-shape;average costs are constant.
D)both average and marginal cost curves are U-shaped.

Question 7

The opportunity cost of producing a bicycle refers to the:

A)out-of-pocket payments made to produce the bicycle.
B)value of the goods that were given up to produce the bicycle.
C)bicycle's retail price.
D)marginal cost of the last bicycle produced.

Question 8

In order to minimize the cost of a particular level of output,a firm should produce where:

A)labor input equals capital input.
B)the RTS (of L for K)=
C)the RTS (of L for K)=
D)the MRS =

Question 9

The Cobb-Douglas production function Yields the cost function (where B is a constant):

A)
B)
C)
D)

Question 10

For the cost function Consider the following statements:
I.the function exhibits decreasing average cost.
II.the function is homogeneous of degree 1 in v and w.
III.the elasticity of marginal cost with respect to v exceeds the elasticity with respect to w.

A)none is true.
B)all are true.
C)only I is true.
D)only I and II are true.

Question 11

A linear total cost curve which passes through the origin implies that:

A)average cost is constant and marginal cost is variable.
B)average cost is variable and marginal cost is constant.
C)average and marginal costs are constant and equal.
D)need more information to answer question.

Question 12

The input demand functions that can be derived from cost functions are referred to as "contingent" demand functions because the functions:

A)assume input costs are constant.
B)express input demand as a function of output.
C)depend on the assumption of profit maximization.
D)assume constant returns to scale in production.

Question 13

The cost function
Arises from:

A)a Cobb-Douglas production function.
B)a CES production function.
C)a fixed proportions production function.
D)a translog production function.

Question 14

A firm whose production function displays increasing returns to scale will have a total cost curve that is:

A)a straight line through the origin.
B)a curve with a positive and continually decreasing slope.
C)a curve with a positive and continually increasing slope.
D)a curve with a negative and continually decreasing slope.

Question 15

The expansion path for a homothetic production function:

A)is a straight line through the origin with a slope greater than one if w > v.
B)is a straight line through the origin with a slope less than one if w < v .
C)is a straight line through the origin though its slope cannot be determined by w and v alone.
D)has a positive slope but is not necessarily a straight line.

Question 16

For the cost function :

A)marginal cost is constant.
B)average cost is U-shaped.
C)fixed costs diminish with q.
D)all of the above are true.

Question 17

Technical progress will:

A)shift a firm's production function and its related cost curves.
B)not affect the production function,but may shift cost curves.
C)shift a firm's production function and alter its marginal revenue curve.
D)shift a firm's production function and cause more capital (and less labor)to be hired.

Question 18

A firm's economic profits are given by:

A)total revenue minus total accounting cost.
B)the owner's opportunity cost.
C)total revenue minus total economic cost.
D)total revenue minus the cost of capital.

Question 19

As long as marginal cost is less than average variable cost:

A)both average total costs and average variable costs will be falling.
B)average total costs will be falling but average costs may be rising or falling.
C)average fixed costs are rising.
D)average total costs are falling but average fixed costs may be rising.

Question 20

The shape of a firm's long-run average cost curve is determined by:

A)the degree to which each input encounters diminishing marginal productivity.
B)the underlying nature of the firm's production function when all inputs are able to be varied.
C)how much the firm decides to produce.
D)the way in which the firm's expansion path reacts to changes in the rental rate on capital.