Deck 6: Production Cost: One Variable Input

Question 1

Suppose TP(L)=5L²+40. MP(L)is:

A)10L.
B)10L + 40.
C)5L + 40.
D)10L + 40/L.

Answer 1

10L.

Question 2

Marginal product:

A)is the slope of the total product.
B)is the inverse of the total product.
C)has nothing to do with the total product.
D)is always greater than the total product.

Answer 2

is the slope of the total product.

Question 3

Suppose TP(L)= 5L² + 40. AP(L)is:

A)5L + 40/L.
B)10L + 40.
C)5L.
D)5L + 40.

Answer 3

5L + 40/L.

Question 4

Given the production function y = min (z₁- 2, z₂ - 4), the efficient number of units of output when there are 20 units of z₁ and 30 units of z₂ available is

A)30
B)18
C)26
D)13

Question 5

The cost to a cab driver of taking the day off increases when:

A)it rains.
B)the price of gasoline rises.
C)it is sunny.
D)more cabs enter the business.

Question 6

If MC in plant 1 is 5 and MC in plant 2 is 4, a firm wanting to produce two units should:

A)contract them out.
B)produce them both in plant 2.
C)both them both in plant 1.
D)split them between the two plants.

Question 7

The US "cash for clunkers" program took roughly 7 million cars off the road. Economists would consider this a colossal failure because:

A)the total number of cars was not reduced
B)7 million cars was not enough to put a dent in global warming
C)those 7 million cars had economic value
D)the program reduced the price of recycled steel

Question 8

Advertising costs are:

A)avoidable and fixed.
B)fixed and sunk.
C)variable and sunk.
D)avoidable and variable.

Question 9

The higher the level of FC:

A)the lower the level of output which minimizes SMC.
B)the lower the profit, ceteris paribus.
C)the higher the level of output at which AFC reaches a minimum.
D)the more likely a firm will substitute variables for fixed factors.

Question 10

K and L are perfect substitutes in production in the following production function:

A)KL/2.
B)K + L.
C)min(K,L).
D)max(K,L).

Question 11

Figure 6A

At point B in Figure 6A, the MP and AP are equal to each other because:

A)the total product function has reached its maximum.
B)the variable resource is most productive.
C)the slopes of a ray from the origin and of the TP are equal.
D)the fixed resources are no longer productive.

Question 12

SMC may be defined as the rate at which:

A)variable cost increases as output increases.
B)variable cost increases as more variable inputs are used.
C)TC increases as marginal increments in all inputs are used.
D)variable cost increases as the firm produces more products.

Question 13

Which of the following is not true of fixed costs?

A)Average fixed costs diminish as output increases.
B)Fixed costs increase AVC.
C)Fixed costs are the difference between SAC and AVC.
D)Fixed costs have no effect on marginal cost.

Question 14

Suppose that a firm uses a technology for which the MP of a variable factor is initially rising. Then:

A)the firm will never reach diminishing marginal productivity.
B)MP is maximized before AP.
C)MP is maximized when AP is falling.
D)total and AP are maximized when MP is zero.

Question 15

Suppose that a particular good, y, is produced according to the following production function y = min(ax₁,bx₂)where x₁ and x₂ are inputs, and a and b are positive constants. Suppose further that x₁/x₂ currently equals b/a. Then:

A)an additional unit of x₁ or x₂ will not increase output.
B)the current ratio of input- usage is technically inefficient.
C)if a > b, the production of any output level requires more x₁ than x₂.
D)an additional unit of x₁ will increase output.

Question 16

When a firm produces its product using the quantity of the variable resource which maximizes its average product:

A)marginal cost is minimized.
B)average cost equals marginal cost.
C)marginal product is also maximized.
D)average cost is maximized.

Question 17

If STC = 7q³ + 3q + 7, then VC is:

A)7q² + 3.
B)7q³ + 3q + 7.
C)7q^3.
D)7q³ + 3q.

Question 18

The law of diminishing returns to a variable input:

A)implies that total output must eventually decline.
B)implies that the MP of an input must rise initially.
C)implies that the MP of an input declines.
D)assumes that there are just two inputs.

Question 19

If a firm uses a fixed- proportions production technology to produce its final output:

A)the AP of the variable factor is constant.
B)the cost curves are obtained in a similar fashion with the non- fixed- proportion technologies.
C)it will always employ the same amount of the variable factor.
D)the law of diminishing marginal productivity does not apply.

Question 20

A variable- proportions production function is one in which:

A)increasing the use of an input requires decreasing another by the same amount.
B)more of one input can be substituted for less of another.
C)isoquants are smooth.
D)inputs are perfect substitutes.

Question 21

Widgets are produced according to the production function: F(K,L)= 2K+L. If K = 10 how much L is needed to produce 100 widgets?

A)70
B)60
C)80
D)40

Question 22

The cost to an airline of letting its employees fly at no charge:

A)is zero.
B)depends on the elasticity of supply for airline services.
C)depends upon the alternatives available to the employees.
D)will be higher at Christmas time.

Question 23

Self- interested commuters may choose a suboptimal equilibrium because:

A)when MC is increasing, the marginal commuter pays only AC.
B)some commuters stay home.
C)total costs are minimized.
D)when MC is constant, MC is greater than AC.

Question 24

The marginal and average cost of commuting by car are:

A)undetermined without more information.
B)increasing regardless of congestion.
C)constant until the road is congested.
D)decreasing regardless of congestion.

Question 25

The total product function of a variable input depends on:

A)fixed quantities of all other inputs.
B)careful monitoring of finished goods.
C)the market price of the resource.
D)technology available at the time.

Question 26

Which of the following is true? Average product:

A)increases or decreases as marginal product decreases or increases.
B)is always less than marginal product.
C)reaches its maximum when it is equal to marginal product.
D)increases or decreases as marginal product increases or decreases.

Question 27

The AP of an input at some given quantity of the input is not:

A)total product divided by the quantity of the input.
B)the slope of a ray from the origin to the total product function.
C)output divided by the quantity of the input.
D)the rate at which output increases as more of the input is used.

Question 28

Which of the following cost curves can never have a positive slope?

A)AFC
B)ATC
C)AVC
D)SMC

Question 29

Sunk costs are irrelevant to economic decisions because:

A)they are merely opportunity costs rather than monetary expenditures.
B)they do not appear on financial statements.
C)they represent no opportunity for choice.
D)they affect a firm's net revenue.

Question 30

Figure 6A

Under the free disposal assumption, an output maximizing firm using Figure 6A would want to use:

A)more than C units of z₁.
B)less than A units of z₁.
C)at least C units of z₁.
D)between A and C units of z₁.

Question 31

Variable cost may be defined as:

A)the change in TC as more of the variable factor is employed.
B)the vertical distance between the APC and SRAC at level of output.
C)the least expenditure on all inputs to produce a level of output.
D)the least expenditure on variable inputs to produce a level of output.

Question 32

Which of the following is most likely to be a variable cost in the short run?

A)a fee paid to obtain a license
B)the energy cost of running a factory
C)the cost of owning machinery
D)rent payments for office space

Question 33

Suppose that the production function for a truck driver is M = 34.641M⁰·⁵G⁰·⁵ where M is miles traveled, G is gallons of gasoline, and S is speed in kilometers per hour. Which of the following is the name of this type of production function?

A)Leontief
B)Fixed proportions
C)Polynomial
D)Cobb- Douglas

Question 34

Profit maximizing firms produce their output:

A)to minimize tax payments to government.
B)to minimize the cost of production.
C)according to Cobb- Douglas production functions.
D)to maximize their revenue from sales.

Question 35

If STC = 3q² + 7q + 15 , then:

A)AFC = 15.
B)SMC = 6q.
C)VC = 3q2 + 7q.
D)ATC = 3q + 7.

Question 36

If a firm's Short- Run Total Cost function is given by STC = 4 + q², then:

A)AVC = q and MC = q.
B)FC = 4 and AVC = q.
C)ATC = 4 + q and MC = 2q.
D)AFC = 4/q and MC = 4 + q.

Question 37

In the short run:

A)fixed costs are zero.
B)all inputs are fixed.
C)some inputs are fixed.
D)variable costs are zero.

Question 38

A fixed- proportions production function is one in which:

A)a unit of output is produced using inputs equally.
B)more of one input cannot be substituted for less of another.
C)inputs can be substituted for one another in a limited range.
D)increasing the use of an input requires decreasing another by the same amount.

Question 39

If land suitable for growing corn is also suitable for growing soybeans, the discovery that soybean oil prevents cancer will:

A)increase the supply (curve)of soybeans.
B)decrease the demand for corn.
C)have no effect on the cost of growing corn.
D)raise the cost of growing corn.

Question 40

A profit maximizing firm would like to produce at least the number of units which minimizes short run:

A)average fixed cost.
B)average variable cost.
C)marginal cost.
D)average cost.

Question 41

Let the production function be f(L)=6L^2/3. Suppose that the cost per unit of labor is 8 and the price of output is 8, how many units of labour will the firm hire?

A)192
B)128
C)64
D)32

Question 42

Suppose that you are on your way to your $15/hr job and as you get off the bus, which you paid
$2.50 to ride, the smell of the hotdog stand overwhelms you and you stand in line for 10 minutes to buy a smokie for $3. How much was the smokie?

A)$5.50
B)$6.75
C)$3.00
D)$4.25

Question 43

Slaves in the deep South typically ate better than free whites because

A)slaves were considered assets
B)slaves always had to have positive marginal products
C)slave owners were altruistic
D)free people value leisure time more than slaves

Question 44

If STC = 7q³ + 3q + 7, then AVC is:

A)7q² + 3 + 7/q.
B)7q² + 3q + 7/q.
C)7q² + 3.
D)7q² + 3q.

Question 45

Which of the following statements is necessarily true for a production process that employs one variable input?

A)If AP is rising, SAC is falling.
B)If MP is zero, SMC equals AVC.
C)If AP is falling, SMC is falling.
D)The AVC function is U- shaped.

Question 46

Which of the following is the most reasonable production function for bicycles (b)made of frames (f), handlebars (h), seats (s), and wheels (w)? (Note: frames include pedals, gears, and other parts.)

A)b = min(f,h,s,w/2)
B)b = fhsw/2
C)b = min(f,h,s,2w)
D)b = max(f,h,s,w/2)

Question 47

Which of the following cost relationships hold in the short- run?

A)If ATC exceeds AVC, AVC is falling.
B)If AVC is constant, then ATC is also constant, but at a higher level.
C)For positive FC, AVC approaches ATC as output increases.
D)If SRMC is rising, both AVC and AFC are rising.

Question 48

In the short- run, a firm increases its labour input from 10 to 11 workers and output increases from 500 to 560 units. Which of the following statements is correct?

A)The marginal product of the 11th worker is 50.
B)The average product of 11 workers is 60.
C)The marginal product of the 11th worker is 60.
D)The average product of 11 workers is 50.

Question 49

The costs that influence decisions to supply are always:

A)average costs.
B)avoidable costs.
C)sunk costs.
D)costs not yet incurred.

Question 50

If STC = 7q³ + 3q + 7, then AFC is:

A)7q³ + 3q.
B)3q + 7.
C)7.
D)7/q.

Question 51

The diminishing marginal product of labour refers to:

A)that as more and more workers are hired holding the level of capital fixed, the additional output will decrease.
B)a decline in our educational system.
C)workers getting lazy with age.
D)that as more and more workers are hired holding the level of capital fixed, the total output will decrease.

Question 52

Let y^* denote the level of output for which AP of a variable input reaches a maximum. Then:

A)for y = y^*, short run SMC is zero.
B)for y > y^*, the input's SMP exceeds its AP.
C)for y > y^*, SMC exceeds AVC.
D)for y < y^*, the input's AP exceeds its SMP.

Question 53

Let the production be f(x,y)= x^1/2y^1/2. If the price of x is 8 and the price of y is 16, in what proportions should the firm use x and y if it wants to maximize profits?

A)x=y
B)x=2y
C)x=0.5y
D)Cannot tell without knowing the price of output.

Question 54

Figure 6A

Which level of the variable input in Figure 6A will a firm choose if it wishes to maximize output?

A)D
B)C
C)A
D)B

Question 55

A competitive firm produces identical outputs at two different plants. If the marginal cost at the first plant is above market price and marginal cost at the second plant is less than market price, then to increase profit the firm should

A)decrease output in both plants.
B)increase output in both plants.
C)increase output in the first plant and decrease it in the second plant.
D)decrease output in the first plant and increase it in the second plant.

Question 56

If STC = q²- q + 3, then:

A)AVC = q - 1 and FC = 3.
B)AVC = q- 1 + 3/q and SMC = 2q - 1.
C)SMC = 2q - 1 and VC = q².
D)FC = - q + 3 and AVC = q.

Question 57

Capital inputs may cause confusion if they are purchased because firms must:

A)pay interest on borrowed money.
B)choose whether to rent or buy.
C)determine the equivalent rental price.
D)determine whether the input is a lemon.

Question 58

A production function measures how:

A)an individual maximizes utility.
B)a firm minimizes cost.
C)a firm transforms inputs into output.
D)a firm transforms output into input.

Question 59

Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?

A)SMC is less than AVC.
B)SAC will fall.
C)AP will increase.
D)AFC will increase.

Question 60

Which of the following statements is necessarily false?

A)AP falls when it is less than MP.
B)AFC is horizontal.
C)MP is constant when it equals AP.
D)MP falls when it exceeds AP.

Question 61

In a community where poor people do not associate with members of the opposite sex until they are 21 years old, the cost of hiring a teenage babysitter on weekends will be:

A)lower than in other communities.
B)zero.
C)higher than in other communities.
D)prohibitive.

Question 62

What happens to the cost of growing crops on a particular farm when the land is rezoned from agricultural to industrial use and its price triples?

A)The cost rises, but only if the farmer rents the land from someone else.
B)There is no change unless industrialization somehow interferes with farming.
C)The cost will probably fall, because industrialization is often incompatible with farming.
D)The cost rises, even if the farmer owns the land.

Question 63

The variable cost function and the total product function are:

A)transformed into each other by the Cobb- Douglas function.
B)derived from each other through the cost of the variable product.
C)unrelated to each other.
D)related to each other by consumers' preferences.

Question 64

Which of the following would be considered a sunk cost to a pharmaceutical company?

A)clinical trials
B)the lighting costs of the pill making factory
C)pill making machines
D)the ingredients to make pills

Question 65

The law of diminishing marginal productivity implies that when one input is variable while others are fixed:

A)as input use increases, total output eventually falls.
B)the MP of the variable input will eventually decline.
C)the SRMC must fall initially.
D)the marginal product increases initially.

Question 66

The variable cost function shows the expenditure on the variable output:

A)needed for technically efficient production, given an input price.
B)as the price of the variable input changes.
C)as the level of the variable input employed changes.
D)which gives the least- cost combination of inputs for an output level.

Question 67

In order to maximize output from a technology that uses one variable input, one must employ the input in such a way that its:

A)MP is zero.
B)AP is at a maximum.
C)AP is zero.
D)MP is equal to its per- unit price.

Question 68

Which of the following is a Cobb- Douglas production function?

A)min(K,L)
B)K + L
C)(KL)/2
D)max(K,L)

Question 69

If you pay $35 for a sticker that entitles you to park on campus for 35 weeks of the year, the marginal parking cost to you of parking your car on campus on any given weekday is:

A)zero.
B)$35.
C)$2.
D)$1.

Question 70

Which assumption guarantees that the marginal product will never be negative even when the second derivative of the production function is negative?

A)non- satiation
B)free disposal
C)profit maximizing
D)cost minimizing

Question 71

Economists might consider the cash for clunkers program a failure because it

A)the consumer surplus gained by the new car buyers with less than the cost to society
B)not enough cars were taken off the road
C)too many cars were taken off the road
D)consumers bought foreign cars instead of domestic cars

Question 72

The free- disposal assumption implies that:

A)the MP of an input cannot be negative.
B)garbage disposal is costless.
C)excess use on an input reduces output unless more of others are used.
D)total product always increases as quantity of a variable input.

Question 73

If STC = 3q² + 7q + 15, then:

A)marginal cost is a straight line.
B)marginal cost is 6q + 15.
C)average cost is 3q + 7.
D)marginal cost is downward sloping.

Question 74

If a firm has STC = 7q³ + 8q² + 4, then SMC is:

A)7q² + 8q + 4.
B)7q³ + 8q².
C)21q² + 16q.
D)7q³ + 8q² + 4.

Question 75

The MP of an input is not:

A)the change in output as the input is changed by a small amount.
B)the input's productivity in the most recently constructed plant.
C)the slope of the total product function.
D)the rate at which output increases as more of the input is used.

Question 76

A variable input in a fixed- proportions production function exhibits:

A)diminishing marginal productivity everywhere.
B)positive, constant, or zero marginal productivity.
C)diminishing and then constant marginal productivity.
D)constant and then falling marginal productivity.

Question 77

The short run is the amount of time such that:

A)all inputs are variable.
B)all inputs are fixed.
C)some inputs are variable and some are fixed.
D)the firm can maximize its profits.

Question 78

A technically efficient technology is one that:

A)maximizes the quantity of output produced from a bundle of inputs.
B)minimizes the cost of producing a particular level of outputs.
C)maximizes output regardless of the cost.
D)maximizes a firm's profits.

Question 79

If STC = 3q² + 7q, then:

A)VC = 0.
B)ATC = AFC.
C)FC = 7.
D)ATC = AVC.

Question 80

Economic cost differs from accounting cost in that:

A)the former includes implicit costs, while the latter does not.
B)the latter counts true depreciation, while the former uses arbitrary rules.
C)the former is used to calculate both economic and accounting profit.
D)the latter includes depreciation, while the former does not.