Question 1

-Refer to Figure 8.1.Which graph best represents a total cost function?

Accepted Answer

A total cost function is a linear function with a positive slope. Graph A is the only graph that meets these criteria.

Question 2

-Refer to Figure 8.1.Which graph best represents a variable cost function?

Accepted Answer

B

Question 3

Suppose a firm's short-run production function is given by Q = F(L)= 4L.If the wage rate is $12 and the firm has sunk costs of $300,then the firm's variable cost function is

Accepted Answer

C

Question 4

The slope of an isocost line is equal to

Accepted Answer

The slope of an isocost line, which represents all combinations of labor and capital that can be purchased for a given total cost, is equal to the negative ratio of the wage rate to the rental rate of capital. This is because the isocost line is derived from the equation C = wL + rK, where C is total cost, w is the wage rate, L is the amount of labor, r is the rental rate of capital, and K is the amount of capital. Rearranging this equation to solve for K in terms of L and then differentiating gives the slope as - (wage rate/rental rate of capital).

Question 5

If the least-cost input combination doesn't include all inputs,it's called

Accepted Answer

If the least-cost input combination doesn't include all inputs, it means that some inputs are not being used at all or being used at their minimum required level. This type of solution is called a boundary solution. It occurs when the isoquant touches the iso-cost line at the minimum point of an input. Therefore, option A is the correct choice.

Question 6

Suppose a firm's total cost of production is $40,000 per week,the wage rate is $1,000 per week and the cost of capital is $2000.The firm's cost function would be written as

Accepted Answer

The correct answer is D because the cost function is a linear equation that represents the total cost of production as a function of the quantity of labor (L) and capital (K) used. The equation is written as TC = 40,000 - 500L + 2,000K, where TC is the total cost of production, L is the quantity of labor used, and K is the quantity of capital used.

Question 7

Suppose the marginal rate of technical substitution for labour with capital is 5,the marginal product of labour is 8 and the marginal product of capital is 4.Assuming the law of diminishing marginal product applies to both labour and capital,this firm

Accepted Answer

The marginal rate of technical substitution (MRTS) is the ratio of marginal product of labour to marginal product of capital. In this case, MRTS = 5, MP of Labour = 8, and MP of Capital = 4. Since MRTS > MP of Labour/MP of Capital, it implies that the firm can produce the same output with fewer workers and more capital. Therefore, the firm could reduce costs by substituting workers with capital, making choice B the correct answer.

Question 8

A firm's ______ connects all the input combinations with the same cost.

Accepted Answer

An isocost line represents all the combinations of inputs that can be purchased at a given cost. Therefore, it connects all the input combinations with the same cost.

Question 9

If Q represents a firm's level of output,W represents the wage paid to labour (L)and R is the cost of capital (K),then which of the following represents the firm's isocost line?

Accepted Answer

The isocost line represents all the possible combinations of labour (L) and capital (K) that can be hired by the firm while keeping the total cost constant. The equation C(Q) = WL + RK represents the total cost of production, where W represents the wage paid to labour and R is the cost of capital. Therefore, this equation represents the firm's isocost line. Option A represents the total variable cost (VC) and fixed cost (FC) of production, while option B represents only the total cost, but it does not break down into labour and capital costs. Option D represents only the sum of wages and capital costs but does not take into account the level of output.

Question 10

Suppose a firm's short-run production function is given by Q = F(L)= 4L.If the wage rate is $12 and the firm has sunk costs of $300,then the firm's cost function is

Accepted Answer

The answer of Suppose a firm's short-run production function is...

Question 11

The cost associated with foregoing the opportunity to employ a resource in its best alternative use is called

Accepted Answer

The cost associated with foregoing the opportunity to employ a resource in its best alternative use is called opportunity cost. This is the cost of the forgone alternative and represents the value of the next best alternative that is being sacrificed. Choices A, B, and D are not relevant to the concept of opportunity cost.

Question 12

The cost of using capital is equal to the market rental price as long as

Accepted Answer

The cost of using capital is equal to the market rental price only if a well-functioning rental market for capital exists. Therefore, option D is the correct answer. Options A and B are incorrect because whether a firm rents or owns the capital used in its production process is not relevant to the cost of using capital. Option C is also incorrect because the cost of capital is not expensed in the year it is purchased, but rather over the useful life of the asset.

Question 13

According to the No-Overlap Rule,

Accepted Answer

The No-Overlap Rule in economics states that the area above the isoquant (which represents combinations of inputs that produce a certain level of output) that runs through the firm's least-cost input combination does not overlap with the area below the isocost line (which represents combinations of inputs that cost the same amount). This is because the least-cost combination of inputs for a given level of output lies on the isoquant and on the lowest possible isocost line, indicating no cheaper combination can produce the same output.

Question 14

Isocost lines associated with ______ total cost lie ______ the origin.

Accepted Answer

Isocost lines associated with higher total cost lie farther from the origin because they represent combinations of inputs that cost more, thus requiring a greater distance from the origin to maintain the same level of cost.

Question 15

A ______ cost is ______ if the firm incurs the cost even if it produces no output.

Accepted Answer

A fixed cost is a cost that does not vary with the level of output and must be paid even if no output is produced. A sunk cost is a cost that has already been incurred and cannot be recovered. Therefore, a fixed cost is sunk because it must be paid regardless of whether any output is produced.

Question 16

An input combination is an interior choice if

Accepted Answer

Uses at least a little bit of every input

Question 17

A ______ cost is ______ if the firm doesn't incur the cost if it produces no output.

Accepted Answer

A fixed cost is a cost that does not vary with the level of production output, and the firm cannot avoid paying for it even if it produces no output. However, if a fixed cost is avoidable, such as lease payments for equipment that the firm can sell or terminate the lease, it is a variable cost. Sunk costs are costs that have already been incurred and cannot be recovered, regardless of future decisions, and explicit costs are the actual payment made for a resource used by a firm.

Question 18

If Q represents a firm's level of output,W represents the wage paid to labour (L)and R is the cost of capital (K),then which of the following represents the firm's cost function?

Accepted Answer

The answer of If Q represents a firm's level of...

Question 19

The strategy whereby a firm makes most of its own inputs is called

Accepted Answer

The strategy whereby a firm makes most of its own inputs is called vertical integration. This is a strategy where a company owns the entire supply chain, from raw materials to the final product. This helps the firm to reduce costs, improve quality control, and ensure a steady supply of inputs. Horizontal integration refers to a strategy where a company acquires competitors at the same level of the value chain to achieve economies of scale. Economies of scope refer to cost savings achieved by producing a variety of products or services. Economies of scale refer to cost savings achieved by producing large volumes of a product or service.

Question 20

______ is the cost of inputs whose use does not vary as the firm's output changes.

Accepted Answer

Fixed costs are the costs that do not vary with the level of output, such as rent, salaries, and property taxes. These costs are incurred by a firm regardless of their level of output or production. Sunk costs are costs that have already been incurred and cannot be recovered, total cost is the sum of fixed and variable costs, and explicit costs refer to the actual money paid out by a firm for inputs.

Quiz 8: Cost

-Refer to Figure 8.1.Which graph best represents a total cost function?

-Refer to Figure 8.1.Which graph best represents a variable cost function?

Suppose a firm's short-run production function is given by Q = F(L) = 4L.If the wage rate is $12 and the firm has sunk costs of $300,then the firm's variable cost function is

The slope of an isocost line is equal to

If the least-cost input combination doesn't include all inputs,it's called

Suppose a firm's total cost of production is $40,000 per week,the wage rate is $1,000 per week and the cost of capital is $2000.The firm's cost function would be written as

Suppose the marginal rate of technical substitution for labour with capital is 5,the marginal product of labour is 8 and the marginal product of capital is 4.Assuming the law of diminishing marginal product applies to both labour and capital,this firm

A firm's ______ connects all the input combinations with the same cost.

If Q represents a firm's level of output,W represents the wage paid to labour (L) and R is the cost of capital (K) ,then which of the following represents the firm's isocost line?

Suppose a firm's short-run production function is given by Q = F(L) = 4L.If the wage rate is $12 and the firm has sunk costs of $300,then the firm's cost function is

The cost associated with foregoing the opportunity to employ a resource in its best alternative use is called

The cost of using capital is equal to the market rental price as long as

According to the No-Overlap Rule,

Isocost lines associated with total cost lie the origin.

A cost is if the firm incurs the cost even if it produces no output.

An input combination is an interior choice if

A cost is if the firm doesn't incur the cost if it produces no output.

If Q represents a firm's level of output,W represents the wage paid to labour (L) and R is the cost of capital (K) ,then which of the following represents the firm's cost function?

The strategy whereby a firm makes most of its own inputs is called

______ is the cost of inputs whose use does not vary as the firm's output changes.