The following is a Cobb-Douglas production function: Q = 1.75K0.5·L0.5. What is correct here?
a.
A one-percent change in L will cause Q to change by one percent
b.
A one-percent change in K will cause Q to change by two percent
c.
This production function displays increasing returns to scale
d.
This production function displays constant returns to scale
e.
This production function displays decreasing returns to scale
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
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.
The firm should use relatively more capital
b.
The firm should use relatively more labor
c.
The firm should not make any changes – they are currently efficient
d.
Using the Equimarginal Criterion, we can’t determine the firm’s efficiency level
e.
Both c and d
The Cobb-Douglas production function is: Q = 1.4*L0.6*K0.5. What would be the percentage change in
output (%?Q) if labor grows by 3.0% and capital is cut by 5.0%?
[HINT: %?Q = (EL * %?L) + (EK * %?K)]
a.
%?Q = + 3.0%
b.
%?Q = + 5.0%
c.
%?Q = - 0.70%
d.
%?Q = - 2.50%
e.
%?Q = - 5.0%
Suppose that total cost is given by TC = 200 + 5Q – 0.4Q2 + 0.001Q3
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
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
____ are defined as costs which are incurred regardless of the alternative action chosen in a decisionmaking problem.
a.
Opportunity costs
b.
Marginal costs
c.
Relevant costs
d.
Sunk costs
e.
None of the above
During the last few days the Superior Company has been running into problems with its computer
system. The last run of the production cost schedule resulted in the incomplete listing shown below.
From your knowledge of cost theory, fill in the blanks.
Q
0
1
2
3
4
5
6
7
8
9
10
TC
40
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
TFC
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
TVC
_____
_____
20
_____
_____
40
_____
_____
96
_____
_____
ATC
x
52
_____
21.33
_____
_____
15.67
_____
_____
_____
_____
AFC
x
_____
_____
_____
_____
_____
_____
_____
_____
_____
_____
AVC
x
_____
_____
_____
_____
_____
_____
10
_____
15
_____
MC
x
_____
_____
_____
4
_____
_____
_____
_____
_____
45