1. Suppose the production function is given by Q = 5K + 4L. What is the average product of capital
when 10 units of capital and 10 units of labor are employed?
A. 3
B. 4
C. 7
D. 9 - D
2. Suppose the production function is given by Q = 3K + 6L. What is the marginal product of capital
when 10 units of capital and 10 units of labor are employed?
A. 3
B. 4
C. 9
D. 45 - C
3. For the cost function C(Q) = 100 + 6Q + 3Q3, the marginal cost of producing 2 units of output
is:
A. 24.
B. 36.
C. 42.
D. 14. - C
4. For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 10 units of
output is:
A. 100.
B. 50.
C. 10.
D. 2. - C
5. For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 10 units of
output is:
A. 16.
B. 12.
C. 4.
D. None of the answers are correct. - D
6. You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm
produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm:
A. is cost minimizing.
B. should use less L and more K to cost minimize.
C. should use more L and less K to cost minimize.
D. is profit maximizing but not cost minimizing. - C
7. If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product
of labor when L = 49 is:
A. 2/5.
B. 1/5.
C. 10.
D. None of the answers are correct. - D
8. Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K = 36. How
much labor is employed by the firm?
A. 49
B. 6
C. 36
D. 25 - D
9. Which of the following sets of economic data is minimizing the cost of producing a given level
of output?
A. MPL = 20, MPK = 30, w = $16, r = $32.
B. MPL = 20, MPK = 40, w = $32, r = $16.
C. MPL = 40, MPK = 20, w = $16, r = $32.
D. MPL = 40, MPK = 40, w = $32, r = $32. - D
10. Which of the following cost functions exhibits economies of scope when three (3) units of good
one and two (2) units of good two are produced?
A. C = 50 + 5Q1Q2 + 0.5Q12 + Q22.
B. C = 10 + 4Q1Q2 + Q12 + Q22.
C. C = 15 - 5Q1Q2 + 2Q1 + 4Q2.
D. C = 5 + Q1Q2 + Q12Q22. - C
12. Which of the following cost functions exhibits economies of scope over the specified output
range?
A. C(Q1,Q2) = 2 − 0.5Q1Q2 − (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0
B. C(Q1,Q2) = 2 − 3Q1Q2 − (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0
C. C(Q1,Q2) = 2 − 0.5Q1Q2 − (Q1)2 + (Q2)2, for all Q1 < 2 and Q2 < 2
D. C(Q1,Q2) = 2 − 3Q1Q2 − (Q1)2 + (Q2)2, for all Q1 > 4 and Q2 > 4 - B
13. Which of the following cost functions exhibits cost complementarity?
A. −4Q1Q2 + 8Q1.
B. −4Q2 + 8Q1.
C. 6Q1Q2 − Q1.
D. 4Q2Q1 + 8Q1. - C
14. For the multiproduct cost function C(Q1,Q2) = 100 + 2Q1Q2 + 4Q12, what is the marginal cost
function for good one?
A. MC1 = 2Q2 + 4Q1 − Q22.
B. MC1 = 2Q2 + 8Q1.
C. MC1 = 100 + 2Q1Q2 + 4Q12.
D. MC1 = 4Q12 − 2 Q22. - A
22. Economies of scope exist when:
A. C(Q1) + C(Q2) < C(Q1,Q2).
B. C(Q1) − C(Q2) < C(Q1,Q2).
C. C(Q1) + C(Q2) > C(Q1,Q2).
D. C(Q1) − C(Q2) > C(Q1,Q2). - C
23. The marginal product of capital for the Cobb-Douglas production function is given by:
A. bKa Lb-1.
B. aKa-1 Lb.
C. aKa-1 Lb-1.
D. bKa Lb. - B
24. An industry consists of four firms with annual sales of $3,000, $5,000, $4,000, and $6,000.
What is the industry's HHI?
A. 1,659
B. 2,654
C. 10,000
D. There is not sufficient information to compute the industry HHI. - B
25. An industry consists of five firms with annual sales of $1,300, $500, $400, $100, and $600.
What is the industry's HHI?
A. 2,937
B. 5,654
C. 10,000
D. There is not sufficient information to compute the industry HHI. - A
26. An industry consists of seven firms with annual sales of $130, $50, $40, $10, $60 and two with
same sales . What is the industry's HHI?
A. 2,937
B. 5,654
C. 10,000
D. There is not sufficient information to compute the industry HHI. - D
27. There are five firms in an industry. You know sales of the four largest firms are $800,000,
$700,000, $440,000, and $230,000. If the C4 ratio is 80 percent, then the HHI is:
A. 1,810.
B. 2,271.
C. 4,338.
D. 5,191. - B
28. Producer and consumer surpluses are measures of:
A. industry performance.
B. market structure.
C. firm conduct.
D. None of the answers are correct. - A
29. Advertising is an aspect of a firm's:
A. performance.
B. structure.
C. environment.
D. conduct. - D
30. An industry consists of eight firms with annual sales (in millions) of $200, $300, $900, $600,
$300, $700, $500, and $600. What is the industry's C4?
A. 0.49
B. 0.68
C. 0.66
D. 0.77 - B
31. A firm has a Lerner index of 0.75 and charges a price of $150. The firm's marginal cost is:
A. $0.
B. $37.50.
C. $112.50.
D. There is not sufficient information to determine the firm's marginal cost. - B
32. A firm has a marginal cost of $200 and charges a price of $500. The Lerner index for this firm
is:
A. 0.20.
B. 0.50.
C. 1.50.
D. 0.60. - C
33. Which of the following is NOT considered a measure of firm conduct?
A. Lerner index of pricing behavior
B. Research and development measures
C. Advertising measures
D. Dansby-Willig index - D
34. Suppose that the demand in a particular industry is given by Qd = 500 − 2P. When the market
price in the industry is $50 per unit, total demand in the industry is _________. Furthermore,
assume that the entire market consists of four firms that share the market equally. The HHI under
these conditions is then _________.
A. 225 units; 1,600
B. 400 units; 2,500
C. 225 units; 3,333.33
D. 400 units; 10,000 - B
35. Four firms control the market for a particular good, resulting in an HHI of 2,900. Total industry
sales are $500, and it is known that two firms each have sales of $175. If each of the remaining two
firms have the same sales, then we can conclude that the remaining two firms each have a market
share of:
A. $125.
B. $75.
C. 0.15.
D. 0.50. - C
36. The industry elasticity of demand for telephone service is −2, while the elasticity of demand for
a specific phone company is −5. What is the Rothchild index?
A. 0.2
B. 0.4
C. 0.5
D. 0.7 - B
37. If Wal-Mart buys farm fresh. This takeover is an example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration. - B
38. If Apple Company purchases ODU's OCCS. This is an example of:
A. vertical integration.
B. horizontal integration.
C. cointegration.
D. conglomerate integration. - D
39. A student figured out that the HHI for an industry was 10,000. What is the proper conclusion?
A. The market is monopolistic.
B. The market is close to perfectly competitive or monopolistically competitive.
C. The student did not pay attention in class and get the wrong answers.
D. There is free entry in the market. - A
40. An industry is comprised of 25 firms, each with an equal market share. What is the four-firm
concentration ratio of this industry?
A. 0.12
B. 0.16
C. 0.20
D. 0.25 - B