EABD - chapter 5

1. Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the
wage rate is $4 and the price of capital is $2, then in order to minimize costs, the firm should
use:
a. more capital and less labor.
b. more labor and less capital.
c. three times more capital than labor.
d. none of the answers are correct.

• A

• B

• C

• D

2. For a cost function C = 100 + 10Q + Q2, the average fixed cost of producing 10 units of
output is:
a. 10.
b. 5.
c. 1.
d. None of the answers are correct.

• A

• B

• C

• D

3. Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K = 25. How
much labor is employed by the firm?
a. 49
b. 6
c. 36
d. 25

• A

• B

• C

• D

• A

• B

• C

• D

5. The manager institutes an incentive structure to ensure:
a. workers are in fact working at the expected potential.
b. workers are in fact working at their utility‐maximizing effort level.
c. the firm produces on the production function.
d. the firm produces above the production function

• A

• B

• C

• D

6. An isoquant defines the combination of inputs that yield the producer:
a. higher levels of output than the desired level of output.
b. lower levels of output than the desired level of output.
c. the same level of output.
d. None of the statements is correct.

• A

• B

• C

• D

7. The marginal cost curve:
a. lies always below the average total cost curve (ATC).
b. lies always above the average variable cost curve (AVC).
c. intersects the ATC and AVC at their maximum points.
d. intersects the ATC and AVC at their minimum points.

• A

• B

• C

• D

8. When there are economies of scope between two products, which are separately produced by two firms, merging into a single firm can:
a. accomplish an increase in sales.
b. accomplish a reduction in costs.
c. lead to an increase in cost.
d. lead to a reduction in sales.

• A

• B

• C

• D

9. Suppose the production function is Q = min{3K, L}. How much output is produced when 6
units of labor and 3 units of capital are employed?
a. 3
b. 6
c. 9
d. None of the statements is correct.

• A

• B

• C

• D

10. The point where diminishing marginal returns has begun to affect production is best
characterized by the point where the:
a. total product curve flattens out.
b. average product curve begins to be negatively sloped.
c. marginal product curve begins to be negatively sloped.
d. marginal product curve equals the average product curve.

• A

• B

• C

• D