Question 1

Economies of scope are higher the more specialized a firm is in production.

Accepted Answer

A) True 
 B)False

Question 2

When marginal cost is below average total cost, average total cost is falling.

Accepted Answer

A) True 
 B)False

Question 3

A constant elasticity cost function:

Accepted Answer

A)   takes a form such as  TC=aQbwerdT C = a Q ^ { b } w ^ { e } r ^ { d }TC=aQbwerd  and is useful in empirical work because it can be converted into a linear form using logarithms.
B)   takes a form such as  TC=wL+rKT C = w L + r KTC=wL+rK , where  LLL  and  KKK  are chosen to minimize cost, and  www  and  rrr  are input prices.
C)   takes a form such as  TC=aQ2+KLT C = a Q ^ { 2 } + K LTC=aQ2+KL .
D)   is given by  TC=ACxQT C = A C x QTC=ACxQ .

Question 4

Suppose  Q=KˉLQ = \sqrt { \bar { K } L }Q=KˉL​  in the short-run. The firm's short-run variable cost curve is:

Accepted Answer

A)    SFC=Q2KS F C = \frac { Q ^ { 2 } } { K }SFC=KQ2​ 
B)    SFC=wQ2Kˉ+rKˉS F C = \frac { w Q ^ { 2 } } { \bar { K } } + r \bar { K }SFC=KˉwQ2​+rKˉ 
C)    SFC=wQ2/−S F C = w Q ^ { 2 } / -SFC=wQ2/− 
D)    SFC=rKˉS F C = r \bar { K }SFC=rKˉ

Question 5

Suppose that a firm's long-run total cost curve can be expressed as  TC(Q) =100QT C ( Q )  = 100 QTC(Q) =100Q . This firm's long-run marginal cost curve can be expressed as:

Accepted Answer

A)    MC=100M C = 100MC=100 .
B)    MC=100QM C = 100 QMC=100Q .
C)    MC=100Q2M C = 100 Q ^ { 2 }MC=100Q2 .
D)    MC=10M C = 10MC=10 .

Question 6

Suppose that a firm's total costs of production are 0 at an output of zero, 10 at an output of 1, 20 at an output of 2 units, 30 at an output of three units, 35 at an output of four units and 37 at an output of five units. At which number of units is average cost minimized?

Accepted Answer

A)  The first unit.
B)  The fifth unit.
C)  The third unit.
D)  At the first, second and third units.

Question 7

Suppose a firm produces 50,000 units of output, and determines that its marginal cost is $0.72 and its average total cost is $0.72. At this quantity of output, what is the slope of this firm's long run average total cost curve?

Accepted Answer

A)  Upward-sloping.
B)  Downward-sloping.
C)  Horizontal.
D)  Vertical. C

Question 8

Consider the relationship between the long-run total cost curve and the marginal and average cost curve. Marginal cost is MC/Q while average cost is TC/Q.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that a firm's long-run total cost curve can be expressed as  TC=10Q2+20QT C = 10 Q ^ { 2 } + 20 QTC=10Q2+20Q . This firm's long-run average total cost curve can be expressed as

Accepted Answer

A)    AC=20Q+20A C = 20 Q + 20AC=20Q+20 .
B)    AC=10Q+20A C = 10 Q + 20AC=10Q+20 .
C)    AC=10+20QA C = 10 + 20 QAC=10+20Q .
D)    AC=10Q2A C = 10 Q ^ { 2 }AC=10Q2 .

Question 10

Marginal cost is:

Accepted Answer

A)  the cost per unit of output.
B)  the increase in total cost from producing an additional unit of output.
C)  the same thing as total variable cost.
D)  is only relevant in the long-run.

Question 11

Let the average variable cost of production be $20 when 10 units are produced in the first year. In the second year, after the second 10 units have been produced, the average variable cost of production is $12. The slope of the experience curve for this firm is:

Accepted Answer

A)  85%
B)  60%
C)  175%
D)  12%

Question 12

When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by the same percentage.

Accepted Answer

A) True 
 B)False

Question 13

Suppose  Q=KˉLQ = \sqrt { \bar { K } } LQ=Kˉ​L  in the short-run. The firm's short-run fixed cost curve is:

Accepted Answer

A)    SFC=Q2KS F C = \frac { Q ^ { 2 } } { K }SFC=KQ2​ 
B)    SFC=wQ2Kˉ+rKˉS F C = \frac { w Q ^ { 2 } } { \bar { K } } + r \bar { K }SFC=KˉwQ2​+rKˉ 
C)    SFC=wQ2/−KS F C = w Q ^ { 2 } / \frac { - } { K }SFC=wQ2/K−​ 
D)    SFC=rKS F C = r KSFC=rK

Question 14

Economies of scale imply that economies of experience must exist.

Accepted Answer

A) True 
 B)False

Question 15

When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits decreasing returns to scale.

Accepted Answer

A) True 
 B)False  False

Question 16

Suppose a firm's total cost curve can be written  TC(Q) =Q−.5Q2+Q3T C ( Q )  = Q - .5 Q ^ { 2 } + Q ^ { 3 }TC(Q) =Q−.5Q2+Q3 , with marginal cost  MC(Q) =1−Q+3Q2M C ( Q )  = 1 - Q + 3 Q ^ { 2 }MC(Q) =1−Q+3Q2 . This cost function exhibits:

Accepted Answer

A)   economies of scale
B)   diseconomies of scale
C)   neither diseconomies nor economies of scale.
D)   economies of scale for output levels less than some level,  Q1=1/4Q _ { 1 } = 1 / 4Q1​=1/4 , and diseconomies of scale thereafter.

Question 17

Consider the relationship between the long-run total cost curve and the marginal and average cost curve. The slope of the total cost curve from the origin to a point on the total cost curve is how you derive the marginal cost curve while the average cost is given by TC/Q.

Accepted Answer

A) True 
 B)False  False

Question 18

Suppose for a particular production function, the cost-minimizing level of labor is  L=2QL = 2 QL=2Q  and the cost-minimizing level of capital is  K=5QK = 5 QK=5Q . If  w=5w = 5w=5  and  r=2r = 2r=2 , the long-run total cost curve is:

Accepted Answer

A)    TC=7QT C = 7 QTC=7Q 
B)    TC=7T C = 7TC=7 
C)    TC=20QT C = 20 QTC=20Q 
D)    TC=20T C = 20TC=20

Question 19

Minimum efficient scale is:

Accepted Answer

A)  the lowest level of efficiency the firm can achieve.
B)  the highest level of output the firm can achieve.
C)  the lowest level of long-run average cost.
D)  the smallest quantity at which the long-run average cost achieves a minimum.

Question 20

Which of the following factors may explain diseconomies of scale?

Accepted Answer

A)  Increasing returns to scale of inputs.
B)  Specialization of labor.
C)  Indivisible inputs.
D)  Managerial diseconomies.

Exam 8: Cost Curves

Economies of scope are higher the more specialized a firm is in production.

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When marginal cost is below average total cost, average total cost is falling.

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A constant elasticity cost function:

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Suppose Q=KˉLQ = \sqrt { \bar { K } L }Q=KˉL​ in the short-run. The firm's short-run variable cost curve is:

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Suppose that a firm's long-run total cost curve can be expressed as TC(Q) =100QT C ( Q ) = 100 QTC(Q) =100Q . This firm's long-run marginal cost curve can be expressed as:

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Suppose that a firm's total costs of production are 0 at an output of zero, 10 at an output of 1, 20 at an output of 2 units, 30 at an output of three units, 35 at an output of four units and 37 at an output of five units. At which number of units is average cost minimized?

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Suppose a firm produces 50,000 units of output, and determines that its marginal cost is $0.72 and its average total cost is $0.72. At this quantity of output, what is the slope of this firm's long run average total cost curve?

Correct AnswerverifiedC

Consider the relationship between the long-run total cost curve and the marginal and average cost curve. Marginal cost is MC/Q while average cost is TC/Q.

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Suppose that a firm's long-run total cost curve can be expressed as TC=10Q2+20QT C = 10 Q ^ { 2 } + 20 QTC=10Q2+20Q . This firm's long-run average total cost curve can be expressed as

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Marginal cost is:

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Let the average variable cost of production be $20 when 10 units are produced in the first year. In the second year, after the second 10 units have been produced, the average variable cost of production is $12. The slope of the experience curve for this firm is:

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When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by the same percentage.

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Suppose Q=KˉLQ = \sqrt { \bar { K } } LQ=Kˉ​L in the short-run. The firm's short-run fixed cost curve is:

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Economies of scale imply that economies of experience must exist.

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When the price of all inputs increase by the same percentage, the firm's total cost curve will rotate upward by a higher percentage if the firm's production technology exhibits decreasing returns to scale.

Correct AnswerverifiedFalse

Suppose a firm's total cost curve can be written TC(Q) =Q−.5Q2+Q3T C ( Q ) = Q - .5 Q ^ { 2 } + Q ^ { 3 }TC(Q) =Q−.5Q2+Q3 , with marginal cost MC(Q) =1−Q+3Q2M C ( Q ) = 1 - Q + 3 Q ^ { 2 }MC(Q) =1−Q+3Q2 . This cost function exhibits:

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Consider the relationship between the long-run total cost curve and the marginal and average cost curve. The slope of the total cost curve from the origin to a point on the total cost curve is how you derive the marginal cost curve while the average cost is given by TC/Q.

Correct AnswerverifiedFalse

Suppose for a particular production function, the cost-minimizing level of labor is L=2QL = 2 QL=2Q and the cost-minimizing level of capital is K=5QK = 5 QK=5Q . If w=5w = 5w=5 and r=2r = 2r=2 , the long-run total cost curve is:

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Minimum efficient scale is:

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Which of the following factors may explain diseconomies of scale?

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Suppose $Q = \sqrt { \bar { K } L }$ in the short-run. The firm's short-run variable cost curve is:

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Suppose that a firm's long-run total cost curve can be expressed as $T C ( Q ) = 100 Q$ . This firm's long-run marginal cost curve can be expressed as:

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C

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Suppose that a firm's long-run total cost curve can be expressed as $T C = 10 Q ^ { 2 } + 20 Q$ . This firm's long-run average total cost curve can be expressed as

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Suppose $Q = \sqrt { \bar { K } } L$ in the short-run. The firm's short-run fixed cost curve is:

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False

Suppose a firm's total cost curve can be written $T C ( Q ) = Q - .5 Q ^ { 2 } + Q ^ { 3 }$ , with marginal cost $M C ( Q ) = 1 - Q + 3 Q ^ { 2 }$ . This cost function exhibits:

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False

Suppose for a particular production function, the cost-minimizing level of labor is $L = 2 Q$ and the cost-minimizing level of capital is $K = 5 Q$ . If $w = 5$ and $r = 2$ , the long-run total cost curve is:

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