Production and cost analysis – Quiz questions
1.Complete the following table:
Units of Labor / TotalProduct / Average Product / Marginal Product
1
2
3
4
5
6
7 / ____
____
66
____
____
78
____ / 20
____
____
____
16
____
10 / ____
30
____
10
____
____
____
2.A production function measures the relationship between:
a.Input prices and output prices.
b.The quantity of inputs and the quantity of output.
c.Input prices and the quantity of output.
d.The quantity of inputs and input prices.
e.None of the above.
3.If a firm is producing a given level of output in a technically efficient manner, then it must be the case that:
a.This is the lowest cost method of producing that output.
b.Each input is producing its maximum marginal product.
c.This output level is the most that can be produced with the given levels of inputs.
d.Both a and c.
e.All of the above.
4.If a firm is producing a given level of output in an economically efficient manner, then it must be the case that:
a.This is the lowest cost method of producing that output.
b.Each input is producing its maximum marginal product.
c.This output level is the most that can be produced with current inputs.
d.Both a and c.
e.None of the above.
5.Diminishing returns refers to the decrease in
a.Profit that results from increases in output.
b.Average product that results from increases in the variable input.
c.Marginal product that results from increases in the variable input.
d.Long-run average cost that results from increases in output.
6.A firm’s cost of production is affected by changes in:
a.The available technology.
b.Input prices.
c.Profits.
d.Both a and b.
e.Both b and c.
7.A short-run cost function assumes that:
a.The level of output is fixed.
b.At least one input is fixed in supply.
c.All inputs are fixed in supply.
d.Both a and b.
e.Both b and c.
8.A fixed cost is:
a.The cost of any input with a fixed price per unit.
b.A cost which increases in a fixed proportion as output increases.
c.A cost the firm must pay even if output is zero.
d.Both b and c.
e.All of the above.
9.Average fixed cost:
a.Increases as output increases.
b.Decreases as output increases.
c.Increases if marginal cost is increasing.
d.Increases if marginal cost is greater than average fixed cost.
10.Marginal cost:
a.measures how total cost changes when input prices change.
b.measures how total cost changes when one more unit of output is produced.
c.is less than average cost when average cost is decreasing.
d.both a and b.
e.both b and c.
Output / Total Cost0
50
100
150
200 / $ 300
800
1050
1650
2400
TABLE 1
11.REFER TO TABLE 1.
What is total variable cost when 100 units of output are produced?
a.$5
b.$10.50
c.$105
d.$1050
e.None of the above
12.REFER TO TABLE 1.
What is average fixed cost when 150 units of output are produced?
a.$2
b.$9
c.$11
d.$16.50
e.None of the above.
13.REFER TO TABLE 1.
What is average variable cost when output is 200?
a.$2.00
b.$12.00
c.$10.50
d.$240
e.$210
Units of Labor / Units of Output2
4
6
8
10
12 / 10
26
46
60
72
80
TABLE 2
14.REFER TO TABLE 2, in which the capital stock is fixed at 5 units, the price of capital is $60 per unit, and the price of labor is $20 per unit.
If the firm produces 80 units of output, what is its total cost of production?
a.$540
b.$1,600
c.$1,900
d.$5,040
e.None of the above
15.REFER TO TABLE 2, in which the capital stock is fixed at 5 units, the price of capital is $60 per unit, and the price of labor is $20 per unit.
If the firm produces 60 units of output, what is average variable cost?
a.$5
b.$7.67
c.$20
d.$57.50
e.$2.67
"Ford built 18 vehicles per auto employee in North America last year, while GM could only build 12." (The Wall Street Journal)
16.In comparison with GM, Ford had a higher
a.Average product of labor.
b.Average product of capital.
c.Marginal product of labor.
d.Marginal product of capital.
17.In comparison with GM, Ford had
a.Higher average variable cost.
b.Lower average variable cost.
c.Higher total variable cost.
d.Both a and c.
e.None of the above.
18.Which of the following is FALSE?
a.A change in input prices shifts the isoquant map.
b.Convex isoquants mean that the marginal rate of technical substitution decreases as the firm substitutes labor for capital.
c.A change in cost shifts the isocost curve.
d. At the optimal input choice, the rate at which the firm can substitute labor for capital in production is equal to the rate at which the firm can substitute labor for capital in the market.
e.None of the above.
19.The marginal rate of technical substitution is:
a.The rate at which the firm can substitute labor for capital while holding total cost constant.
b.The rate at which the firm can substitute labor for capital while holding output constant.
c.The slope of the isocost curve.
d.Both a and c.
e.None of the above.
20.A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 20 units of output. The firm:
a.Is using the costminimizing combination of capital and labor.
b.Should use more of both inputs in equal proportions.
c.Should use less of both inputs in equal proportions.
d.Could produce the same level of output at a lower cost by using more capital and less labor.
e.Could produce the same level of output at a lower cost by using less capital and more labor.
21.Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits:
a.Decreasing returns to scale.
b.Diminishing marginal returns.
c.Decreasing marginal rate of technical substitution.
d.Both a and b.
e.Both a and c.
FIGURE 1
22.REFER TO FIGURE 1, in which the price of labor is $3 per unit.
What is the price per unit of capital?
a.$1.50
b.$2.00
c.$2.10
d.$5.00
23.REFER TO FIGURE 1, in which the price of labor is $3 per unit.
How many units of capital should a firm use in order to produce 300 units of output at the least cost?
a.17 units of capital.
b.18 units of capital.
c.19 units of capital.
- 20 units of capital.
24.REFER TO FIGURE 1, in which the price of labor is $3 per unit.
What is the marginal rate of technical substitution at point B?
a.0.6
b.0.75
c.1
d.1.7
25.REFER TO FIGURE 1, in which the price of labor is $3 per unit.
What is the minimum cost of producing 100 units of output?
a.$150
b.$105
c.$ 75
d.$ 60
26.REFER TO FIGURE 1, in which the price of labor is $3 per unit.
How many units of labor should a firm use in order to produce 100 units of output at the least cost?
a. 5 units of labor.
b.10 units of labor.
c.15 units of labor.
d.20 units of labor.
FIGURE 2
27.REFER TO FIGURE 2, in which the price of capital is $100 per unit.
How many units of capital should a firm use in order to produce 500 units of output at the least cost?
a.10 units of capital.
b.12 units of capital.
c.14 units of capital.
d.20 units of capital.
e.None of the above.
28.REFER TO FIGURE 2, in which the price of capital is $100 per unit.
What is the marginal rate of technical substitution at point C?
a.0.14
b.0.4
c.1.4
- 4
- None of the above.
29.REFER TO FIGURE 2, in which the price of capital is $100 per unit.
If a firm decides that total cost must not exceed $3,500, what is the maximum amount of output it can produce?
a.100
b.500
c.1,000
d.1,500
e.None of the above.
30.REFER TO FIGURE 2, in which the price of capital is $100 per unit.
Which of the following combinations of capital and labor lies on the expansion path?
a.20K, 60L
b.35K, 140L
c.50K, 200L
d.All of the above.
e.None of the above.
31.Economies of scale exist when
a.Total cost decreases as output increases.
b.Long-run average cost decreases as output increases.
c.Marginal cost decreases as output increases.
d.Fixed cost decreases as output increases.
32.You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that
a.Total cost decreases as more is produced.
b.Long-run average cost decreases as more is produced.
c.Marginal cost decreases as more is produced.
d.Total fixed cost decreases as more is produced.
33.Diseconomies of scale
a.Exist when fixed cost increases as output increases.
b.Exist when longrun average cost increases as output increases.
c.Exist eventually as the firm uses more and more labor with a fixed capital stock.
- Both a and b.
- All of the above.