Chapter 5 test bank - managerial economics PDF

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Chapter 05 - The Production Process and Costs

Chapter 05 The Production Process and Costs Multiple Choice Questions

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 statements associated with this question are correct

Difficulty: Medium

2. Suppose the production function is Q = min {K, 2L}. How much output is produced when 4 units of labor and 9 units of capital are employed? a. 2 b. 4 C. 8 d. 9

Difficulty: Medium

3. Suppose the production function is given by Q = 3K + 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. 45

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

4. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 10 units of capital and 10 units of labor are employed? A. 3 b. 4 c. 11 d. 45

Difficulty: Easy

5. Suppose the production function is given by Q = min{K, L}. How much output is produced when 10 units of labor and 9 units of capital are employed? a. 0 b. 4 C. 9 d. 13

Difficulty: Medium

6. Suppose the production function is given by Q = min {K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed? a. 0 B. 4 c. 9 d. 13

Difficulty: Easy

7. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 5 units of capital and 10 units of labor are employed? A. 3 b. 4 c. 11 d. 45

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

8. Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed? a. 3 b. 4 C. 11 d. 45

Difficulty: Hard

9. For the cost function C(Q) = 100 + 2Q + 3Q2, the marginal cost of producing 2 units of output is a. 2 b. 3 c. 12 D. 14

Difficulty: Medium

10. For the cost function C(Q) = 100 + 2Q + 3Q2, the average fixed cost of producing 2 units of output is a. 100 B. 50 c. 3 d. 2

Difficulty: Medium

11. For the cost function C(Q) = 100 + 2Q + 3Q2, the total variable cost of producing 2 units of output is A. 16 b. 12 c. 4 d. None of the statements associated with this question are correct

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

12. If a firm's production function is Leontief and the wage rate goes up the a. Firm must use more labor in order to minimize the cost of producing a given level of output b. Firm must use more capital in order to minimize the cost of producing a given level of output c. Firm must use less labor in order to minimize the cost of producing a given level of output D. Cost minimizing combination of capital and labor does not change

Difficulty: Hard

13. Which of the following statements is incorrect? a. Fixed costs do not vary with output b. Sunk costs are those costs that are forever lost after they have been paid C. Fixed costs are always greater than sunk costs d. Fixed costs could be positive when sunk costs are zero

Difficulty: Hard

14. 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

Difficulty: Medium

15. The production function Q = L.5K.5 is called A. Cobb Douglas b. Leontief c. Linear d. None of the statements associated with this question are correct

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

16. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at 25 units. The profitmaximizing quantity of labor is a. 1 b. 2 c. 10 D. None of the statements associated with this question are correct

Difficulty: Hard

17. 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 = 4, and MPK = 40 the firm: a. Is cost minimizing b. Should use less L and more K to cost minimize C. Should use more K and less L to cost minimize d. Is profit maximizing but not cost minimizing

Difficulty: Hard

18. If the production function is Q = K.5L.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is a. 2/5 B. 1/5 c. 10 d. None of the statements associated with this question are correct

Difficulty: Medium

5-5

Chapter 05 - The Production Process and Costs

19. For a cost function C = 100 + 10Q + Q2, the marginal cost of producing 10 units of output is a. 10 b. 200 c. 210 D. None of the statements associated with this question are correct

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

20. For a cost function C = 100 + 10Q + Q2, the average variable cost of producing 20 units of output is a. 10 b. 20 C. 30 d. None of the statements associated with this question are correct

Difficulty: Medium

21. 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 statements associated with this question are correct

Difficulty: Medium

22. Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? a. The MRTS is equal to the ratio of input prices b. The marginal product per dollar spent on all inputs are equal c. The marginal products of all inputs are equal D. The MRTS is equal to the ratio of input prices and the marginal product per dollar spent on all inputs is equal

Difficulty: Easy

5-7

Chapter 05 - The Production Process and Costs

23. If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is a. ¼ b. 1/10 c. 15 D. None of the statements associated with this question are correct

Difficulty: Hard

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Chapter 05 - The Production Process and Costs

24. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit. The profitmaximizing quantity of labor is a. 2/5 B. 1 c. 10 d. None of the statements associated with this question are correct

Difficulty: Hard

25. The production function for a competitive firm is Q = K.5L.5. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit. The maximum profits are A. 5 b. 10 c. 15 d. None of the statements associated with this question are correct

Difficulty: Hard

26. The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by: a. Land b. Production c. Capital D. Technology

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

27. The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the: A. Production function b. Technological constraint c. Research and development schedule d. Total product

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

28. The creation of a new product is referred to as: a. Process innovation b. Independent research and development C. Product innovation d. Patent disclosure

Difficulty: Easy

29. Which of the following is not a means of acquiring product and process innovations? a. Independent research and development B. Mass production of the existing product c. Reverse engineering d. Hiring employees of innovating firms

Difficulty: Easy

30. Inputs a manager may adjust in order to alter production are: a. All factors B. Variable factors c. Long-run factors d. Fixed factors

Difficulty: Easy

31. What is the average product of labor, given that the level of labor equals 10, total output equals 1200 and the marginal product of labor equals 200? a. 20 B. 120 c. 6 d. 2000

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

32. The change in total output attributable to the last unit of an input is the: a. Total product b. Average product C. Marginal product d. Marginal return

Difficulty: Easy

33. If the last unit of input increases total product we know that the marginal product is: A. Positive b. Negative c. Zero d. Indeterminate

Difficulty: Medium

34. Total product begins to fall when: a. Marginal product is maximized b. Average product is below zero c. Average product is negative D. Marginal product is zero

Difficulty: Medium

35. What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40? a. $10,000 b. $1,000 c. $400 D. $250

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

36. It is profitable to hire units of labor as long as the value of marginal product a. Is less than wage b. Exceeds average product c. Equals price D. Exceeds wage

Difficulty: Medium

37. Given the following table, how many workers should be hired to maximize profits?

a. 1 B. 2 c. 3 d. 4

Difficulty: Medium

38. Firm managers should use inputs at levels where the: a. Marginal benefit equals marginal cost b. Price equals marginal product c. Value marginal product of labor equals wage D. Marginal benefit equals marginal cost and value marginal product of labor equals wage

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

39. Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized? a. 600 units b. 800 units c. 500 units D. 1000 units

Difficulty: Easy

40. Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when K = 40 and L = 35? A. 220 b. 234.5 c. 192.5 d. 268

Difficulty: Medium

41. 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

Difficulty: Medium

42. Given the production function Q = min {4K, 3L}, what is the average product of capital when 8 units of capital and 16 units of labor are used? a. 16 b. 2 C. 4 d. 32

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

43. For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MPK is: a. 16 B. 5.2 c. 3.8 d. 12

Difficulty: Medium

44. The combinations of inputs that produce a given level of output are depicted by: a. Indifference curves b. Budget lines c. Isocost curves D. Isoquants

Difficulty: Easy

45. Isoquants are normally drawn with a convex shape because: a. Inputs are perfectly substitutable b. Inputs are perfectly complementary C. Inputs are not perfectly substitutable d. Inputs are not perfectly complementary

Difficulty: Easy

46. The absolute value of the slope of the isoquant is the: A. Marginal rate of technical substitution b. Marginal product of capital c. Marginal rate of substitution d. Value marginal product of labor

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

47. The production function is Q = K.6 L.4. The marginal rate of technical substitution is: a. 2/3 K-1 L b. K-1 L-1 C. 2/3 K L-1 d. K.4 L-.6

Difficulty: Hard

48. The Leontief production function implies: a. Straight line isoquants b. Convex shaped isoquants c. A positive MRTS D. L-shaped isoquants

Difficulty: Medium

49. In order for isoquants to have a diminishing marginal rate of substitution they must be: a. L-shaped b. Straight lines c. Vertical D. None of the statements associated with this question are correct

Difficulty: Easy

50. Changes in the price of an input cause: a. Isoquants to become steeper B. Slope changes in the isocost line c. Parallel shifts of the isocost lines d. Changes in both the isoquants and isocosts of equal magnitude

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

51. Which of the following sets of economic data is minimizing the cost of producing a given level of output? A. MPL = 20, MPK = 40, 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 = $16, r = $32

Difficulty: Hard

52. In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when: a. Its price rises B. Its price falls c. Its price remains the same d. The price of other inputs fall

Difficulty: Medium

53. Fixed costs exist only in: a. The long run b. Capital intensive markets C. The short run d. Labor intensive markets

Difficulty: Easy

54. Costs that change as output changes are: A. Variable costs b. Fixed costs c. Sunk costs d. None of the statements associated with this question are correct

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

55. Costs that are forever lost after they have been paid are: a. Production costs b. Fixed costs C. Sunk costs d. Variable costs

Difficulty: Easy

56. Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines? a. $5 million b. $500,000 C. $3.4 million d. $1.6 million

Difficulty: Medium

Use the following table to answer questions 57-61:

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Chapter 05 - The Production Process and Costs

57. What is the total cost of producing 125 units of output? a. 1000 b. 2050 c. 1400 D. 2400

Difficulty: Easy

58. What is the average variable cost of producing 50 units of output? a. 21 b. 34 C. 14 d. 20

Difficulty: Easy

59. What is the average total cost of producing 160 units of output? a. 12.98 b. 16.31 c. 22.04 D. 19.38

Difficulty: Easy

60. What is the marginal cost of producing 90 units of output? a. 5.32 B. 8.75 c. 11.67 d. 21.00

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

61. At what level of output is marginal cost minimized: A. 90 b. 50 c. 125 d. 160

Difficulty: Medium

62. Which curve(s) does the marginal cost curve intersect at the (their) minimum point? a. Average total cost curve b. Average fixed cost curve c. Average variable cost curve D. Average total cost curve and average variable cost curve

Difficulty: Medium

63. Given a cost function C(Q) = 200 + 14Q + 8Q2, what is the marginal cost function? A. 14 + 16Q b. 14Q + 8Q2 c. 200 + 8Q2 d. 14 + 16Q2

Difficulty: Medium

64. What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately? a. Economies of scale b. Diminishing average fixed costs c. Cost complementarity D. Economies of scope

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

65. For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3, what is the marginal cost of producing the fourth unit of output? a. $42 b. $295 C. $230 d. $116

Difficulty: Hard

66. For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3, what is the average fixed cost of producing six units of output? a. 18.31 b. 212.61 c. 42.12 D. 33.33

Difficulty: Medium

67. Which of the following cost functions exhibits cost complementarity? A. -4Q1Q2 + 8Q1 b. -4Q2 + 8Q1 c. 6Q1Q2 - Q1 d. 4Q2Q1 + 8Q1

Difficulty: Hard

68. 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

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

69. 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 + Q12 Q22

Difficulty: Medium

70. The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the: A. Long run average total cost curve b. Short run average fixed cost curve c. Short run marginal cost curve d. Long run marginal cost curve

Difficulty: Easy

71. A production function a. Defines the minimum amount of output that can be produced with inputs such as capital and labor b. Defines the average amount of output that can be produced with inputs such as capital and labor C. Represents the technology available for turning inputs into output d. Is determined only by the expenditures on R&D

Difficulty: Medium

72. Which of the following is the most common source of technology? A. Independent R&D b. Licensing technology c. Publications or technical meetings d. Reverse engineering

Difficulty: Medium

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Chapter 05 - The Production Process and Costs

73. Variable factors of production are the inputs that a manager a. May adjust in order to alter sales B. May adjust in order to alter production c. Cannot adjust in the short-run d. Cannot adjust in the long-run

Difficulty: Easy

74. The short-run is defined as the time-frame a. In which there are no fixed factors of production B. In which there are fixed factors of production c. Less than one year d. Less than three years

Difficulty: Easy

75. The long-run is defined as A. The horizon in which the manager can adjust all factors of production b. The horizon in which there are only fixed factors of production c. The horizon in which there are both fixed and variable factors of production d. Greater than one year

Difficulty: Easy

76. Which of the following is not a measure of productivity? a. Total product b. Marginal product C. Average advertising d. Input-output ratio

Difficulty: Easy

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Chapter 05 - The Production Process and Costs

77. The marginal product of an input is defined as the change in a. Average output attributable to the last unit of an input B. To...