Test bank for managerial economics and business strategy chapter 5 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 answers are correct. Answer: B Learning Objective: 05-02 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

5-1 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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 Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 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 Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: B Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

5-2 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs

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 Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 01 Easy

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 Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 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. Answer: D Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

5-3 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs

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. Answer: B Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 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 answers are correct. Answer: A Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard

5-4 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs

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. Answer: C Learning Objective: 05-04 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 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. Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

15. The production function Q = L.5K.5 is called: A. Cobb Douglas. B. Leontief. C. linear. D. None of the answers are correct. Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

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 answers are correct. Answer: D 5-5 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs Learning Objective: 05-02 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 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. Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 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 answers are correct. Answer: B Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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 answers are correct. Answer: D Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

5-6 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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 answers are correct. Answer: C Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 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 answers are correct. Answer: A Learning Objective: 05-05 Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 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 is 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. Answer: D Learning Objective: 05-02 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

5-7 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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 answers are correct. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

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 answers are correct. Answer: B Learning Objective: 05-02 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 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 and costs $2. The maximum profits are: A. 3. B. 10. C. 15. D. None of the answers are correct. Answer: A Learning Objective: 05-02 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

5-8 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs

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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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. Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

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. Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 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 Answer: B Learning Objective: 05-01 Topic: The Production Function 5-9 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs Blooms: Remember AACSB: Knowledge Application Difficulty: 01 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. Answer: B Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 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. 2,000 Answer: B Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

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. Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

5-10 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs

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. Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand

5-11 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs AACSB: Knowledge Application Difficulty: 02 Medium

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

Labor

Wage

Marginal Product Labor

VMP

1

8

$32

$100

2

32

$128

$100

3

16

$64

$100

4

-1

$-4

$100

5

-12

$-48

$100

L

A. 1 B. 2 C. 3 D. 4 Answer: B Learning Objective: 05-02 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

5-12 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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. 1,000 units Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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 Answer: A Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: C Learning Objective: 05-01 Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 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 Answer: C 5-13 © 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

Chapter 05 - The Production Process and Costs Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

43. For the production function Q = 5.2K + 3.8L, if K = 16 and L = 12, we know that MP K is: A. 16. B. 5.2. C. 3.8. D. 12. Answer: B Learning Objective: 05-01 Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 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. Answer: D Learning Objective: 05-01 Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

45. Isoquants are normally drawn with a convex shape because: A. inputs are perfectly substitutable. B. inputs are perfectl...