Question 1

Economies of scope means the rotation of the long-run total cost curve in a downward direction.

Accepted Answer

A) True 
 B)False

Question 2

Assume that capital is measured along the vertical axis, and labor is measured along the horizontal axis. The firm has an initial isocost line called  TC1T C _ { 1 }TC1​ . Now suppose that the price of labor doubles, and the price of capital falls by one-half. Which statement accurately describes the movement of the isocost line from  TC1T C _ { 1 }TC1​  to  TC2T C _ { 2 }TC2​  ?

Accepted Answer

A)  The slope of the isocost line becomes flatter.
B)  The slope of the isocost line becomes steeper.
C)  The slope of the isocost line is unchanged.
D)  We cannot determine whether the slope becomes flatter or steeper. E) All of the above
F) None of the above

Question 3

Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficient of the log of output in this function is interpreted as the:

Accepted Answer

A)  average cost.
B)  marginal cost.
C)  output elasticity of total cost.
D)  cost driver.E) A) and C)
F) B) and C)

Question 4

$$\text { When the production function is given by } Q = L , T C = w Q ^ { 2 } , L = Q ^ { 2 } \text { and } A C = w \text {. }$$

Accepted Answer

A) True 
 B)False

Question 5

The percentage change in average variable cost for every 1 percent increase in cumulative volume is referred to as:

Accepted Answer

A)  experience elasticity
B)  experience curve
C)  experience output
D)  experience slopeE) C) and D)
F) None of the above

Question 6

Suppose a firm's production function can be specified as  Q=10KLQ = 10 K LQ=10KL . This firm's 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. E) A) and B)
F) C) and D)

Question 7

An indivisible input is:

Accepted Answer

A)  an input that cannot be seen by the naked eye.
B)  an important input that the firm cannot identify.
C)  an input that can only be obtained in a certain minimum size.
D)  an input the firm cannot stop using.E) All of the above
F) C) and D)

Question 8

An increase in the price of one input:

Accepted Answer

A)  will always rotate the long-run total cost curve upward.
B)  may rotate the long-run total cost curve upward or may leave the long-run total cost unchanged.
C)  could actually rotate the long-run total cost downward.
D)  will have no effect on the long-run total cost curve as long as long as the firm is using positive amounts of both inputs.E) A) and C)
F) None of the above

Question 9

A long-run total cost curve:

Accepted Answer

A)  must be equal to zero when the level of output is zero.
B)  may be greater than or equal to zero when the level of output is zero.
C)  must be decreasing when the level of output is zero.
D)  will be equal to fixed cost, which is greater than zero, when the level of output is zero.E) A) and D)
F) B) and C)

Question 10

The output elasticity of total cost is equal to:

Accepted Answer

A)  the slope of the isocost line.
B)  the ratio of marginal cost to average cost.
C)  the ratio of average cost to marginal cost.
D)  the ratio of average cost to total cost.E) A) and D)
F) B) and D)

Question 11

The long-run total cost curve shows:

Accepted Answer

A)  the various combinations of capital and labor that will produce different levels of output at the same cost.
B)  the various combinations of capital and labor that will produce the same level of output.
C)  the minimum total cost to produce any level of output, holding input prices fixed, and choosing all inputs to minimize cost.
D)  for a fixed level of capital, the minimum cost to produce a given level of output.E) None of the above
F) B) and C)

Question 12

Economies of experience imply that economies of scale must exist.

Accepted Answer

A) True 
 B)False

Question 13

Suppose a firm's production technology exhibits constant returns to scale. The firm's long-run average cost curve will:

Accepted Answer

A)  be U-shaped
B)  exhibit economies of scale.
C)  exhibit diseconomies of scale.
D)  be a horizontal straight line.E) C) and D)
F) All of the above

Question 14

Suppose the output elasticity of total cost is 1.5. This implies the average cost curve exhibits:

Accepted Answer

A)  increasing returns to scale.
B)  economies of scale.
C)  neither economies nor diseconomies of scale.
D)  diseconomies of scale.E) B) and C)
F) None of the above

Question 15

Suppose a firm's short run total cost curve can be expressed as  STC(Q) =50Q+10S T C ( Q )  = 50 Q + 10STC(Q) =50Q+10 . This firm's short-run average total cost curve can be expressed as:

Accepted Answer

A)    50+10Q50 + \frac { 10 } { Q }50+Q10​ .
B)    50Q50 Q50Q .
C)   50 .
D)   10 . E) None of the above
F) A) and D)

Question 16

Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficients of the log of the wage and the log of capital in this function should:

Accepted Answer

A)  add up to one.
B)  be negative.
C)  be of opposite sign.
D)  of indeterminate sign.E) A) and B)
F) A) and C)

Question 17

If average cost is constant for all levels of output:

Accepted Answer

A)  the marginal cost curve will intersect the average cost at a single point, the minimum of average cost.
B)  marginal cost will be equal to average cost for all levels of output.
C)  marginal cost will be above average cost when average cost is increasing and marginal cost will be below average cost when average cost is decreasing.
D)  marginal cost will have a region of diminishing marginal cost.E) None of the above
F) A) and D)

Question 18

Average total cost can be measured as the slope of the ray from the origin to the total cost curve.

Accepted Answer

A) True 
 B)False

Question 19

The equation of translog cost function is

Accepted Answer

A)  . log⁡TC=b0+b1log⁡Q+b2log⁡w+b3log⁡r+b4(log⁡Q) 2+b5(log⁡w) 2+b6(log⁡r) 2+b7(log⁡w) (log⁡r) +b8(log⁡w) (log⁡Q) +b9(log⁡r) (log⁡Q) \begin{aligned}\log T C = & b _ { 0 } + b _ { 1 } \log Q + b _ { 2 } \log w + b _ { 3 } \log r + b _ { 4 } ( \log Q )  ^ { 2 } \& + b _ { 5 } ( \log w )  ^ { 2 } + b _ { 6 } ( \log r )  ^ { 2 } + b _ { 7 } ( \log w )  ( \log r )  \& + b _ { 8 } ( \log w )  ( \log Q )  + b _ { 9 } ( \log r )  ( \log Q ) \end{aligned}logTC=​b0​+b1​logQ+b2​logw+b3​logr+b4​(logQ) 2+b5​(logw) 2+b6​(logr) 2+b7​(logw) (logr) +b8​(logw) (logQ) +b9​(logr) (logQ) ​ 
B)   MPL=[L12+K12]L−12MPK=[L12+K12]K−12\begin{array} { l } M P _ { L } = \left[ L ^ { \frac { 1 } { 2 } } + K ^ { \frac { 1 } { 2 } } ight] L ^ { - \frac { 1 } { 2 } } \M P _ { K } = \left[ L ^ { \frac { 1 } { 2 } } + K ^ { \frac { 1 } { 2 } } ight] K ^ { - \frac { 1 } { 2 } }\end{array}MPL​=[L21​+K21​]L−21​MPK​=[L21​+K21​]K−21​​ 
C)   TC(Q1,Q2) ={0, if Q1=0 and Q21000+2Q1+3Q2,T C \left( Q _ { 1 } , Q _ { 2 } ight)  = \left\{ \begin{array} { l } 0 , 	ext { if } Q _ { 1 } = 0 	ext { and } Q _ { 2 } \1000 + 2 Q _ { 1 } + 3 Q _ { 2 } ,\end{array} ight.TC(Q1​,Q2​) ={0, if Q1​=0 and Q2​1000+2Q1​+3Q2​,​ 
D)    T=t+cQ+aw+brT = \mathrm { t } + c Q + \mathrm { a } w + \mathrm { b } rT=t+cQ+aw+br  E) A) and B)
F) A) and C)

Question 20

A firm notices that when it increases output beyond an initial level  Q1Q _ { 1 }Q1​ , average total cost decreases. For this firm, the region of output beyond  Q1Q _ { 1 }Q1​  is characterized by:

Accepted Answer

A)   economies of scale.
B)   diseconomies of scale.
C)   constant economies of scale.
D)   the minimum efficient scale. E) A) and D)
F) B) and C)

Exam 8: Cost Curves

Economies of experience imply that economies of scale must exist.

Correct Answer
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If average cost is constant for all levels of output:

Correct Answer
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Suppose a firm's production technology exhibits constant returns to scale. The firm's long-run average cost curve will:

Correct Answer
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The percentage change in average variable cost for every 1 percent increase in cumulative volume is referred to as:

Correct Answer
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$\text { When the production function is given by } Q = L , T C = w Q ^ { 2 } , L = Q ^ { 2 } \text { and } A C = w \text {. }$

Correct Answer
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The equation of translog cost function is

Correct Answer
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An indivisible input is:

Correct Answer
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Correct Answer
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Economies of scope means the rotation of the long-run total cost curve in a downward direction.

Correct Answer
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Suppose a firm's short run total cost curve can be expressed as $S T C ( Q ) = 50 Q + 10$ . This firm's short-run average total cost curve can be expressed as:

Correct Answer
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A long-run total cost curve:

Correct Answer
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An increase in the price of one input:

Correct Answer
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Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficient of the log of output in this function is interpreted as the:

Correct Answer
verified

The long-run total cost curve shows:

Correct Answer
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Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficients of the log of the wage and the log of capital in this function should:

Correct Answer
verified

A firm notices that when it increases output beyond an initial level $Q _ { 1 }$ , average total cost decreases. For this firm, the region of output beyond $Q _ { 1 }$ is characterized by:

Correct Answer
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Suppose the output elasticity of total cost is 1.5. This implies the average cost curve exhibits:

Correct Answer
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Suppose a firm's production function can be specified as $Q = 10 K L$ . This firm's cost function exhibits

Correct Answer
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Average total cost can be measured as the slope of the ray from the origin to the total cost curve.

Correct Answer
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The output elasticity of total cost is equal to:

Correct Answer
verified

Exam 8: Cost Curves

Economies of experience imply that economies of scale must exist.

Correct AnswerverifiedShow Answer

If average cost is constant for all levels of output:

Correct AnswerverifiedShow Answer

Suppose a firm's production technology exhibits constant returns to scale. The firm's long-run average cost curve will:

Correct AnswerverifiedShow Answer

The percentage change in average variable cost for every 1 percent increase in cumulative volume is referred to as:

Correct AnswerverifiedShow Answer

When the production function is given by Q=L,TC=wQ2,L=Q2 and AC=w. \text { When the production function is given by } Q = L , T C = w Q ^ { 2 } , L = Q ^ { 2 } \text { and } A C = w \text {. } When the production function is given by Q=L,TC=wQ2,L=Q2 and AC=w.

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The equation of translog cost function is

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An indivisible input is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Economies of scope means the rotation of the long-run total cost curve in a downward direction.

Correct AnswerverifiedShow Answer

Suppose a firm's short run total cost curve can be expressed as STC(Q) =50Q+10S T C ( Q ) = 50 Q + 10STC(Q) =50Q+10 . This firm's short-run average total cost curve can be expressed as:

Correct AnswerverifiedShow Answer

A long-run total cost curve:

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An increase in the price of one input:

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Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficient of the log of output in this function is interpreted as the:

Correct AnswerverifiedShow Answer

The long-run total cost curve shows:

Correct AnswerverifiedShow Answer

Let a firm's long run total cost be described by the constant elasticity total cost function. The coefficients of the log of the wage and the log of capital in this function should:

Correct AnswerverifiedShow Answer

A firm notices that when it increases output beyond an initial level Q1Q _ { 1 }Q1​ , average total cost decreases. For this firm, the region of output beyond Q1Q _ { 1 }Q1​ is characterized by:

Correct AnswerverifiedShow Answer

Suppose the output elasticity of total cost is 1.5. This implies the average cost curve exhibits:

Correct AnswerverifiedShow Answer

Suppose a firm's production function can be specified as Q=10KLQ = 10 K LQ=10KL . This firm's cost function exhibits

Correct AnswerverifiedShow Answer

Average total cost can be measured as the slope of the ray from the origin to the total cost curve.

Correct AnswerverifiedShow Answer

The output elasticity of total cost is equal to:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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$\text { When the production function is given by } Q = L , T C = w Q ^ { 2 } , L = Q ^ { 2 } \text { and } A C = w \text {. }$

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Suppose a firm's short run total cost curve can be expressed as $S T C ( Q ) = 50 Q + 10$ . This firm's short-run average total cost curve can be expressed as:

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A firm notices that when it increases output beyond an initial level $Q _ { 1 }$ , average total cost decreases. For this firm, the region of output beyond $Q _ { 1 }$ is characterized by:

Correct Answer
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Correct Answer
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Suppose a firm's production function can be specified as $Q = 10 K L$ . This firm's cost function exhibits

Correct Answer
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Correct Answer
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Correct Answer
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