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Economics
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Economics 2150A/B
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Besanko & Braeutigam – Microeconomics, 4 editionTest Bank File: ch08, Chapter 8: Cost Curves Multiple Choice 1. A long-run total cost curve a) always has a constant slope. b) is always upward sloping. c) never has a constant slope. d) is always downward sloping. Ans: B 2. The cost of producing a good in a single-product firm is e) additional cost f) stand-alone cost g) variable cost h) average cost Ans: B 3. An indivisible input is i) an input that cannot be seen by the naked eye. j) an important input that the firm cannot identify. k) an input that can only be obtained in a certain minimum size. l) an input the firm cannot stop using. Ans: C 4. A firm’s long-run average cost curve is comprised of m) the minimum points of each of the firm’s short-run average cost curves. n) the lower envelope of the firm’s short-run average cost curves. o) the minimum points of each of the firm’s short-run marginal cost curves. p) the series of points where the short-run marginal cost curves intersect the short- run average cost curves. Ans: B 5. When average cost is “u-shaped” (neither always rising or always falling), the marginal cost curve will q) cross through (bisect) the average cost curve at its maximum. r) not intersect with the average cost curve at all. s) be a fixed distance above the average cost curve. Copyright © 2011 John Wiley & Sons, Inc. 8-1 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank t) cross through (bisect) the average cost curve at its minimum. Ans: D 6. The long-run total cost curve shows u) the various combinations of capital and labor that will produce different levels of output at the same cost. v) the various combinations of capital and labor that will produce the same level of output. w) the minimum total cost to produce any level of output, holding input prices fixed, and choosing all inputs to minimize cost. x) for a fixed level of capital, the minimum cost to produce a given level of output. 7. A long-run total cost curve y) must be equal to zero when the level of output is zero. z) may be greater than or equal to zero when the level of output is zero. aa) must be decreasing when the level of output is zero. bb) will be equal to fixed cost, which is greater than zero, when the level of output is zero. 8. Suppose for a particular production function, the cost-minimizing level of labor is L = 2Q and the cost-minimizing level of capital is = 5Q . Ifw = 5 and r = 2, the long-run total cost curve is cc) TC = 7Q dd) TC = 7 ee) TC = 20Q ff) TC = 20 Ans: C 9. Suppose for a particular production function, the cost-minimizing levels of labor and capital are L = Q r K = Q w 10 w 10 r If r = 5and w = 20 , what is the equation for long-run total cost? 2Q gg) 5 hh) 2Q 10 ii) 2Q jj) 4Q Ans: C Copyright © 2011 John Wiley & Sons, Inc. 8-2 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank 10. Which of the following is not an accurate specification of a firm’s long-run total cost curve? FC stands for fixed cost, VC stands for variable cost, and AC stands for average cost, below. kk) TC = FC +VC , where FC = 0 ll) TC=FC + VC, where FC > 0 mm) TC = wL+ rK , where L and K are chosen to minimize cost, and w and r are input prices. nn) TC = AC x Q Ans: A 11. Suppose that a firm’s production function can be specified as10KL . Which of the following accurately describes this firm’s long run total cost function? oo) Q 10K Q pp) 10L qq) 2 rwQ 10 10Q rr) 2 rw 12. Assume that capital is measured along the vertical axis, and labor is measured along the TC horizontal axis. The firm has an initial isocost line call1. 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 1 toTC 2? ss) The slope of the isocost line becomes flatter. tt) The slope of the isocost line becomes steeper. uu) The slope of the isocost line is unchanged. vv) We cannot determine whether the slope becomes flatter or steeper. Ans: B 13. The long-run total cost curve tends to ww) rotate upward when input prices fall. xx) rotate upward when input prices rise. yy) shift vertically upward by a fixed amount. zz) shift vertically downward by a fixed amount. Ans: B Copyright © 2011 John Wiley & Sons, Inc. 8-3 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank 14. 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 TC . Now suppose that the 1 price of labor trebles and the price of capital also trebles. Which statement accurately describes the movement of the isocost line from TC 1 toTC 2? aaa) The slope of the isocost line becomes flatter. bbb) The slope of the isocost line becomes steeper. ccc) The slope of the isocost line is unchanged. ddd) We cannot determine whether the slope becomes flatter or steeper. 15. When the price of all inputs increase by the same percentage, eee) the firm’s total cost curve will rotate upward by a higher percentage if the firm’s production technology exhibits decreasing returns to scale. fff) the firm’s total cost curve will rotate upward by the same percentage. ggg) the firm’s total cost curve will rotate upward by a higher percentage if the firm’s production technology exhibits increasing returns to scale. hhh) the firm’s total cost curve will remain unchanged since the cost-minimizing combination of inputs is unchanged. Ans: B 16. The output elasticity of total cost is defined as iii) the percentage change in output per one percent change in total cost. jjj) the percentage change in total cost per one percent change in output. kkk) output divided by total cost. lll) total cost divided by output. 17. An increase in the price of one input mmm) will always rotate the long-run total cost curve upward. nnn) may rotate the long-run total cost curve upward or may leave the long-run total cost unchanged. ooo) could actually rotate the long-run total cost downward. ppp) 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. Ans: B 18. Cost driver is qqq) a mathematical relationship that shows how total costs vary with the factors that influence total costs rrr) a factor that influences or “drives” total or average costs sss) a factor that influences quality of output and prices of inputs ttt) a cost level. Ans: B Copyright © 2011 John Wiley & Sons, Inc. 8-4 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank 19. When the prices of all inputs increase by a proportionate amount, uuu) the firm’s total cost curve will remain unchanged since the cost-minimizing combination of inputs is unchanged. vvv) the firm’s total cost curve may rotate upward or may leave the long-run total cost curve unchanged. www) will always rotate the long-run total cost curve upward. xxx) could actually rotate the long-run total cost downward if the firm chooses to produce a lower level of output. Ans: C 20. Identify the truthfulness of the following statements. I. Marginal cost can be measured as the slope of the total cost curve. II. Average total cost can be measured as the slope of the ray from the origin to the total cost curve. yyy) Both I and II are true. zzz) Both I and II are false. aaaa) I is true; II is false. bbbb) I is false; II is true. Ans: A 21. The relationship between the long-run total cost curve and the marginal and average cost curves is best described by which of the following statements? cccc) 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. dddd) Marginal cost is MC/Q while average cost is TC/Q. eeee) Marginal cost is derived by dividing total cost by a constant as is average cost. ffff) The slope of the total cost curve at each point is how you derive the marginal cost curve while the slope from the origin to a point on the total cost curve is how you derive the average cost curve. Ans: D 22. Suppose that a firm’s long-run total cost curve can be expressed as TC =10Q +20Q . This firm’s long-run average total cost curve can be expressed as gggg) AC = 20Q+20 . hhhh) AC =10Q+20 . AC =10+20Q iiii) . jjjj) AC =10Q 2. Copyright © 2011 John Wiley & Sons, Inc. 8-5 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank 23. For a firm, let total cost be TC(Q) = 160+10Q and marginal cost be MC(Q) = 20Q. What is the minimum efficient scale for this firm? kkkk) 0 llll) 2 mmmm) 4 nnnn) indeterminate 24. 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 are marginal and average costs equal? oooo) The first unit. pppp) The fifth unit. qqqq) The third unit. rrrr) At the first, second and third units. 25. For a firm, let total cost be TC(Q) = 10Q and marginal cost be MC(Q) = 20Q. Which of the following is an expression for the output elasticity of total cost? ssss) ϵTC,Q= 10Q. tttt) ϵTC,Q= 2Q. uuuu) ϵ TC,Q= 2. vvvv) ϵ TC,Q= 20Q. 26. 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? wwww) The first unit. xxxx) The fifth unit. yyyy) The third unit. zzzz) At the first, second and third units. Ans: B 27. Suppose that a firm’s long-run total cost curve can be expressed as TC(Q) =100Q . This firm’s long-run marginal cost curve can be expressed as aaaaa) MC =100 . bbbbb) MC =100Q . 2 ccccc) MC =100Q . ddddd) MC =10 . Ans: A Copyright © 2011 John Wiley & Sons, Inc. 8-6 Besanko & Braeutigam – Microeconomics, 4 editionTest Bank 28. Identify the truthfulness of the following statements. I. When marginal cost is rising, average total cost is rising. II. When marginal cost is below average total cost, average total cost is falling. eeeee) Both I and II are true. fffff) Both I and II are false. ggggg)I is true; II is false. hhhhh)I is false; II is true. Ans: D 29. If average cost is constant for all levels of output, iiiii) the marginal cost curve will intersect the average cost at a single point, the minimum of average cost. jjjjj) marginal cost will be equal to average cost for all levels of output. kkkkk)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. lllll) marginal cost will have a region of diminishing marginal cost. Ans: B 30. Marginal cost mmmmm) is equal to average cost at the minimum point of the marginal cost curve. nnnnn)is equal to average cost at the maximum point of the average cost curve. ooooo)is decreasing whenever average cost is decreasing. ppppp)is equal to average cost at the minimum point of the average cost curve. 31. When the production function is given by Q = L, which of the following statements is true? 2 2 qqqqq)TC = wQ , L = Q and AC = w rrrrr) TC = w - Q, L = Q and AC = w sssss) TC = wQ, L = Q and AC = w ttttt) TC = wQ, L = Q and AC = L 2 32. Suppose a firm’s total cost curve is given by the equation TC = Q +2Q+100 . The firm’s marginal cost is MC = 2Q+2 . At what level of Q does the firm’s average cost curve reach a minimum? uuuuu)100 vvvvv)2 wwwww) 10 xxxxx)20 Ans: C Copyright © 2011 John Wiley & Sons, Inc.
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