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Multiple Choice Quiz
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1
To maximize profits, the manager should employ capital to the point where the
A)marginal products of capital and labor are equal.
B)value marginal product of capital equals the rental rate.
C)value of marginal product of capital and labor both equal the wage rate.
D)MRTS is equal to the ratio of the quantity of inputs.
2
Which of the following is most likely to represent a fixed cost of a firm?
A)Property taxes on the firm's buildings.
B)Shipping charges for the delivery of products.
C)Electricity.
D)Expenditures on assembly-line labor.
3
Suppose the production function is given by Q = 5K + 6L. What is the average product of capital when 8 units of capital and 10 units of labor are employed?
A)10.
B)12.5.
C)8.25.
D)6.
4
For the cost function C(Q) = 1000 + 10Q + 4Q2, the marginal cost of producing 10 units of output is
A)140.
B)185.
C)90.
D)80.
5
For the cost function C(Q) = 100 + 2Q + 7Q2, the total fixed cost of producing 5 units of output is
A)115.
B)75.
C)43.
D)None of the above.
6
Suppose a firm's production function is Q = min {K, L}. If the price of labor goes up,
A)the firm must use more capital in order to minimize the cost of producing a given level of output.
B)the cost minimizing combination of capital and labor does not change.
C)the firm must use less labor in order to minimize the cost of producing a given level of output.
D)the firm must use less capital in order to minimize the cost of producing a given level of output.
7
If the production function is Q = K1/2L1/2 and labor is fixed at 36 units, then the average product of capital when K = 25 is
A)0.6.
B)1.2.
C)0.5.
D)None of the above.
8
Which of the following cost functions exhibits economies of scope when Q1 = 10 and Q2 =2?
A)C = 15 + 2Q1Q2 + Q12 Q22.
B)C = 65 + 5Q1Q2 + 2Q1 + 4Q2.
C)C = 80 - 5Q1Q2 + .5Q12 + Q22.
D)C = 25 + 4Q1Q2 + Q12 + 2Q22.
9
When costs that do not change in the short run are divided by the output level, you have calculated
A)total fixed costs.
B)average fixed costs.
C)average variable costs.
D)marginal costs.
10
Suppose the production function is given by Q = 10K + 5L. What is the marginal product of capital when 8 units of capital and 12 units of labor are employed?
A)5.
B)10.
C)40.
D)60.
11
What kind of costs is most relevant when managers are making decisions?
A)Marginal costs.
B)Sunk costs.
C)Fixed costs.
D)Variable costs.
12
Suppose the production function is Q = min {4K, 2L}. How much output is produced when 7 units of labor and 2 units of capital are employed?
A)14.
B)8.
C)18.
D)12.
13
Which of the following statements is always true?
A)When marginal costs are less than average total costs, average total costs will be increasing.
B)When average fixed costs are decreasing, the difference in the average variable cost and average total cost is decreasing.
C)When average fixed costs are decreasing, marginal costs must be less than the average fixed costs.
D)When marginal costs are greater than average total costs, average total costs will be decreasing.
14
Suppose the marginal product of labor is 10 and the marginal product of capital is 15. If the wage rate is $5 and the price of capital is $3, then in order to minimize costs the firm should
A)use more capital and less labor.
B)use more labor and less capital.
C)use equal amounts of labor and capital.
D)None of the above.
15
When a firm is experiencing economies of scope, it implies that
A)the total cost of producing two types of product together is less than that of producing the products separately.
B)long run average total costs decrease as output is increased.
C)the marginal cost of producing one type of output decreases when the output of another good is increased.
D)long run average total costs remain constant as output is increased.







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