Exam 2 Bank

Look at Q1 Practice
Q2 is a numeral
Q3 is a numeral
Q14 is a numeral

1)In a certain textile firm, labor is the only short term variable input. The
manager notices that the marginal product of labor is the same for each
unit of labor, which implies that
the average product of labor is always equal to the marginal product of

labor
2) Consider the following statements when answering this question;

I. Suppose a semiconductor chip factory uses a technology where the
average product of labor is constant for all employment levels. This
technology obeys the law of diminishing returns.
II. Suppose a semiconductor chip factory uses a technology where the
marginal product of labor rises, then is constant and finally falls as
employment increases. This technology obeys the law of diminishing
returns.
I is false, and II is true.
3) Joe owns a coffee house and produces coffee drinks under the
production function q = 5KL where q is the number of cups generated per
hour, K is the number of coffee machines (capital), and L is the number of
employees hired per hour (labor). What is the marginal product of labor?
MP = 5K
4) Say you are the owner of a Pizza place. You know that when your
produce 10 pizzas, the average product of each of your workers is 10, and
the marginal product of your last worker is 15. From this information you
know that:
the average product is increasing
5) We manufacturer automobiles given the production function q = 5KL

where q is the number of autos assembled per eight-hour shift, K is the
number of robots used on the assembly line (capital) and L is the number of
workers hired per hour (labor). If we use K=10 robots and L=10 workers in
order to produce q = 450 autos per shift, then we know that production is:
technologically inefficient
6) Which of the following examples represents a fixed-proportion production

system with capital and labor inputs?
a. Airplanes and pilots

b. Clerical staff and computers
c. Horse-drawn carriages and carriage drivers
d. all of the above
7) You are currently using three printing presses and five employees to print
100 sales manuals per hour. If the MRTS at this point is 0.5 (capital is on
the vertical axis of the isoquant map), then you would be willing to
exchange ________ employees for one more printing press in order to
maintain current output.
Two
8) Joe owns a coffee house and produces coffee drinks under the
production function q = 5KL where q is the number of cups generated per
hour, K is the number of coffee machines (capital), and L is the number of
employees hired per hour (labor). The average product of labor and the
marginal product of labor are both equal to AP = MP = 5K. Does labor
exhibit diminishing marginal returns in this case?
No, the marginal product of labor is constant (for a given K)
9) Joe owns a small coffee shop, and his production function is q = 3KL
where q is total output in cups per hour, K is the number of coffee machines
(capital), and L is the number of employees hired per hour (labor). If Joe's
capital is currently fixed at K=3 machines, what is his short-run production
function?
q = 9L
10) Consider the following statements when answering this question;

I. Whenever the marginal product of labor curve is a downward sloping
curve, the average product of labor curve is also a downward sloping curve
that lies above the marginal product of labor curve.
II. If a firm uses only labor to produce, and the production function is given
by a straight line, then the marginal product of labor always equals the
average product of labor as labor employment expands.
I is false, and II is true.
11) Joe's Organic Cereal Company produces granola breakfast cereal

under a fixed proportion production system in which 22 ounces of cereal
are packaged in each cardboard box. However, the plant production
manager decides to reduce the amount of cereal per box to 20.5 ounces at
the start of the next year. For the isoquant map, cereal is plotted in the
vertical axis, and boxes are on the horizontal axis. What happens to the
curves in the isoquant map as a result of this change?
Shift downward
12) For many firms, capital is the production input that is typically fixed in
the short run. Which of the following firms would face the longest time
required to adjust its capital inputs?
Nuclear power plant
13) When labor usage is at 12 units, output is 36 units. From this we may
infer that
the average product of labor is 3.
14) Suppose that at a firm's current level of production the marginal product
of capital is equal to 10 units, while the marginal rate of technical
substitution between capital and labor is 2. Given this, we know the
marginal product of labor must be:
20
15) Suppose the production of long-distance airline flights is described by a

fixed proportion production process in which three crew members (i.e.,
labor) are required for each aircraft (i.e., capital). If the airline operates with
four crew members per plane, then we know that:
production at this point is technically inefficient.
16) Which of the following equations based on capital (K) and labor (L)
inputs does not represent a plausible production function?
F(K,L) = K + L 1
17) A construction company builds roads with machinery (capital, K) and
labor (L). If we plot the isoquants for the production function so that labor is
on the horizontal axis, then a point on the isoquant with a small MRTS (in
absolute value) is associated with high ________ use and low ________
use.
labor, capital
18) If the owner of an ice-cream stand told a student looking for summer
work that he would not hire him even if he worked for nothing, we can infer
that
The marginal product of the labor is zero or less
19) Say you own a Mexican place that produces, among other things,
Mexican burritos. The marginal product of your last worker was 5. If the
marginal rate of technical substitution between capital and labor is 0.5, then
marginal product of capital is:
10
20) You operate a car detailing business with a fixed amount of machinery
(capital), but you have recently altered the number of workers that you
employ per hour. Three employees can generate an average product of 4
cars per person in each hour, and five employees can generate an average
product of 3 cars per person in each hour. What is the marginal product of
labor as you increase the labor from three to five employees?
MP = 1.5 cars
21) A firm's marginal product of labor is 4 and its marginal product of capital
is 5. If the firm adds one unit of labor, but does not want its output quantity
to change, the firm should
use 0.8 fewer units of capital
22) On this chapter quiz for this course you can study for up to four hours If
you don't study at all you will get a 70. One hour would give you an 80, the
second hour increased your score to 89, the third to 92. If you studied the
fourth hour your score would be 87. In which hour did diminishing returns
set in?
The second because your gain is less than the previous hour
23) Oscar has negotiated a lease for his sporting goods store in which he is
required to pay $2,500 per month in rent. Oscar pays his staff $9 per hour
to sell sporting goods and his monthly electricity bill averages $700,
depending on his total hours of operation. Oscar's fixed costs of production
equal:
$2,500 per month.
depending on his total hours of operation. Oscar's fixed costs per month
equal:
$3,000
25) [Q#5039]
T
Quan Fi o
tity xe Varia ta
of d ble l
outp co cost c
ut st o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
The table shows the cost information for Bonitas pet-sitting service, where
quantity of output is the number of clients served per day. Think about the
number you would put in the total cost column, and then answer this
question. What is the marginal cost of increasing output from 2 clients to 3
clients?
$15
26) [Q#5021]
T
Quan Fi o
tity xe Varia ta
of d ble l
outp co cost c
ut st o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
question. What is the average total cost of serving 5 clients?
$33
27) King's Inc. produces 250 sweaters per week. The average variable cost
per sweater is $3.75 and average fixed costs are $1.50 per sweater. Total
cost per week is:
$1312.50. Level: M
Topic: Costs of Production
Type: MC
28) For a restaurant:
labor and food would be variable resources and a building would be a fixed
resource in the short run.
29) Darren runs a barbershop with average fixed costs equal to $60 per day
and a total output of 50 haircuts per day. What is his weekly total fixed cost
if he is open six days per week?
$18,000
30) Darren runs a barbershop with fixed costs equal to $40 per day and a
total output of 10 haircuts per day. What is his weekly total fixed cost if he is
open 6 days per week?
$240
31) Suppose that Bob leaves a job that pays $50,000 per year in order to
open a new sponge business. His insurance cost is $5,000, his material
cost is $25,000, his lease payments are $10,000 and his sales revenue is
$90,000. Bob's economic profit is:
$0
32) [Q#5038]
Quan Fi Varia T
tity xe ble o
of d cost ta
outp co l
ut st c
o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
question. What is the marginal cost of increasing output from 1 client to 2
clients?
$10
33) You run a business producing picture frames. This month your total cost
of production is $10,000, your variable cost of production is $6,000, and
you produce 3,000 picture frames. It follows that:
average variable cost is $2.
34) [Q#5022]
T
Quan Fi o
tity xe Varia ta
of d ble l
outp co cost c
ut st o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
quantity of output is the number of clients served per day. What is the
average variable cost when 5 clients are served?
$19
35) Suppose Cyd knows the average cost of producing 7 scones is $10,
while the average cost of producing 8 scones is $12. What is the marginal
cost of the 8th unit?
$26
36) Money spent by a firm to bribe a corrupt foreign minister of commerce,

who then is imprisoned, is a(n):
sunk cost. Level: M

Topic: Firms, Profits, and Economic Costs
Type: MC
37) Maria has a business printing t-shirts selling 200 t-shirts per month. Her
monthly total fixed costs are $400, and her monthly total variable costs are
$1,000. If for some reason Marias fixed cost increased to $1,000, then her:
average fixed costs would increase.
38) [Q#5026]
If Jakob knows the marginal cost of the first sports jersey is $20, the
marginal cost of the second sports jersey is $32, and the marginal cost of
the third jersey is $40, what is the total variable cost of producing 3 jerseys?
$92
39) Suppose a fast-food restaurant currently serves lunch and dinner, and
is trying to determine if it should open for breakfast. Which of the following
costs is a sunk cost for this business?
monthly rent Level: M

Type: MC
40) If you drop a course after the refund date, the tuition that you have paid
and cannot recover is:
sunk cost. Level: M

Type: MC
41) [Q#5020]
Quan Fi Varia T
o
tity xe ta
of d ble l
outp co cost c
ut st o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
question. What is the average total cost of serving 2 clients?
$56
42) Larry owns his own auto repair shop, and employs three mechanics.
His total parts and sales volume this year was $322,400. Because he is
well known for his repair expertise, he is also paid $5,200 per year by a
local radio station to answer auto repair questions on Ask the Mechanic.
His explicit costs for payroll, parts and taxes, mortgage and utilities are
290,160. Larry left a job as an accountant making $40,000 a year to own
his own business. Larry's economic profit is
Larry is actually making an economic loss of $2,560. Level: D Topic Firms,

Profits and Economic Costs
43) You own a small deli that produces sandwiches, soups, and other items
for customers in your town. Which of the following is a variable input in the
production function at your deli?
employees hired to help make the food
44) Austin's total fixed cost is $3,600. Austin employs 20 workers and pays
each worker $60. If labor is his only variable cost, what is Austin's total
cost?
$4,800
$480
46) Wendy leaves her job as a dancer to start her own dance studio. As a
dancer, she made $34,000 per year. During the first year she paid $4,300
per year for insurance, $1846 for music and licensing fees, $150 for a
boom box, and $11,300 for rent and utilities. She received $60,480 in
tuition payments. Wendy's economic profit was
$8,884
47) Cindy operates Birds-R-Us, a small store manufacturing and selling 100
bird feeders per month. Cindy's monthly total fixed costs are $500, and her
monthly total variable costs are $1,000. If for some reason Cindy's variable
cost increased to $4,000, then her:
marginal costs would increase.
48) Cindy operates Birds-R-Us, a small store manufacturing and selling 200
bird feeders per month. Cindy's monthly total fixed costs are $800, and her
monthly total variable costs are $1,500. If for some reason Cindy's variable
cost decreased to $1,000, then her:
average variable costs would decrease.
each worker $120. The average product of labor is 2, and the marginal
product of the last worker hired is 10. What is the marginal cost of the last
unit produced by the last worker Austin hired?
$12
$14
depending on his total hours of operation. Oscar's fixed costs per month
equal:
$2,000
52) When Aishe's Bar-B-Que produces 10 pork sandwiches, the total cost
is $5.00. When 11 pork sandwiches are produced, the total cost rises to
$6.00. From this we know that the marginal cost of the eleventh pork
sandwich:
is greater than the average cost of 11 pork sandwiches.
53) To pursue a goal of being a business owner, Mary left a job that paid
$40,000 per year. At the end of her first year in business, her cash
revenues summed up to $90,000 and her explicit costs were $50,000. Also,
in order to fund her business startup, Mary cashed in a $20,000 certificate
of deposit that was providing a yield of 5%. Ceteris paribus, Mary's
economic profit is:
-$1,000. Level: D
Type: MC
54) At 20 units of output, a firm finds that its average variable cost is $5 per
unit and its average total cost is $8 per unit. Therefore, its:
average fixed cost is $3 per unit
$300
56) Janet's poodle grooming salon has a total cost curve expressed by the
equation TC = 100 + 3Q2 where Q is the quantity of dogs groomed. Given
this expression, one can determine that Janet is operating in the:
short run and her fixed costs are equal to $100
57) Janet's poodle grooming salon has a total cost curve expressed by the
equation TC = 100 + 3Q2 where Q is the quantity of dogs groomed. Janet
notices that as she grooms more dogs her total cost curve:
becomes steeper
58) When a cherry orchard in Oregon adds an additional worker, the total
cost of production increases by $24,000. Adding the worker increases total
cherry output by 600 pounds. Therefore, the marginal cost of the last pound
of cherries produced is:
$40
59) Jen-Chi's Tea House produces 500 4-ounce packets of tea per week.
His variable cost is $14.10 per packet and his total fixed cost per week is
$1,775. Jen-Chi's total cost per week is
$8,825
for customers in your town. Which of the following is a fixed input in the
the dining room where customers eat their meals
61) [Q#5040]
T
Quan Fi o
tity xe Varia ta
of d ble l
outp co cost c
ut st o
st
0 $ $18
7
0
1 7 32
0
2 7 42
0
3 7 57
0
4 7 75
0
5 7 95
0
6 7 120
0
question. What is the marginal cost of increasing output from 5 clients to 6
clients?
$25
62) The average total cost of producing cell phones in a factory is $20 at
the current output level of 100 units per week. If fixed cost is $1,200 per
week:
average variable cost is $8
$22
$13
for customers in your town. Which of the following is a decision most likely
to be made in the long run at your deli?
You renovate the second floor of your building to increase the size of the
dining room
$600
67) Kaile Cakes is currently producing 10 cakes per day. The marginal cost
of the tenth cake is $24, and average total cost of 10 cakes is $6. The
average total cost of 9 cakes is:
$4
68) Arlene makes earrings in the shape of the mascot of a local university.
Last year Arlene made 250 pairs of earrings, which she sold to the
university bookstore for $10 each. Arlene works out of her home, so her
only cost is $3 per pair for materials and $85 for tax help. If Arlene didn't
produce earrings, she would spend her time babysitting her nephews and
make about $500 per year.
Arlene's total revenue is $2500.
product of the twentieth worker is 12. What is the marginal cost of the last
$5
70) [Q#5005]
You own a small deli that produces sandwiches, soups, and other items for
customers in your town. Which of the following is a fixed input in the
the dining room where customers eat their meals

71) A firm operates in a perfectly competitive industry. At the current level of
output, the marginal cost is $26 and the average cost is $23. If the firm can
sell its product for $25,
The firm should decrease its output. Level: M

Topic: Perfect Competition: Short Run Decisions
72) Suppose that the market for candy canes operates under conditions of
perfect competition, that it is initially in long-run equilibrium, and that the
price of each candy cane is $0.10. Now suppose that the price of sugar
rises, increasing the marginal and average total costs of producing candy
canes by $0.05. Based on the information given, we can conclude that in
the short run a typical producer of candy canes will be making:
negative economic profits
73) Suppose that the market for haircuts in a community is perfectly

competitive and that the market is initially in long-run equilibrium.
Subsequently, a decrease in population decreases the demand for haircuts.
In the short run, we expect that the market price will ________ and the
output of a typical firm will ________.
fall; fall
74) If a firm produces a quantity at which total revenue exceeds total cost,
then:
economic profit is positive
Suppose the market for widgets is perfectly

75)
competitive. Furthermore, suppose the total cost curve for
a typical firm in this market is TC = 337 + 4q2 where q
represents the quantity of widgets sold by a single
supplier; and that MC = (2 x slope of TC) x q.
Suppose that there are 90 sellers in this market, sharing a

market demand given by P = 1507 5Q, where P
represents price per widget and Q represents the market
quantity of widgets sold.
What is the short-run equilibrium quantity in this market?
296
76) If the marginal revenue for the next unit being produced is $50, but the
marginal cost is $45, the firm should:
increase production
77) [Q#6033]
Qu P Total
ant r Cost
ity i
c
e
1 $ $6
1
2 $ $11
1
3 $ $13
1
4 $ $16
1
5 $ $20
1
6 $ $28
1
7 $ $38
1
The table above gives the total cost information for a perfectly competitive
firm. What is the profit-maximizing quantity of output?
78) Bob runs a pedicure business in a perfectly competitive industry. He

knows that he will break even if the price of pedicures is $15 but that he will
have to shut down if the price is $11. If the market demand in the industry is
P = 30 (0.2)Q and the market supply is P = (0.2)Q, then in the short run,
Bob will:
produce, since he is at his break-even level.
79) Suppose that the market for haircuts in a community is perfectly

competitive and that the market is initially in long-run equilibrium.
Subsequently, an increase in population increases the demand for haircuts.
In the short run, we expect that the typical firm is likely to begin:
earning an economic profit.
80) If a competitive firm can sell a bushel of soybeans for $25 and it has an
average variable cost of $24 per bushel and the marginal cost is $26 per
bushel, the firm should:
reduce output.
81) Suppose that Jody sells fish in a perfectly competitive market. He can
sell each fish for $5, and today he brought 20 fish to the fish market. If his
total variable cost is $110 and his total fixed cost is $50, then:
he should have stayed home.

82)

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Look at Q1 Practice

the average product of labor is always equal to the marginal product of

2) Consider the following statements when answering this question;

I is false, and II is true.

the average product is increasing

5) We manufacturer automobiles given the production function q = 5KL

6) Which of the following examples represents a fixed-proportion production

a. Airplanes and pilots

No, the marginal product of labor is constant (for a given K)

10) Consider the following statements when answering this question;

I is false, and II is true.

11) Joe's Organic Cereal Company produces granola breakfast cereal

Nuclear power plant

the average product of labor is 3.

15) Suppose the production of long-distance airline flights is described by a

production at this point is technically inefficient.

The marginal product of the labor is zero or less

use 0.8 fewer units of capital

$2,500 per month.

average variable cost is $2.

36) Money spent by a firm to bribe a corrupt foreign minister of commerce,

sunk cost. Level: M

average fixed costs would increase.

monthly rent Level: M

sunk cost. Level: M

Larry is actually making an economic loss of $2,560. Level: D Topic Firms,

employees hired to help make the food

marginal costs would increase.

average variable costs would decrease.

is greater than the average cost of 11 pork sandwiches.

average fixed cost is $3 per unit

short run and her fixed costs are equal to $100

the dining room where customers eat their meals

average variable cost is $8

Arlene's total revenue is $2500.

the dining room where customers eat their meals

The firm should decrease its output. Level: M

negative economic profits

73) Suppose that the market for haircuts in a community is perfectly

economic profit is positive

Suppose the market for widgets is perfectly

Suppose that there are 90 sellers in this market, sharing a

78) Bob runs a pedicure business in a perfectly competitive industry. He

produce, since he is at his break-even level.

79) Suppose that the market for haircuts in a community is perfectly

earning an economic profit.

he should have stayed home.

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