Managerial Economics

Quiz 2

First question
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 statements associated with this question are correct.
2. 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.

3-. 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.

3--. 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
above

4- 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.

5. 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.

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6. You are the manager of a firm that sells its product in a competitive market at a
price of $40. Your firm's cost function is C = 60 + 4Q2. Your firm's maximum
profits are
A. 36. B. 60. C. 40. D. 80

7- You are the manager of a firm that produces output in two plants. The demand
for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal cost
associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What
price should be charged to maximize profits?
A. 60. B- 66. C. 70. D. 76.

8- You are the manager of a firm that produces output in two plants. The demand
for your firm's product is P = 120 - 6Q, where Q = Q1 + Q2. The marginal cost
associated with producing in the two plants are MC1 = 2Q1 and MC2 = 4Q2. What
price should be charged in order to maximize revenues?
A. 6. B. 2. C. 24. D. 60.

9- Chris raises cows and produces cheese and milk because he enjoys:
A. economies of scale.
B. economies of scope.
C. cost complementarity.
D. none of the statements associated with this question are correct.

10- Which of the following features is common to both perfectly competitive

markets and monopolistically competitive markets?
A. Firms produce homogeneous goods.
B. Prices are equal to marginal costs in the long-run.
C. Long run profits are zero.
D. Prices are above marginal costs in the long-run.

11- 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.

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12. Isoquants are normally drawn with a convex shape because:
A. Inputs are perfectly substitutable.
B. Inputs are perfectly complementary.
C. Inputs are not perfectly substitutable.
D. Inputs are not perfectly complementary.
13-. Changes in the price of an input cause:
A. Isoquants to become steeper.
B. Slope changes in the isocost line.
C. Parallel shifts of the isocost lines.
D. Changes in both the isoquants and isocosts of equal magnitude.

14-. Which of the following sets of economic data is minimizing the cost of
producing a given level of output?
A. MPL = 20, MPK = 40, w = $16, r = $32.
B. MPL = 20, MPK = 40, w = $32, r = $16.
C. MPL = 40, MPK = 20, w = $16, r = $32.
D. MPL = 40, MPK = 40, w = $16, r = $32.

15- What is implied when the total cost of producing Q1 and Q2 together is less than
the total cost of producing Q1 and Q2 separately?
A. Economies of scale.
B. Diminishing average fixed costs.
C. Cost complementarity.
D. Economies of scope.

16-. Which of the following cost functions exhibits cost complementarity?

A. -4 Q1Q2 + 8 Q1. B. -4 Q2 + 8 Q1. C. 6Q1Q2 - Q1. D. 4Q2Q1
+ 8Q1.

17-. For the multiproduct cost function C(Q1,Q2) = 100 + 2Q1Q2 + 4Q12, what is the
marginal cost function for good one?
A. MC1 = 2Q2 + 4Q1 - Q22.
B. MC1 = 2Q2 + 8Q1.
C. MC1 = 100 + 2Q1Q2 + 4Q12.
D. MC1 = 4Q12 - 2 Q22.

18- Which of the following cost functions exhibits economies of scope when three (3)
units of good one and two (2) units of good two are produced?
A. C = 50 - 5Q1Q2 + 0.5Q12 + Q22.
B. C = 10 + 4Q1Q2 + Q12 + Q22.
C. C = 15 + 5Q1Q2 + 2Q1 + 4Q2.
D. C = 5 + Q1Q2 + Q12 Q22.

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19-. The isoquants are normally drawn with a convex shape because inputs are
A. not perfectly substitutable. B. perfectly substitutable.
C. perfect complements. D. normal goods.

20-. The marginal cost curve (draw the curves)

A. lies always below the average total cost curve (ATC).
B. lies always above the average variable cost curve (AVC).
C. intersects the ATC and AVC at their maximum points.
D. intersects the ATC and AVC at their minimum points.

21-. Economies of scope exist when

A. C(Q1) + C(Q2) < C(Q1,Q2).
B. C(Q1) - C(Q2) < C(Q1,Q2).
C. C(Q1) + C(Q2) > C(Q1,Q2).
D. C(Q1) - C(Q2) > C(Q1,Q2).

22. Cost complementary exits in a multiproduct cost function when

A. the average cost of producing one output is reduced when the output of another
product is increased.
B. the average cost of producing one output is increased when the output of another
product is increased.
C. the marginal cost of producing one output is increased when the output of another
product is decreased.
D. the marginal cost of producing one output is reduced when the output of another
product is increased.

23- Suppose the cost function is C(Q) = 50 + Q - 10Q2 + 2Q3. At 10 units of output,
the average cost curve is
A. in the increasing stage.
B. in the declining stage.
C. at the minimum level.
D. at the maximum level.

24- Economies of scale exist whenever long-run average costs

A. increase as output is increased.
B. decrease as output is increased.
C. remain constant as output is increased.
D. none of the statements associated with this question are correct.

25-. Suppose the long-run average cost curve is U-shaped. When LRAC is in the
increasing stage, there exist
A. economies of scope.
B. diseconomies of scope.
C. economies of scale.
D. diseconomies of scale.

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26-. Which of the following cost functions exhibits cost complementarity?
A. -3Q2 + 4Q1. B. 5Q1Q2 - Q1. C. Q2Q1 + 2Q1. D. -5Q1Q2 + 7Q1.

27-. Which of the following cost functions exhibits economies of scope over the
specified output range?
A. C(Q1,Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0.
B. C(Q1,Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 0 and Q2 > 0.
C. C(Q1,Q2) = 2 - 0.5Q1Q2 - (Q1)2 + (Q2)2, for all Q1 < 2 and Q2 < 2.
D. C(Q1,Q2) = 2 - 3Q1Q2 - (Q1)2 + (Q2)2, for all Q1 > 4 and Q2 > 4.
28=. Consider a monopoly where the inverse demand for its product is given by P =
200 - 5Q. Based on this information, the marginal revenue function is
A. MR(Q) = 400 - 2.5Q.
B. MR(Q) = 400 - 10Q.
C. MR(Q) = 200 - 10Q.
D. MR(Q) = 200 - 2.5Q.

29- Consider a monopoly where the inverse demand for its product is given by P =
50 - 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At
the profit-maximizing combination of output and price, consumer surplus is
A. $32. B. $64. C. $128. D. can’t be determined with the given
information.

30-. Consider a monopoly where the inverse demand for its product is given by P =
50 - 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q2. At
the profit-maximizing combination of output and price, monopoly profit is
A. $32. B. $64 C. $92. D. $128.