(Answered)-ECO303 - Practice Exam 2 Multiple Choice Identify the choice that

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(Answered)-ECO303 - Practice Exam 2 Multiple Choice Identify the choice that

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ECO303 - Practice Exam 2

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1. If a firm moves from one point on a production isoquant to another point on the same isoquant, which of the

following will certainly not happen?

a. A change in the level of output

b. A change in the ratio in which the inputs are combined

c. A change in the marginal products of the inputs

d. A change in the rate of technical substitution

e. A change in profitability

____

2. A firm has the production function f(X, Y) =

, where X is the amount of factor x used and Y is the

amount of factor y used. On a diagram we put X on the horizontal axis and Y on the vertical axis. We draw

some isoquants. Now we draw a straight line on the graph and we notice that wherever this line meets an

isoquant, the isoquant has a slope of ?9. The straight line we drew

a. is a ray through the origin with slope 3.

b. is a ray through the origin with slope 4.

c. is vertical.

d. is horizontal.

e. has a negative slope.

____

3. A firm uses 3 factors to produce its output. Its production function is f(x, y, z) = min{

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, y2,

}. If the amount of each input is multiplied by 3, its output will be multiplied by

27.

0.30.

The answer depends on the original choice of x, y, and z.

4. A firm has a production function f(x, y) = 1.40(x0.60 + y0.60)2 whenever x > 0 and y > 0. When the amounts of

both inputs are positive, this firm has

a. increasing returns to scale.

b. decreasing returns to scale.

c. constant returns to scale.

d. increasing returns to scale if x + y > 1 and decreasing returns to scale otherwise.

e. increasing returns to scale if output is less than 1 and decreasing returns to scale if output

is greater than 1.

____

5. A competitive firm produces output using three fixed factors and one variable factor. The firm?s short-run

production function is q = 524x ? 4x2, where x is the amount of variable factor used. The price of the output is

$3 per unit and the price of the variable factor is $12 per unit. In the short run, how many units of x should the

firm use?

a. 130

b. 32

c. 25

d. 65

____

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e. None of the above.

6. A competitive firm?s production function is f(x1, x2) = 12

1 + 4

2. The price of factor 1 is $1 and the

price of factor 2 is $2. The price of output is $4. What is the profit-maximizing quantity of output?

a. 304

b. 608

c. 300

d. 612

e. 292

____

7. Jiffy-Pol Consultants is paid $1,000,000 for each percentage of the vote that Senator Sleaze receives in the

upcoming election. Sleaze?s share of the vote is determined by the number of slanderous campaign ads run by

Jiffy-Pol according to the function S =

, where N is the number of ads. If each ad costs $4,900

approximately how many ads should Jiffy-Pol buy in order to maximize its profits?

a. 2,853

b. 1,428

c. 98

d. 1,477

e. 714

____

8. The production function is given by F(L) =

. Suppose that the cost per unit of labor is $16 and the price

of output is $16. How many units of labor will the firm hire?

a. 192

b. 64

c. 32

d. 128

e. None of the above.

____

9. The production function is given by F(L) =

. Suppose that the cost per unit of labor is $16 and the price

of output is $12. How many units of labor will the firm hire?

a. 54

b. 13.50

c. 27

d. 81

e. None of the above.

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____

____ 10. During the height of the pet rock craze in the 1970s, the price elasticity of demand was estimated to be 1.80.

Since pet rocks have a marginal cost of zero, a profit-maximizing seller of pet rocks would

a. leave prices unchanged.

b. decrease prices.

c. increase prices.

d. need more-detailed market information before making any pricing changes.

e. diversify into selling Karen Carpenter LPs.

____ 11. Ben runs a cookie factory. His cookies are made with sugar, peanut oil, and soybean oil. The number of boxes

of cookies that he produces is f (su, po, so) = min{su, po + 2so}, where su is the number of bags of sugar, po

the number of canisters of peanut oil, and so the number of canisters of soybean oil that he uses. The price of

a bag of sugar is $12. The price of a canister of peanut oil is $6. The price of a canister of soybean oil is $19.

If Ben makes 254 boxes of cookies in the cheapest way possible, how many canisters of soybean oil will he

use?

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169.33

127

84.67

42.33

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____ 12. A firm?s production function is q = 26x0.33y0.67, where x and y are the amounts of factors x and y that the

firm uses as inputs. If the firm is minimizing unit costs and if the price of factor x is 6 times the price of factor

y,the ratio in which the firm will use factors x and y is closest to

= 0.08.

= 0.25.

= 0.50.

= 2.40.

= 12.

____ 13. As head of the planning commission of Eastern Motors, your job is to determine where to locate a new plant.

The only inputs used in your cars are steel and labor and the production function is Cobb-Douglas where f (S,

L) = S.5L.5, where S is tons of steel and L is units of labor. You can locate your plant either in country A or

country B. In country A, steel costs $7 a ton and labor costs $7 per unit. In country B, steel costs $8 per ton

and labor costs $6 per unit. In which country should the company locate its new plant so as to minimize costs

per unit of output?

a. Country A.

b. Country B.

c. It doesn?t matter, because the two locations are equally costly.

d. Country A if output is greater than 14, and country B otherwise.

e. There is not enough information to enable us to tell.

____ 14. If the production function is given by f (x1, x2, x3, x4) =min{x1, x2} + min{x3, x4} and the prices of inputs

(x1,x2, x3, x4) are (2, 1, 5, 3), the minimum cost of producing 1 unit of output is closest to

a. $1.

b. $3.

c. $4.

d. $8.

e. $11.

____ 15. A new metal alloy is discovered that uses copper and zinc in fixed proportions where each unit of the alloy

requires 2 units of zinc and 2 units of copper. If no other inputs are required, if the price of zinc is $3 per unit,

and the price of copper is $3 per unit and if total output is 5,000 units, what is the average cost per unit of

output?

a. $6

b. $1.50

c. $12

d. $15

e. $18

____ 16. In the short run, a firm which has production function f (L, M) = 4

must use 4 machines. If the

cost of labor is $4 per unit and the cost of machines is $10 per unit, the short-run total cost of producing 72

units of output is

a. $504.

b. $288.

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c. $720.

d. $728.

e. $364.

____ 17. Al?s production function for deer is f (x1, x2) =

, where x1 is the amount of plastic and x2 is the

amount of wood used. If the cost of plastic is $6 per unit and the cost of wood is $1 per unit, then the cost of

producing 5 deer is

a. $25.

b. $65.

c. $75.

d. $5.

e. $15.

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____ 18. If output is produced according to Q = 4L + 6K, the price of K is $24, and the price of L is $20, then the costminimizing combination of K and L capable of producing 72 units of output is

a. L = 9 and K = 6.

b. L = 20 and K = 24.

c. L = 18 and K = 12.

d. L = 0 and K = 12.

e. L = 18 and K = 0.

____ 19. If output is produced according to Q = 4L + 6K, the price of K is $12, and the price of L is $20, then the costminimizing combination of K and L capable of producing 96 units of output is

a. L = 20 and K = 12.

b. L = 0 and K = 16.

c. L = 24 and K = 16.

d. L = 12 and K = 8.

e. L = 24 and K = 0.

____ 20. If output is produced according to Q = 4LK, the price of K is $10, and the price of L is $5, then the cost

minimizing combination of K and L capable of producing 2 units of output is

a. L = 0.35 and K = 0.35.

b. L = 1 and K = 0.50.

c. L = 0.50 and K = 1.

d. L = 1 and K = 1.

e. L = 1 and K = 0.50.

____ 21. If it costs $20 to set up and later clean a bagel press and bagels cost $1 per week per bagel to store, how many

times should the bagel press be run each week to produce 360 bagels a week to be sold continuously?

a. Twice

b. 4 times

c. Once

d. 3 times

e. 5 times

____ 22. Using existing plant and equipment, Priceless Moments Figurines can be manufactured using plastic, clay, or

any combination of these materials. A figurine can be manufactured by F = 4P + 2C, where P is pounds of

plastic and C is pounds of clay. Plastic costs $2 per pound and clay costs $5 per pound. What would be the

lowest cost of producing 40,000 figurines?

a. $20,000

b. $100,000

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c. $60,000

d. $10,000

e. $40,000

____ 23. The marginal cost curve of a firm is MC = 8y. Total variable costs to produce 11 units of output are

a. $484.

b. $484.

c. $176.

d. $88.

e. $30.

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____ 24. A firm has a short-run cost function c(y) = 3y + 14 for y > 0 and c(0) = 10. The firm?s quasi-fixed costs are

a. $10.

b. $4.

c. $9.

d. $14.

e. They are not possible to determine from this information.

____ 25. A firm has the production function Q =

In the short run it must use exactly 35 units of factor 2.

The price of factor 1 is $105 per unit and the price of factor 2 is $3 per unit. The firm?s short-run marginal

cost function is

MC(Q) = 105

b. MC(Q) =

c. MC(Q) = 105 + 105Q2.

d. MC(Q) = 3Q.

MC(Q) = 35

____ 26. Touchie McFeelie?s production function for comic books is (0.1)

, where J is the number of jokes

and L is the number of hours of cartoonists labor that he uses. If Touchie can vary both jokes and cartoonists?

labor and if old jokes cost $2 each and cartoonists? labor costs $18 per hour, then the cheapest way to produce

comics books requires using jokes and labor in the ratio

a. 3.

b. 12.

c. 9.

e. 6.

____ 27. The VCR manufacturing business is perfectly competitive. Suppose that currently, firms that manufacture

VCRs utilize either technology 1 or technology 2, whose cost functions are

TC1(Q) = 1,120 ? 60Q + Q2

TC2(Q) = 300 ? 20Q + Q2

In the long run, assuming no new manufacturing technologies,what will happen in this industry?

a. Firms utilizing technology 1 and firms utilizing technology 2 will stay in business.

b. Firms utilizing technology 1 will shut down, but firms utilizing technology 2 will stay in

business.

c. Firms utilizing technology 1 will stay in business, but firms utilizing technology 2 will

shut down.

d. Firms utilizing technology 1 and firms utilizing technology 2 will shut down.

e. None of the above.

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____ 28. Irma?s production function is f(x1, x2) =

. If the price of factor 1 is w1 = $3 and the price

of factor 2 is w2 = $4, then her supply function is given by the equation

a. S(p) = p(min{w1, 2w2})2.

b. S(p) =

c. S(p) = p(max{w1, 2w2})2.

d. S(p) = 5p.

e. S(p) = min{3p, 8p}.

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____ 29. Irma?s production function is f(x1, x2) =

. If the price of factor 1 is w1 = $3 and the price

of factor 2 is w2 = $9, then her supply function is given by the equation

a. S(p) =

b. S(p) = p(max{w1, 3w2})2.

c. S(p) = p(min{w1, 3w2})2.

d. S(p) = 6p.

e. S(p) = min{3p, 27p}.

____ 30. A firm has the long-run cost function C(q) = 7q2 + 175.In the long run, it will supply a positive amount of

output, so long as the price is greater than

a. $70.

b. $148.

c. $35.

d. $140.

e. $75.

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ECO303 - Practice Exam 2

ANSWERS:

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ANS:

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

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