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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. |
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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. |
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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. |
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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. |
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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 responses are correct. |
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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. |
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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 responses are correct. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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. |
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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) | keep capital and labor the same. |
| | D) | None of the responses are correct. |
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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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