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Multiple Choice Quiz
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1
The expansion path shows…
A)how input prices change as the firm's output level changes.
B)how the marginal products change as the firm's output level changes.
C)how the profit-maximizing input choices change as the firm's output level changes.
D)how the cost-minimizing input choices change as the firm's output level changes.
E)how the cost-minimizing input prices change as the firm's output level changes.
2
The marginal rate of technical substitution is…
A)the rate at which the firm can substitute labor for capital while holding output constant.
B)the rate at which the firm can substitute labor for capital while holding total cost constant.
C)the slope of the isocost curve.
D)both a and c
E)both b and c
3
A firm is using 400 units of capital and 200 units of labor to produce 20,000 units of output. Capital costs $80 per unit and labor $20 per unit. The last unit of capital added 100 units of output, while the last unit of labor added 30 units of output. The firm…
A)is using the cost-minimizing combination of capital and labor.
B)should use more of both inputs in equal proportions.
C)should use less of both inputs in equal proportions.
D)could produce the same level of output at a lower cost by using less capital and more labor.
E)could produce the same level of output at a lower cost by using more capital and less labor.
4
Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits…
A)a decreasing marginal rate of technical substitution.
B)diminishing marginal returns.
C)decreasing returns to scale.
D)both b and c
E)none of the above

The next 7 questions refer to the following:

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The price of capital (r) is $50.

5
What is the price of labor (w)?
A)$25
B)$50
C)$75
D)$100
E)none of the above
6
What combination of labor (L) and capital (K) can produce 3,000 units of output at the lowest cost?
A)10K, 110L
B)42K, 52L
C)60K, 20L
D)90K, 60L
E)110K, 10L
7
What is the lowest possible cost of producing 3,000 units of output?
A)$6,000
B)$4,500
C)$3,000
D)$1,500
E)none of the above
8
Why wouldn't the firm choose to produce 3,000 units of output with the combination at A?
A)At A, MRTS > 3/2.
B)At A, MPK / r > MPL / w.
C)At A, MPL > MPK.
D)both a and b
E)none of the above
9
Why wouldn't the firm choose to produce 3,000 units of output with the combination at B?
A)At B, MRTS > 3/2.
B)At B, MPK / r < MPL / w.
C)At B, MPL < MPK.
D)both a and b
E)none of the above
10
At the optimal combination of inputs for producing 12,000 units of output, what is the marginal rate of technical substitution?
A)0.80
B)0.67
C)1.5
D)2.5
E)impossible to tell from the graph
11
If, at the optimal combination of inputs for producing 12,000 units of output, the marginal product of capital is 60, what is the marginal product of labor?
A)30
B)50
C)62.5
D)90
E)impossible to tell from the graph
12
In the long run…
A)a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.
B)the expansion path shows how the input marginal products change as the firm's output level changes.
C)all inputs are fixed.
D)both a and b
E)both b and c
13
Which of the following are characteristics of a typical isoquant?
A)All input combinations on the isoquant will produce the same level of output.
B)A change in input prices shifts the isoquant map.
C)The marginal rate of technical substitution decreases as labor is substituted for capital by moving down the isoquant.
D)both a and b
E)both a and c
14
The slope of an isoquant is…
A)the marginal rate of technical substitution.
B)MPK / MPL .
C)K/ ΔL.
D)both a and c
E)all of the above
15
If the price of labor is $4 and the price of capital is $16, what is the marginal rate of technical substitution at the optimal input choice?
A)4.0
B)2.0
C)0.5
D)0.25
E)none of the above
16
Which of the following is (are) characteristics of an isocost curve?
A)The slope shows the rate at which the firm can substitute labor for capital while holding total cost constant.
B)All input combinations that will produce a given amount of output lie on the isocost curve.
C)As a firm moves down its isocost curve, the firm’s output must be decreasing.
D)both a and b
E)all of the above
17
If the marginal rate of technical substitution of labor for capital is 1.5, the price of labor is $20, and the price of capital is $10, then the firm…
A)can substitute one unit of capital for 1.5 units of labor and keep output unchanged.
B)should use more labor and less capital.
C)should use more capital and less labor.
D)both a and b
E)both a and c
18
If a firm is producing the level of output at which long-run average cost equals long-run marginal cost, then…
A)long-run total cost is at its minimum point.
B)long-run marginal cost is at its minimum point.
C)long-run average cost is at its minimum point.
D)both b and c
E)all of the above
19
If a firm is producing the level of output at which short-run average cost equals long-run average cost, then…
A)the firm has chosen the profit-maximizing level of output.
B)with a fixed amount of capital, short-run average cost is greater than long-run average cost at all other levels of output.
C)the firm has chosen the cost-minimizing combination of inputs to produce this level of output.
D)both b and c
E)all of the above
20
Economies of scale exist when…
A)fixed cost decreases as output increases.
B)long-run average cost decreases as output increases.
C)long-run marginal cost is greater than long-run average cost.
D)both a and b
E)both b and c







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