Multiple Choice

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Chapter 7

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Multiple Choice

Multiple Choice
This activity contains 20 questions.

Doctor Brown has just graduated from medical school and will open her own family practice. She will begin to repay the loan on her tuition. With respect to her new business, these loan payments represent
a sunk cost. a variable cost. the average cost. an opportunity cost.

Jack is a high school senior thinking about becoming an economics research assistant. Jill just graduated with an economics degree and is also looking for the same job. For whom is the college tuition an opportunity cost?
Jack only. Jill only. Both Jack and Jill. Neither Jack nor Jill.

TMB Associates, a local consulting firm purchased computer software for $10,000. After discovering errors in the program, the software producer offered to fix the problems for a fee of $2,000. TMB found competing software without errors available from another company for $6,000. Should TMB buy the new software from the other company?
Yes, since $6,000 is less than $12,000. No, since $6,000 is more than $0. Yes, since $6,000 is less than $10,000. No, since $6,000 is more than $2,000.

Which of the following measures actual expenses plus depreciation charges for capital equipment?
Economic cost. Opportunity cost. Sunk cost. Accounting cost.

Suppose the short-run cost function can be written as TC = 250 + 10Q. Average fixed cost equals
250. 250/Q + 10. 10.

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250/Q.

Suppose the short-run cost function can be written as TC = 250 + 10Q. Marginal cost equals
10Q. 260. 250. 10.

Tommy rents office space for $12,000 per year. He uses the office to fill out tax return forms for his clients. He fills out 1,000 tax returns per year. If the owner of the building raises Tommy's rent to $13,000 per year, the marginal cost of filling out tax returns will
increase by $1. increase by $1,000. not change. increase by some amount that cannot be computed without more information.

Suppose that the short-run total cost function is TC = 50 + 12Q. Which of the following statements is true at all levels of production?
AFC > MC AFC < AVC MC = AVC MC = ATC

Suppose that the short-run production function is Q = 10L. If the wage rate is $4 per unit of labor, then average variable cost equals
.4. 40Q. 40. .4Q.

If marginal cost is rising, it must be true that

average cost is below marginal cost. marginal product of labor is falling. average product of labor is falling. average cost is rising.

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The user cost of capital is the same as

the opportunity cost of capital. economic depreciation. the difference between economic depreciation and the opportunity cost of capital. the sum of economic depreciation and the interest that could have been earned elsewhere.

If average variable cost is minimized, it must be true that

MC = MPL. MC = ATC. MC = 0. MC = AVC.

Suppose that short-run total cost can be written as TC = 1000 + 100Q 10Q2 + Q3 . Then, AVC is minimized at what level of production?
Q =5. Q = 100. Q = 10. AVC is horizontal.

Consider the following total cost equation: C = wL + rK. The slope of the isocost line associated with it equals
-(w/r). C/r. rK. wL.

In the long run, if a firm with convex isoquants has minimized its total cost of producing a certain level of output, then it must be true that
MPL = MPK. MRTS = w/r. LRAC is minimized. L = K.

Suppose that the production function can be written as Q = K0.6 L0.3 . In the long run,

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LRAC is positively sloped for all levels of output. the marginal product of capital is twice the marginal product of labor. the firm hires twice as much capital as labor. LRAC is negatively sloped for all levels of output.

The long run total cost curve is derived from an expansion path involving
ever-greater levels of output to be produced. connections of tangency points between isoquant curves and isocost lines when both inputs are varied. least-cost combinations of labor and capital. All of the above.

Suppose that a production function can be written as Q = K0.6 L0.3 . If w/r = 2, then which of the following must be true?
The firm will hire four times as much capital as labor. The firm will hire half as much capital as labor. The firm will hire twice as much capital as labor. The firm will hire just as much capital as labor.

Suppose L and K are perfect substitutes and the production function is Q = 10(L + K). If w =5 and r = 10, the firm will
hire twice as much capital as labor. hire all capital and no labor. hire all labor and no capital. hire twice as much labor as capital.

Suppose the total cost of producing two outputs, X and Y, can be written as C = (X,Y). Recent experience yields the following 10=C(50,0) 20 = C(50,10) 15 = C(0,10) 20 = C(100,0) 30 = C(0,15). Which of the following is true?
There are economies of scope producing X and Y. There are economies of scale producing Y. There are economies of scale in producing X. All of the above.

Answer choices in this exercise appear in a different order each time the page is loaded.

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