MODULE 5 TEST BANK

1. Suppose the production function is Q = min{K, 2L}. How much output is produced when 4 units
of labor and 9 units of capital are employed?
a. 2
b. 4
c. 8
d. 9

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. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital
when 10 units of capital and 10 units of labor are employed?
a. 3
b. 4
c. 11
d. 45

4. Suppose the production function is given by Q = min{K, L}. How much output is produced when
10 units of labor and 9 units of capital are employed?
a. 0
b. 4
c. 9
d. 13

5. Suppose the production function is given by Q = min{K, L}. How much output is produced when 4
units of labor and 9 units of capital are employed?
a. 0
b. 4
c. 9
d. 13

6. Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital
when 5 units of capital and 10 units of labor are employed?
a. 3
b. 4
c. 11
d. 45
7. Suppose the production function is given by Q = 3K + 4L. What is the average product of capital
when 5 units of capital and 10 units of labor are employed?
a. 3
b. 4
c. 11
d. 45

8. 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

9. For the cost function C(Q) = 100 + 2Q + 3Q2 , the average fixed cost of producing 2 units of
output is:
a. 100
b. 50
c. 3
d. 2

10. 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. 2

11. The production function Q = K0.50L 0.50 is called:

a. Cobb Douglas
b. Leontief
c. Linear
d. None of the answers are correct

12. The production function for a competitive firm is Q = K0.50L 0.50. The firm sells its output at a
price of 10Php and can hire labor at a wage of 5Php. Capital is fixed at 25 units. The profit-
maximizing quantity of labor is:
a. 1
b. 2
c. 10
d. None of the answers are correct
13. If the production function is Q = K 0.50L 0.50 and capital is fixed at 1 unit, then the average
product of labor when L = 25 is:
a. 2/5
b. 1/5
c. 10
d. None of the answers are correct

14. For a cost function C = 100 + 10Q + Q2 , the marginal cost of producing 10 units of output is:
a. 10
b. 200
c. 210
d. None of the answers are correct

15. For a cost function C = 100 + 10Q + Q2 , the average variable cost of producing 20 units of output
is:
a. 10
b. 20
c. 30
d. None of the answers are correct

16. For a cost function C = 100 + 10Q + Q2 , the average fixed cost of producing 10 units of output is:
a. 10
b. 5
c. 1
d. None of the answers are correct

17. The production function for a competitive firm is Q = K0.50L 0.50. The firm sells its output at a
price of 10Php and can hire labor at a wage of 5Php. Capital is fixed at one unit. The profit-
maximizing quantity of labor is:
a. 2/5
b. 1
c. 10
d. None of the answers are correct

18. The production function for a competitive firm is Q = K0.50L 0.50. The firm sells its output at a
price of 10Php and can hire labor at a wage of 5Php. Capital is fixed at one unit and costs 2Php.
The maximum profits are:
a. 3
b. 10
c. 15
d. None of the answers are correct
19. Given the following table, how many workers should be hired to maximize profits?

Labor Marginal Voltage at Wage

Product Maximum
Labor Power
(MPL) (VMP)
1 8 $32 $100
2 32 $128 $100
3 16 $64 $100
4 -1 $-4 $100
5 -12 $-48 $100

a. 1
b. 2
c. 3
d. 4

20. Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is
utilized?
a. 600 units
b. 800 units
c. 500 units
d. 1,000 units

21. Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when
K = 40 and L = 35?
a. 220
b. 234.5
c. 192.5
d. 268

22. According to the table below, what is the total cost of producing 125 units of output?

Q FC VC
0 1,000 0
20 1,000 350
50 1,000 700
90 1,000 1,050
125 1,000 1,400
145 1,000 1,750
160 1,000 2,100

a. 1,000
b. 2,050
c. 1,400
 d. 2,400

23. According to the table below, what is the average variable cost of producing 50 units of output?

Q FC VC
0 1,000 0
20 1,000 350
50 1,000 700
90 1,000 1,050
125 1,000 1,400
145 1,000 1,750
160 1,000 2,100

a. 21
b. 34
c. 14
d. 20

24. According to the table below, what is the marginal cost of producing 90 units of output?

Q FC VC
0 1,000 0
20 1,000 350
50 1,000 700
90 1,000 1,050
125 1,000 1,400
145 1,000 1,750
160 1,000 2,100

a. 5.32
b. 8.75
c. 11.67
d. 21.00

25. According to the table below, at what level of output is marginal cost minimized?

Q FC VC
0 1,000 0
20 1,000 350
50 1,000 700
90 1,000 1,050
125 1,000 1,400
145 1,000 1,750
160 1,000 2,100

a. 90
 b. 50
c. 125
d. 160

26. Given a cost function C(Q) = 200 + 14Q + 8Q2 , what is the marginal cost function?
a. 14 + 16Q
b. 14Q + 8Q2
c. 200Q + 8Q2
d. 14 + 16Q2

27. For the cost function C(Q) = 1000 + 14Q + 9Q2 + 3Q3 , what is the marginal cost of producing the
fourth unit of output?
a. 42Php
b. 295Php
c. 230Php
d. 116Php

28. According to the table below, what is the average total cost of producing 160 units of output?

Q FC VC
0 1,000 0
20 1,000 350
50 1,000 700
90 1,000 1,050
125 1,000 1,400
145 1,000 1,750
160 1,000 2,100

a. 12.98
b. 16.31
c. 22.04
d. 19.38

29. For the cost function C(Q) = 200 + 3Q + 8Q2 + 4Q3 , , what is the average fixed cost of producing
six units of output?
a. 18.31
b. 212.61
c. 42.12
d. 33.33

30. 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 + 2Q₂ Q₁ - 4Q₁2
d. MC₁ = 4Q₁2 - 2Q₂2

31. Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3 . What are the fixed costs?
a. $50
b. $10
c. $1
d. $2

32. Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3 . What is the total cost of producing 10
units?
a. $2,060
b. $1,060
c. $560
d. $1,010

33. Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3 . What is the variable cost of producing
10 units?
a. $401
b. $1,060
c. $560
d. $1,010

34. Suppose the cost function is C(Q) = 50 + Q − 10Q2 + 2Q3 . What is the marginal cost of producing
10 units?
a. $401
b. $1,060
c. $560
d. $1,010

35. 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

36. A production function is a table, a graph, or an equation showing the:

a. Least-cost method of producing output
b. Maximum output that can be achieved from specified levels of inputs
c. Combinations of inputs that can be produced with equal costs
d. Optimal combination of inputs
37. When total product is at its maximum:
a. Average product is greater than marginal product
b. Average product is maximized
c. Average product equals marginal product
d. Marginal product equals 1

38. The average product of labor is defined as the:

a. Change in output divided by the change in labor input usage
b. Change in labor input usage divided by the change in output
c. Output divided by the labor input usage.
d. Labor input usage divided by the output level.

39. The marginal product of labor is defined by the:

a. Change in output divided by the change in labor input usage
b. Change in labor input usage divided by the change in output
c. Output divided by the labor input usage.
d. Labor input usage divided by the output level.

40. The marginal product of labor can be illustrated geometrically as the:

a. Slope of the total product curve with respect to labor
b. Slope of the total product curve with respect to capital.
c. Slope of a chord from the origin out to the total product curve at the specified level of
labor
d. Inverse of the slope of a chord from the origin out to the total product curve at the
specified level of labor

41. The law of diminishing marginal returns states that:

a. The marginal product of labor declines as all inputs are increased.
b. Production functions exhibit decreasing returns to scale.
c. The marginal product of labor returns as more capital is used
d. The marginal product of a factor eventually diminishes as more of the input is used,
holding other inputs fixed.

42. Diminishing marginal returns:

a. Imply decreasing returns to scale
b. Occur at all combinations of input usage
c. Occur only for labor
d. Are consistent with increasing returns to scale.

43. The optimal combination of two inputs, K and L, can be characterized by:
a. PK MPK = PL MPL
b. MPK = MPL
c. PL MPL = PK MPK
d. MPK /MPL = PL /PK
44. An isoquant represents combinations of inputs that:
a. Produce the same level of output.
b. Produce increasing amounts of output
c. Minimize costs.
d. Maximize output.

45. Isoquants usually slope downward (from left to right) because:

a. Marginal products are usually positive.
b. Marginal products are always positive.
c. Marginal products will eventually decrease
d. Marginal products are always increasing.

46. The marginal rate of technical substitution between two inputs:

a. Shows the rate at which one input can be traded for another, holding output constant.
b. Shows the efficient combination of inputs.
c. Increases as we move down an isoquant.
d. Shows the rate at which output can be increased by using more of both inputs.

47. The marginal rate of technical substitution is defined by:

a. MRTS₁,₂ = MP₁/MP₂
b. MRTS₁,₂ = MP₁MP₂
c. MRTS₁,₂ = MP₁/P₁
d. MRTS₁,₂ = P₁/P₂

48. If labor is on the vertical axis and capital is on the horizontal axis, the slope of an isocost line is
given by:
a. -PL/PK
b. -PK/PL
c. -PKPL
d. -MPL/MPK

49. Lines that represent bundles of inputs that cost the same total amount are called:
a. Total cost curves
b. Isocost curves.
c. Cost curves.
d. Isoquants.

50. The law of diminishing marginal returns is obvious because, if it didn't hold, it would be possible
to:
a. Feed everyone in the world by intensively cultivating one acre of land.
b. Manufacture all of the cars in the world using just one of the world's existing factories.
c. Increase total output of a product without employing additional inputs.
d. Answers a and b, but not c
51. The opportunity cost of a firm’s inputs:
a. Includes implicit costs but does not include explicit costs.
b. Includes explicit costs but does not include implicit cost.
c. Depends on who supplies them to the firm.
d. Is the value of the inputs in their most highly valued alternative use.

52. Long-run average cost equals long-run marginal cost whenever:

a. No factor always has increasing marginal returns.
b. Fixed costs are zero.
c. The production function exhibits constant returns to scale.
d. The cost of capital is near zero.

53. If average variable cost is increasing with increases in output, total fixed cost will:
a. Increase with increases in output
b. Decrease with increases in output
c. Remain unchanged with increases in output
d. Increase initially and then decrease with increases in output.

54. If there is only one variable input, average variable cost can be defined as the:
a. Output's price divided by the input's average product.
b. Output's price divided by the input's marginal product.
c. Price of the variable input divided by its average product.
d. Price of the variable input divided by its marginal product.

55. The addition to total cost resulting from the addition of the last unit of output is known as:
a. Average product
b. Average variable cost
c. Average total cost
d. Marginal cost

56. Short-run marginal cost eventually increases with increasing output because:
a. Eventually marginal returns will diminish.
b. Not all variable inputs increase at the same rate.
c. Diseconomies of scale usually set in immediately.
d. Of diseconomies of scope

57. When average total cost is at its minimum:

a. Average variable cost plus average fixed cost is declining with increases in output.
b. Average total cost is equal to average variable cost.
c. Marginal cost is equal to average variable cost.
d. Marginal cost is equal to average total cost
58. When average variable cost is at its minimum:
a. Average total cost is increasing with increases in output.
b. Average variable cost plus average fixed cost is increasing with increases in output.
c. Average total cost is equal to average variable cost.
d. Marginal cost is less than average total cost.

59. If Hilltop Turf Farm's total cost of producing acres of sod is TC = 0.2Q2 + 120Q + 5,000, the
marginal cost of producing the 50th acre of sod is:
a. 110php
b. 120php
c. 130php
d. 140php

60. The weekly total cost of baking pies at Tasty Tortes is given by TC = 0.01Q1.5. Tasty's marginal
cost of producing 10,000 pies a week is:
a. 1.00Php
b. 1.50Php
c. 2.00Php
d. 2.50Php