Question

Fixed costs include:

Select one:

a. variable labor expenses.

b. output-related energy costs.

c. output-related raw material costs.

d. variable interest costs for borrowed capital.

If a total product curve exhibits increasing returns to a variable input, the cost elasticity is:

Select one:

a. equal to one.

b. greater than one.

c. unknown, without further information.

d. less than one.

f the productivity of variable factors is decreasing in the short-run:

Select one:

a. marginal cost must increase as output increases.

b. average cost must decrease as output increases.

c. average cost must increase as output increases.

d. marginal cost must decrease as output increases

If the slope of a long-run total cost function decreases as output increases, the firm's underlying production function exhibits:

Select one:

a. constant returns to scale.

b. decreasing returns to scale.

c. decreasing returns to a factor input.

d. increasing returns to scale.

In the decision process, management should always consider:

Select one:

a. relevant costs.

b. sunk costs.

c. implicit costs only.

d. historical costs.

Answer #1

(1) (d)

Interest costs are treated as fixed costs.

(2) (d)

Cost elasticity = Change in costs / Change in output

With increasing returns to scale, output increases more than proportionately with an increase in all inputs, so average cost falls and cost elasticity is less than 1.

(3) (a)

With diminishing returns to variable factors, marginal cost increases with increase in output.

(4) (d)

With increasing returns to scale, output increases more than proportionately with an increase in all inputs, so marginal cost (= slope of total cost curve) falls with increase in output.

(5) (a)

Only relevant (incremental) costs should be considered.

1. Long run average costs rise as output (q) increases
Select one:
a. Economy of Scale
b. Decreasing Returns to Scale
c. Increasing Returns to Scale
d. Constant Returns to Scale
e. Diseconomy of Scale
2.
A production function where the MRTS is constant at all points.
Isoquants are straight lines.
Select one:
a. Production Function
b. Isoquant
c. Perfect Substitutes Production Function
d. Isocost Line
e. Technology Function
f. Fixed-Proportions Production Function
3.
A production function with L-shaped isoquants...

A cost-output relation for a specific plant and operating
environment is the:
Select one:
a. short-run cost curve.
b. long-run total cost curve.
c. long-run marginal cost curve.
d. long-run average cost curve.
A firm's capacity is the output:
Select one:
a. maximum that can be produced in the long-run.
b. level where short-run average costs are minimized.
c. level where long-run average costs are minimized.
d. maximum that can be produced in the short-run.
Average cost declines as output...

Total cost is calculated as _____.
Select one:
a.
average fixed cost plus average variable cost
b.
fixed cost plus variable cost
c.
the additional cost of the last unit produced
d.
marginal cost plus variable cost
e.
marginal cost plus fixed cost
--------------------------------------------------------------------------------------
The law of diminishing marginal returns states that:
Select one:
a.
long-run average cost declines as output increases.
b.
if the marginal product is above the average product, the
average will rise.
c.
as units of...

A negative value for a given slack variable implies:
Select one:
a. no excess capacity.
b. use of more resources than are available.
c. none of the above.
d. excess capacity.
For costs to be a linear function of output:
Select one:
a. returns to each factor input must be constant.
b. input prices must change at a constant rate.
c. product prices must be constant.
d. returns to scale must be constant.
For managerial decision problems analyzed using the...

The reason why, beyond some output level, the short-run
variable and short-run total cost curves begin to increase at an
increasing rate, or equivalently, the short-run marginal cost curve
begins to rise is
Select one:
a. increasing returns to scale
b. diminishing marginal product
c. decreasing returns to scale
d. diminishing marginal rate of technical substitution

1. How are marginal and average product related graphically to
marginal and average variable cost?
a. They are mirror images of each other.
b. The maximums of the product curves are the minimum of the
cost curves.
c. As marginal and average product increase the respective cost
curves decrease.
d. All of the above.
2 How can long-run total cost be calculated?
a. Multiplying average costs by output.
b. Adding positive total fixed costs to total variable
costs.
c. Multiplying...

Average variable cost
A.
decreases when its value is greater than marginal cost, and
increases when its value is less than marginal cost.
B.
decreases when its value is less than marginal cost, and
increases when its value is greater than marginal cost.
C.
is perpetually increasing, sometimes initially at increasing
rates but eventually at decreasing ones.
D.
perpetually decreases.
Average fixed costs
A.
are perpetually decreasing as output increases, but at a
decreasing rate.
B.
are perpetually decreasing as...

Profit contribution equals total:
Select one:
a. revenue minus variable cost.
b. revenue minus fixed cost.
c. profit.
d. revenue minus total cost.
Slack variables:
Select one:
a. allow constraint equations to be expressed as
inequalities.
b. measure excess capacity.
c. never equal zero.
d. in some cases have negative values.
The cost of capacity subject to constraints is:
Select one:
a. variable.
b. sunk.
c. semi-variable.
d. nonzero.
To determine the quantity to be produced by each production
process...

Profit contribution equals total:
Select one:
a. revenue minus variable cost.
b. revenue minus fixed cost.
c. profit.
d. revenue minus total cost.
Slack variables:
Select one:
a. allow constraint equations to be expressed as
inequalities.
b. measure excess capacity.
c. never equal zero.
d. in some cases have negative values.
The cost of capacity subject to constraints is:
Select one:
a. variable.
b. sunk.
c. semi-variable.
d. nonzero.
To determine the quantity to be produced by each production
process...

Suppose that the production function
y=f(x_1,x_2) (where: y is output level, x_1 is a
variable input and x_2 is a fixed input), is plotted in the (y,
x_1) space. According to economic theory, we would expect:
a. y to increase with x_1 at a decreasing rate,
due to increasing returns to scale.
b. y to increase with x_1 at an increasing
rate, due to diminishing returns to scale.
c. y to increase with x_1 at a decreasing rate,
due to...

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