Question

15. The company E-bikes R US has increased production efficiency by
A) producing output with fewer inputs.
B) expanding the amount of inputs used.
C) outsourcing production.
D) relying on decreasing returns to scale.

16. A firm's marginal cost can always be thought of as the change in total cost if
A) the firm produces one more unit of output.
B) the firm buys one more unit of capital.
C) the firm's average cost increases by $1.
D) the firm moves to the next highest isoquant.

17. When E-bikes R US produces 1000 e-bikes fenders with total cost of $2000 and fixed
cost of $1000, what is the average variable cost?
A) $2
B) $1
C) $0.50
D) $0.20

18. The point in the production process at which diminishing marginal returns to capital
begin is the point at which the marginal cost curve
A) peaks.
B) bottoms out.
C) is flat.
D) is downward sloping.

19. Suppose each mechanic must use only one wrench to fix the car, and wrenches are
useless by themselves. In the short run, an increase in the price of wrenches will result in
A) fewer wrenches being purchased.
B) more mechanics being hired.
C) a decrease in the number of cars fixed.
D) no change in the number of cars fixed.

20. Suppose the company E-bikes R US has an isocost line that crosses the isoquant twice.
To cost minimize, E-bikes R US will
A) use a different isocost line to select the bundle of inputs.
B) use the input bundle associated with the intersection on the higher point of the isoquant.
C) use the input bundle associated with the intersection on the lower point of the isoquant.
D) Both B and C.

Answer 1

15.

Correct Answer:

A

When more output is produced, with fewer inputs, then production efficiency increases.

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16.

Correct Answer:

A

The change in total cost with one more number of output to be produced, is termed as marginal cost.

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17.

Correct Answer:

B

Working note:

Let, variable cost = $1

2000 = 1000 + 1000*X

X = (2000-1000)/1000

X = $1

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18.

Correct Answer:

C

It is the point where MC starts to increase and marginal return starts to diminish.

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19.

Correct Answer:

C

With rise in the price of wrenches, cost of operation to fix the cars, increases . It causes supply curve to shift to the left and price of fixing the car to increase. So, there is a decrease in the number of cars to be fixed.