What is the value marginal product of labor if p = $10, mpl = $25, and apl = 40?

The Production Process and Costs

Multiple Choice Questions

1. Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use: A. more capital and less labor. B. more labor and less capital. C. three times more capital than labor. D. none of the answers are correct.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. 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

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

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1. 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

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

1. 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

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. 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

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

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1. For the cost function C(Q) = 100 + 2Q + 3Q 2 , the average fixed cost of producing 2 units of output is: A. 100. B. 50. C. 3. D. 2.

Answer: B Learning Objective: 05- Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. For the cost function C(Q) = 100 + 2Q + 3Q 2 , the total variable cost of producing 2 units of output is: A. 16. B. 12. C. 4. D. None of the answers are correct.

Answer: A Learning Objective: 05- Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. If a firm's production function is Leontief and the wage rate goes up, the: A. firm must use more labor in order to minimize the cost of producing a given level of output. B. firm must use more capital in order to minimize the cost of producing a given level of output. C. firm must use less labor in order to minimize the cost of producing a given level of output. D. cost minimizing combination of capital and labor does not change.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard

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1. Which of the following statements is incorrect? A. Fixed costs do not vary with output. B. Sunk costs are those costs that are forever lost after they have been paid. C. Fixed costs are always greater than sunk costs. D. Fixed costs could be positive when sunk costs are zero.

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

1. You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 20, and MPK = 40 the firm: A. is cost minimizing. B. should use less L and more K to cost minimize. C. should use more L and less K to cost minimize. D. is profit maximizing but not cost minimizing.

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. The production function Q = L.5K is called: A. Cobb Douglas. B. Leontief. C. linear. D. None of the answers are correct.

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. The production function for a competitive firm is Q = K.5L. The firm sells its output at a price of $10, and can hire labor at a wage of $5. 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.

Answer: D

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1. For a cost function C = 100 + 10Q + Q 2 , the average variable cost of producing 20 units of output is: A. 10. B. 20. C. 30. D. None of the answers are correct.

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. For a cost function C = 100 + 10Q + Q 2 , the average fixed cost of producing 10 units of output is: A. 10. B. 5. C. 1. D. None of the answers are correct.

Answer: A Learning Objective: 05- Topic: The Cost Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? A. The MRTS is equal to the ratio of input prices. B. The marginal product per dollar spent on all inputs is equal. C. The marginal products of all inputs are equal. D. The MRTS is equal to the ratio of input prices, and the marginal product per dollar spent on all inputs is equal.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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1. If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is: A. ¼. B. 1/10. C. 15. D. None of the answers are correct.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

1. The production function for a competitive firm is Q = K.5L. The firm sells its output at a price of $10, and can hire labor at a wage of $5. 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.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

1. The production function for a competitive firm is Q = K.5L. The firm sells its output at a price of $10, and can hire labor at a wage of $5. Capital is fixed at one unit and costs $2. The maximum profits are: A. 3. B. 10. C. 15. D. None of the answers are correct.

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

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Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Inputs a manager may adjust in order to alter production are: A. all factors. B. variable factors. C. long-run factors. D. fixed factors.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. What is the average product of labor, given that the level of labor equals 10, total output equals 1200, and the marginal product of labor equals 200? A. 20 B. 120 C. 6 D. 2,

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy

1. The change in total output attributable to the last unit of an input is the: A. total product. B. average product. C. marginal product. D. marginal return.

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

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1. If the last unit of input increases total product, we know that the marginal product is: A. positive. B. negative. C. zero. D. indeterminate.

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. Total product begins to fall when: A. marginal product is maximized. B. average product is below zero. C. average product is negative. D. marginal product is zero.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. What is the value marginal product of labor if: P = $10, MPL = $25, and APL = 40? A. $10, B. $1, C. $ D. $

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. It is profitable to hire units of labor as long as the value of marginal product: A. is less than wage. B. exceeds average product. C. equals price. D. exceeds wage.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand

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1. 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

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. Given the Leontief production function Q = min{5, 6}, how much output is produced when K = 40 and L = 35? A. 220 B. 234. C. 192. D. 268

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. Suppose the production function is given by Q = K1/2L1/2, and that Q = 30 and K = 25. How much labor is employed by the firm? A. 49 B. 6 C. 36 D. 25

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. Given the production function Q = min {4K, 3L}, what is the average product of capital when 8 units of capital and 16 units of labor are used? A. 16 B. 2 C. 4 D. 32

Answer: C

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Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. For the production function Q = 5 + 3, if K = 16 and L = 12, we know that MPK is: A. 16. B. 5. C. 3. D. 12.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 02 Medium

1. The combinations of inputs that produce a given level of output are depicted by: A. indifference curves. B. budget lines. C. isocost curves. D. isoquants.

Answer: D Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Isoquants are normally drawn with a convex shape because: A. inputs are perfectly substitutable. B. inputs are perfectly complementary. C. inputs are not perfectly substitutable. D. inputs are not perfectly complementary.

Answer: C Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

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AACSB: Knowledge Application Difficulty: 01 Easy

1. Changes in the price of an input cause: A. isoquants to become steeper. B. slope changes in the isocost line. C. parallel shifts of the isocost lines. D. changes in both the isoquants and isocosts of equal magnitude.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Which of the following sets of economic data is minimizing the cost of producing a given level of output? A. MPL = 20, MPK = 40, w = $16, r = $32. B. MPL = 20, MPK = 40, w = $32, r = $16. C. MPL = 40, MPK = 20, w = $16, r = $32. D. MPL = 40, MPK = 40, w = $16, r = $32.

Answer: A Learning Objective: 05- Topic: The Production Function Blooms: Analyze AACSB: Analytical Thinking Difficulty: 03 Hard

1. In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when: A. that input’s price rises. B. that input’s price falls. C. that input’s price remains the same. D. the prices of other inputs fall.

Answer: B Learning Objective: 05- Topic: The Production Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. Fixed costs exist only in:

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A. the long run. B. capital-intensive markets. C. the short run. D. labor-intensive markets.

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Costs that change as output changes are: A. variable costs. B. fixed costs. C. sunk costs. D. None of the preceding statements is correct.

Answer: A Learning Objective: 05- Topic: The Cost Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Costs that are forever lost after they have been paid are: A. production costs. B. fixed costs. C. sunk costs. D. variable costs.

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy

1. Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines? A. $5 million B. $500, C. $3 million D. $1 million

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Understand

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145 1,000 1,

160 1,000 2,

A. 21

B. 34

C. 14

D. 20

Answer: C Learning Objective: 05- Topic: The Cost Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. 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,

125 1,000 1,

145 1,000 1,

160 1,000 2,

A. 12.

B. 16.

C. 22.

D. 19.

Answer: D Learning Objective: 05- Topic: The Cost Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

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1. 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,

125 1,000 1,

145 1,000 1,

160 1,000 2,

A. 5.

B. 8.

C. 11.

D. 21.

Answer: B Learning Objective: 05- Topic: The Cost Function Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium

1. 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,

125 1,000 1,

145 1,000 1,

160 1,000 2,

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What is the marginal revenue product of labor if Mr P $10 MPL $25 and APL 40?

Is the amount of output produced per unit of input?