Exam 2

Question 1

The production function relates the maximum output that could be produced given a certain amount of inputs and the available technology.

Answer 1

TRUE

Question 2

The Law of Diminishing Marginal productivity occurs after the total product reaches its maximum and starts to decline.

Answer 2

FALSE

Question 3

A locus of points with each point representing a combination of inputs that a firm can purchase
at the same cost is called an isoquant.

Answer 3

FALSE

Question 4

If the MRTSKL is equal to 3, then this means that the firm can technically substitute 3 units of labour in order to use one more unit of capital while keeping output constant.

Answer 4

TRUE

Question 5

A decrease in the rent will make the isocost line flatter.

Answer 5

FALSE

Question 6

The boundary between Stage I and Stage Il is where the marginal product is at its maximum.

Answer 6

FALSE

Question 7

If at an initial capital-labor allocation the slope of the isocost line is greater than the slope of the
isoquant, then for cost minimization the firm must increase its usage of capital and decrease its labor input.

Answer 7

TRUE

Question 8

If the target output is to be doubled and the required L and K need to be more than doubled, then the technology exhibits decreasing returns to scale.

Answer 8

TRUE

Question 9

A production allocation is said to be Pareto optimal if there exists an alternative allocation wherein one output can be increased without decreasing the output of the other good.

Answer 9

FALSE

Question 10

When marginal cost is increasing, marginal cost is higher than average cost.

Answer 10

FALSE

Question 11

As the quantity of output produced is decreased, the distance between the AC and AVC curves becomes smaller and smaller caused by the decreasing AFC.

Answer 11

FALSE

Question 12

A firm may experience diseconomies of scale, represented by the upward sloping portion of the LAC curve, due to specialization and division of labor.

Answer 12

TRUE

Question 13

In the very short run, the demand curve is vertical, implying that there is a fixed quantity of goods/products in the market.

Answer 13

FALSE

Question 14

Economic profit refers to the excess of total revenue over all costs of production including opportunity costs of all resources used.

Answer 14

TRUE

Question 15

The profit maximizing condition in a perfectly competitive market is when the price equals marginal revenue.

Answer 15

FALSE

Question 16

A perfectly competitive firm will most likely advertise its products.

Answer 16

FALSE

Question 17

If the addition to total revenue is less than the addition to total cost, then the firm can increase by producing less output.

Answer 17

TRUE

Question 18

At any price level between the minimum AVC and minimum AC, profits are negative and the loss is less than the total fixed cost of the firm.

Answer 18

TRUE

Question 19

If a firm in perfect competition sells 500 units of product at PhP 10/unit, then its MR will be equal to 50.

Answer 19

FALSE

Question 20

The long-run market supply curve of an increasing-cost industry is upward-sloping.

Answer 20

TRUE