Quiz 2

Question 1

If production conditions for a firm are such that the marginal rate of technical substitution (MRTS) is always constant, we can infer that:

1. the firm’s isoquant shows that the factor inputs can only be used in fixed proportions
2. the firms isoquant is a straight line
3. all of the above
4. none of the above

Answer 1

2. the firms isoquant is a straight line

Question 2

Consumer surplus is measured as:

1. the difference between the maximum amount that consumers would be prepared to pay to obtain units of output and the amount they actually pay
2. the total money value of all units of output consumed
3. the difference between the marginal cost of producing units of output and the marginal benefit obtained by their consumption
4. the surplus value of the last unit purchased at the margin of consumption

Answer 2

1. the difference between the maximum amount that consumers would be prepared to pay to obtain units of output and the amount they actually pay

Question 3

Suppose total production costs are described by the cost function: TC = 40 + 7Q^2. Next suppose that the fixed cost component rises from 40 to 90 so that the production costs areTC = 90 + 7Q^2. This increase in fixed cost implies:

1. marginal cost is higher at each level of output
2. marginal cost must be lower at each level of output because fixed cost is higher in relation to variable costs
3. marginal cost is always higher than fixed cost at each output level
4. marginal cost must rise in the same proportion as fixed cost
5. none of the above

Answer 3

5. none of the above

Question 4

The production function exhibits increasing returns to scale when:

1. a given proportionate increase in output requires a proportionately larger increase in labour and capital inputs
2. a given proportionate increase in the labour input requires a larger proportionate increase in the capital input to achieve an increase in production
3. a given proportionate increase in the labour and capital inputs yields a proportionate increase in output
4. the marginal products of both labour and capital are falling as input rises
5. none of the above

Answer 4

3. a given proportionate increase in the labour and capital inputs yields a proportionate increase in output

Question 5

The short run is defined as a period during which:

1. The labour input is fixed, but capital and technology can change
2. all of the above
3. all inputs into the production process are fixed
4. the firm is not able to change the price at which units of output are sold
5. at least one of the inputs unto the production process is fixed.

Answer 5

5. at least one of the inputs unto the production process is fixed.

Question 6

The slope of an indifference curve shows:

1. the transitivity of consumer preferences
2. the marginal rate of substitution between one good and another
3. the ratio of market prices
4. all of the above
5. none of the above

Answer 6

2. the marginal rate of substitution between one good and another

Question 7

If a consumer prefers Bundle A to bundle B, Bundle B to Bundle C then we can conclude that Bundle A us preferred to Bundle C. this conclusion relies on the assumption that:

1. consumer preferences are transitive
2. the consumer’s indifference curve is convex to the origin
3. consumer prefer more goods to fewer goods
4. consumer equilibrium is reached at the point where utility is maximised

Answer 7

1. consumer preferences are transitive

Question 8

The consumer’s budget line shows:

1. the marginal benefit derived from the consumption of an additional unit of output when household incomes and prices are given
2. the structure of consumer preferences when budgets are constrained
3. the combinations of output that the consumer can purchase at current prices with a given level of income
4. none of the above
5. the cost-benefit ratio of each additional unit of output consumed

Answer 8

3. the combinations of output that the consumer can purchase at current prices with a given level of income

Question 9

Suppose a firm is able to produce 100 units of output per month when 10 workers are employed, 180 unit of output when 11 workers are employed and 240 units of output when 12 workers are employed. From this information we can deduce that:

1. marginal cost is falling as production expands
2. the marginal product of labour is declining as employment rises
3. the marginal product of labour is 240 for the last unit of labour employed
4. profits are maximised when the firm produces 10 units of output
5. all of the above

Answer 9

2. the marginal product of labour is declining as employment rises

Question 10

Suppose the total cost (TC) of producing Q units of output is given as: TC = 100 + 6Q. It follows that average variable cost is:

1. 106/Q
2. 106
3. 100/Q + 6Q
4. 6
5. 100

Answer 10

4. 6