UGBA 101A Midterm 2 Practice Questions

Question 1

1) A production function defines the output that can be produced:

A) at the lowest cost, given the inputs available.
B) for the average firm.
C) if the firm is technically efficient.
D) in a given time period if no additional inputs are hired.
E) as technology changes over time.

Answer 1

C) if the firm is technically efficient.

Question 2

2) A function that indicates the maximum output per unit of time that a firm can
produce, for every combination of inputs with a given technology, is called:

A) an isoquant.
B) a production possibility curve.
C) a production functions.
D) an isocost function.

Answer 2

C) a production functions.

Question 3

Which of the following inputs are variable in the long run?

A) Labor
B) Capital and equipment
C) Plant size
D) all of these

Answer 3

D) all of these

Question 4

For many firms, capital is the production input that is typically fixed in the short
run. Which of the following firms would face the longest time required to adjust its capital inputs?

A) Firm that makes DVD players
B) Computer chip fabricator
C) Flat-screen TV manufacturer
D) Nuclear power plant

Answer 4

D) Nuclear power plant

Question 5

When labor usage is at 12 units, output is 36 units. From this we may infer that:

A) the marginal product of labor is 3.
B) the total product of labor is 1/3.
C) the average product of labor is 3.
D) none of the above

Answer 5

C) the average product of labor is 3.

Question 6

The law of diminishing returns assumes that:

A) there is at least one fixed input.
B) all inputs are changed by the same percentage.
C) additional inputs are added in smaller and smaller increments.
D) all inputs are held constant.

Answer 6

A) there is at least one fixed input.

Question 7

Refer to Figure above. At point A, the marginal product of labor is:

A) rising.
B) at its minimum.
C) at its maximum.
D) diminishing.

Answer 7

A) rising.

Question 8

Refer to Figure above. At which point on the total product curve is the average product of labor the highest?
A) Point A
B) Point B
C) Point C
D) Point D
E) None of the above

Answer 8

B) Point B

Question 9

Refer to Figure above. Which of the following statements is false?

A) At point E the marginal product of labor is decreasing.
B) At point E the marginal product of labor is negative.
C) At point E the average product of labor is decreasing.
D) At point E the average product of labor is negative.
E) At point E the marginal product of labor is less than the average product of
labor.

Answer 9

D) At point E the average product of labor is negative.

Question 10

Refer to Figure 6.2.1 above. At point C:

A) the marginal product of labor is greater than the average product of labor.
B) the average product of labor is greater than the marginal product of labor.
C) the marginal product of labor and the average product of labor are equal.
D) the marginal product of labor and the average product of labor are both
increasing.
E) Both B and D are correct

Answer 10

B) the average product of labor is greater than the marginal product of labor.

Question 11

Which of the following statements does not explain why US health care
expenditures are higher than
in other countries?

A) Government policies have shifted the health care production function
downward over time.
B) Consumer incomes have increased, which allows consumers to purchase more
health care.
C) The US health care system is relatively inefficient compared to other countries.
D) Demand for health care in the US has increased, so health care production
occurs at a higher point on the total product curve than in other countries.

Answer 11

A) Government policies have shifted the health care production function
downward over time.

Question 12

The marginal rate of technical substitution is equal to:

A) the absolute value of the slope of an isoquant.
B) the ratio of the marginal products of the inputs.
C) the ratio of the prices of the inputs.
D) all of the above
E) A and B only

Answer 12

E) A and B only

Question 13

An L-shaped isoquant:

A) is impossible.
B) would indicate that the firm could switch from one output to another costlessly.
C) would indicate that the firm could not switch from one output to another.
D) would indicate that capital and labor cannot be substituted for each other in
production.
E) would indicate that capital and labor are perfect substitutes in production.

Answer 13

D) would indicate that capital and labor cannot be substituted for each other in
production.

Question 14

In a production process, all inputs are increased by 10%; but output increases
less than 10%. This means that the firm experiences:

A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) negative returns to scale

Answer 14

A) decreasing returns to scale.

Question 15

Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth
$500,000, and the interest rate is 10 percent. ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for
$530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over
and above all of his expenses) if he farms the land this year. What should he do?

A) Sell to ABC Corporation.
B) Farm the land for another year and sell it to XYZ Corporation.
C) Accept either offer as they are equivalent.
D) Reject both offers.

Answer 15

A) Sell to ABC Corporation.

Question 16

Prospective sunk costs:

A) are relevant to economic decision-making.
B) are considered as investment decisions.
C) rise as output rises.
D) do not occur when output equals zero

Answer 16

A) are relevant to economic decision-making.

Question 17

The total cost (TC) of producing computer software diskettes (Q) is given as: 5Q + 200.
What is the variable cost?
A) 200
B) 5Q
C) 5
D) 5 + (200/Q)
E) none of the above

Answer 17

B) 5Q

Question 18

Carolyn knows the average total cost and average variable cost for a given level of output. Which of the following costs can she not determine given this information?

A) Total cost
B) Average fixed cost
C) Fixed cost
D) Variable cost
E) Carolyn can determine all the above costs given the information provided.

Answer 18

E) Carolyn can determine all the above costs given the information provided.

Question 19

Use the following two statements to answer this question:

I. The average cost curve and the average variable cost curve reach their minima at
the same level of output.
II. The average cost curve and the marginal cost curve reach their minima at the same level of output.

A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false.

Answer 19

D) Both I and II are false.

Question 20

Consider the following statements when answering this question:
I. If the marginal product of labor falls whenever more labor is used, and labor is
the only factor of production used by the firm, then at every output level the firm’s
short-run average variable cost exceeds marginal cost.
I. If labor obeys the law of diminishing returns and is the only factor of production
used by the firm, then at all output level short-run average variable costs exceed
marginal costs.

A) I is true, and II is false.
B) I is false, and II is true.
C) I and II are both true.
D) I and II are both false.

Answer 20

A) I is true, and II is false.

Question 21

In our analysis, it is best to treat capital as if it was:

A) rented, even if it was purchased.
B) purchased, even if it is just rented.
C) purchased and rented.
D) rented first, then purchased

Answer 21

A) rented, even if it was purchased.

Question 22

Refer to Figure above. Which point on the graph shows the optimal combination of inputs?

A) Point A when the production process is capital intensive
B) Point B
C) Point D when the production process is capital intensive
D) All three points, A, B and D are optima

Answer 22

B) Point B

Question 23

An effluent fee is imposed on a steel firm to reduce the amount of waste
materials that it dumps in a
river. Use the following two statements to answer this question:
I. The more easily factors of production can be substituted for one another (for
example, capital can be used to reduce wastewater), the more effective the fee will
be in reducing effluent.
II. The greater the degree of substitution of capital for wastewater, the less the firm
will have to pay in effluent fees.

A) Both I and II are true.
B) I is true, and II is false.
C) I is false, and II is true.
D) Both I and II are false

Answer 23

A) Both I and II are true.

Question 24

Refer to Figure above. An increase in Production, from q1 to q2:

A) is more costly in the short run than in the long run.
B) uses more capital in the short run.
C) uses less inputs in the long run.
D) costs the same in the short run or in the long run.

Answer 24

A) is more costly in the short run than in the long run.

Question 25

Assume that a firm’s production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to:

A) increase.
B) decline.
C) remain constant.
D) fall to a minimum and then rise.

Answer 25

B) decline.

Question 26

A price taker is:
A) a firm that accepts different prices from different customers.
B) a consumer who accepts different prices from different firms.
C) a perfectly competitive firm.
D) a firm that cannot influence the market price.
E) both C and D

Answer 26

E) both C and D

Question 27

Which of the following is an example of a homogeneous product?
A) Gasoline
B) Copper
C) Personal computers
D) Winter parkas
E) both A and B

Answer 27

E) both A and B

Question 28

Which of the following is a key assumption of a perfectly
competitive market?
A) Firms can influence market price.
B) Commodities have few sellers.
C) It is difficult for new sellers to enter the market.
D) Each seller has a very small share of the market.
E) none of the above

Answer 28

D) Each seller has a very small share of the market.

Question 29

Several years ago, Alcoa was effectively the sole seller of aluminum because the firm owned nearly all of the aluminum ore reserves in the world. This market was not perfectly competitive because this situation violated the:
A) price-taking assumption.
B) homogeneous product assumption.
C) free entry assumption.
D) A and B are correct.
E) A and C are correct.

Answer 29

E) A and C are correct.

Question 30

Revenue is equal to:
A) price times quantity.
B) price times quantity minus total cost.
C) price times quantity minus average cost.
D) price times quantity minus marginal cost.
E) expenditure on production of output

Answer 30

A) price times quantity.

Question 31

Suppose your firm operates in a perfectly competitive market and decides to double its output. How does this affect the firm’s marginal profit?

A) Marginal revenue and marginal cost increase
B) Marginal revenue increases but marginal cost remains the same
C) Marginal cost may change but marginal revenue remains the same
D) Marginal revenue and marginal cost decrease

Answer 31

B) Marginal revenue increases but marginal cost remains the same

or i think..
C) Marginal cost may change but marginal revenue remains the same

Question 32

Consumer surplus measures:
A) the extra amount that a consumer must pay to obtain a marginal unit of a good or service.
B) the excess demand that consumers have when a price ceiling holds prices below their equilibrium.
C) the benefit that consumers receive from a good or service beyond what they pay.
D) gain or loss to consumers from price fixing

Answer 32

C) the benefit that consumers receive from a good or service beyond what they pay.

Question 33

When the government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity
supplied to ________ and the quantity demanded to ________.
A) fall, rise
B) fall, fall
C) rise, rise
D) rise, fall

Answer 33

A) fall, rise

Question 34

Producer surplus is measured as the:
A) area under the demand curve above market price.
B) entire area under the supply curve.
C) area under the demand curve above the supply curve.
D) area above the supply curve up to the market price

Answer 34

D) area above the supply curve up to the market price

Question 35

In an unregulated, competitive market, consumer surplus exists because some:

A) sellers are willing to take a lower price than the equilibrium price.
B) consumers are willing to pay more than the equilibrium price.
C) sellers will only sell at prices above equilibrium price (or actual price).
D) consumers are willing to make purchases only if the price is below the actual price

Answer 35

B) consumers are willing to pay more than the equilibrium price.

Question 36

In an unregulated, competitive market producer surplus exists because some:
A) consumers are willing to pay more than the equilibrium price.
B) producers are willing to take more than the equilibrium price.
C) producers are willing to sell at less than the equilibrium price.
D) consumers are willing to purchase, but only at prices below equilibrium price

Answer 36

C) producers are willing to sell at less than the equilibrium price.