Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

Econ203 Intermediate Microeconomics

Fall 2022-23

Quiz 5

Answer all questions and submit in groups. (55 marks)

1.   (A) Are the following statements true or false? Give a graphic account of your answer.

(i) If in the short run, average product is positive, total product must be rising. (marks) 

(ii)  If in the short run, total product is increasing, marginal product must also be increasing. (marks)

(iii) “Law of diminishing returns can explain the U-shaped long-run average cost curve”. Do you agree? Explain.  (5 marks)

2. Suppose that a monopolist faces the market demand curve given by P = 40 – 4Q, where P is market price and Q is the output level. The monopolist has a cost function given by C = 10 + 4Q. Find the monopolists resulting price, quantity and profits. Graph your results. Assess its monopoly power using the Lerner Index. (10 marks) 

MC: 30 marks

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.

2) Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor).  If Joe's capital is currently fixed at K=3 machines, what is his short-run production function?

A) q = 3L

B) q = 3L2

C) q = 9L

D) q = 3K2

3) The slope of the total product curve is the

A) average product.

B) slope of a line from the origin to the point.

C) marginal product.

D) marginal rate of technical substitution.

4) An upward sloping isoquant

A) can be derived from a production function with one input

B) can be derived from a production function that uses more than one input where reductions in the use of any input always reduces output

C) cannot be derived from a production function when a firm is assumed to maximize profits

D) can be derived whenever one input to production is available at zero cost to the firm

E) none of the above

5) The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

A) marginal rate of substitution.

B) marginal rate of technical substitution.

C) slope of the isocost curve.

D) average product of the input.

6) A firm's marginal product of labor is 4 and its marginal product of capital is 5.  If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

A) use five fewer units of capital.

B) use 0.8 fewer units of capital.

C) use 1.25 fewer units of capital.

D) add 1.25 units of capital.

7) 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.

8) A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function C = L0.5M0.75.  This production function exhibits

A) decreasing returns to scale for all output levels

B) constant returns to scale for all output levels

C) increasing returns to scale for all output levels

D) no clear pattern of returns to scale

9) Which of the following costs always declines as output increases?

A) Average cost

B) Marginal cost

C) Fixed cost

D) Average fixed cost

E) Average variable cost

10) The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average fixed cost?

A) 500

B) 5Q

C) 5

D) 5 + (200/Q)

E) none of the above

11) Use the following two statements to answer this question:

I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output.

II The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that 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.

12) For any given level of output:

A) marginal cost must be greater than average cost.

B) average variable cost must be greater than average fixed cost.

C) average fixed cost must be greater than average variable cost.

D) fixed cost must be greater than variable cost.

E) None of the above is necessarily correct.

13) When an isocost line is just tangent to an isoquant, we know that

A) output is being produced at minimum cost.

B) output is not being produced at minimum cost.

C) the two products are being produced at the least input cost to the firm.

D) the two products are being produced at the highest input cost to the firm.

14)  At the optimum combination of two inputs,

A) the slopes of the isoquant and isocost curves are equal.

B) costs are minimized for the production of a given output.

C) the marginal rate of technical substitution equals the ratio of input prices.

D) all of the above

E) A and C only

15) 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.

16) The cost-output elasticity equals 1.4.  This implies that:

A) there are neither economies nor diseconomies of scale.

B) there are economies of scale.

C) there are diseconomies of scale.

D) marginal cost is less than average cost.

17) Consider the following statements when answering this question.

I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale.

II. Diminishing returns determines the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve.  

A) I is true, and II is false.

B) I is false, and II is true.

C) Both I and II are true.

D) Both I and II are false.

18) Consider the following statements when answering this question.

I. Increases in the rate of income tax decrease the opportunity cost of attending college.

II. The introduction of distance learning, which enables students to watch lectures at home, decreases the opportunity cost of attending college.  

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.

19) The average total cost to produce 100 cookies is $0.25 per cookie.  The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 100 cookies is

A) $0.10

B) $0.25

C) $25.00

D) $100.00

E) indeterminate

20) 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 function.

D) an isocost function.

21) When the demand curve is downward sloping, marginal revenue is    

A) equal to price.

B) equal to average revenue.

C) less than price.

D) more than price.

22) For the monopolist shown below, the profit maximizing level of output is:

 

A) Q1.

B) Q2.

C) Q3.

D) Q4.

E) Q5.

23) When a per unit tax is imposed on the sale of a product of a monopolist, the resulting price increase will

A) always be less than the tax.

B) always be more than the tax.

C) always be less than if a similar tax were imposed on firms in a competitive market.

D) not always be less than the tax.

24) The monopoly supply curve is the

A) same as the competitive market supply curve.

B) portion of marginal costs curve where marginal costs exceed the minimum value of average variable costs.

C) result of market power and production costs.

D) none of the above

25) For a monopolist, changes in demand will lead to changes in

A) price with no change in output.

B) output with no change in price.

C) both price and quantity.

D) any of the above can be true.

26) At the profit-maximizing level of output, monopolist’s demand is

A) completely inelastic.

B) inelastic, but not completely inelastic.

C) unit elastic.

D) elastic, but not infinitely elastic.

E) infinitely elastic.

27) Monopoly power results from the ability to

A) set price equal to marginal cost.

B) equate marginal cost to marginal revenue.

C) set price above average variable cost.

D) set price above marginal cost.

 

Figure 10.2

28) Refer to Figure 10.2 above. At output Qm, and assuming that the monopoly has set her price to maximize profit, the consumer surplus is:

A) CDE.

B) BDEF.

C) ADEG.

D) 0DEQm.

E) none of the above

29) Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the monopolist is able to add to producer surplus:

A) the area BCEF.

B) the area BCEF less the area GFH.

C) the area BCEH.

D) the area BCEH less the area GFH.

E) none of the above

30) Refer to Figure 10.2. In moving from the competitive level of output and price to the monopoly level of output and price, the deadweight loss is the area:

A) QmEHQc.

B) GEH.

C) GFH.

D) FEH.

E) none of the above