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Quiz 10 Ans

This document summarizes key concepts around costs from chapter 8. It defines fixed costs as costs that do not vary with output, and sunk costs as fixed costs that have already been incurred and cannot be recovered. It discusses the difference between fixed and variable costs, and introduces opportunity cost. It also covers isocost lines and how they represent combinations of inputs that yield the same total cost for a firm. The document quizzes readers on cost functions, marginal product of labor and capital, and how firms can minimize costs by choosing the optimal input combination based on marginal analysis.

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Parth Vaswani
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© © All Rights Reserved
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Download as DOC, PDF, TXT or read online on Scribd
535 views

Quiz 10 Ans

This document summarizes key concepts around costs from chapter 8. It defines fixed costs as costs that do not vary with output, and sunk costs as fixed costs that have already been incurred and cannot be recovered. It discusses the difference between fixed and variable costs, and introduces opportunity cost. It also covers isocost lines and how they represent combinations of inputs that yield the same total cost for a firm. The document quizzes readers on cost functions, marginal product of labor and capital, and how firms can minimize costs by choosing the optimal input combination based on marginal analysis.

Uploaded by

Parth Vaswani
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Chapter 08 - Cost

Quiz 10
1. (p. 2) ______ is the cost of inputs whose use does not vary as the firm's output changes.
A. Sunk cost
B. Fixed cost
C. Total cost
D. Explicit cost
2. (p. 3) A ______ cost is ______ if the firm doesn't incur the cost if it produces no output.
A. Fixed; sunk
B. Fixed; explicit
C. Variable; sunk
D. Fixed; avoidable
3. (p. 3) A ______ cost is ______ if the firm incurs the cost even if it produces no output.
A. Fixed; sunk
B. Fixed; explicit
C. Variable; sunk
D. Fixed; avoidable
4. (p. 5) The cost associated with foregoing the opportunity to employ a resource in its best
alternative use is called
A. An avoidable cost
B. A sunk cost
C. An opportunity cost
D. The user cost of capital
5. (p. 8) Suppose a firm's short-run production function is given by Q = F(L) = 4L. If the
wage rate is $12 and the firm has sunk costs of $300, then the firm's variable cost function is
A. VC(Q) = $12Q
B. VC(L) = $3L
C. VC(Q) = $3Q
D. VC(Q) = $300 + $12Q
6. (p. 11) A firm's ______ connects all the input combinations with the same price.
A. Cost function
B. Isoquant
C. Budget constraint
D. Isocost line

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Chapter 08 - Cost

7. (p. 11) If Q represents a firm's level of output, W represents the wage paid to labor (L) and
R is the cost of capital (K), then which of the following represents the firm's isocost line?
A. C(Q) = FC + VC(Q)
B. C(Q) = FC(Q) + VC(Q)
C. C(Q) = WL + RK
D. C(Q) = (W+R)Q
8. (p. 11) Isocost lines associated with ______ total cost lie ______ the origin.
A. Lower; farther from
B. Higher; farther from
C. Higher; closer to
D. Sunk; closer to
9. (p. 11) The slope of an isocost line is equal to
A. - (wage rate/rental rate of capital)
B. (wage rate/rental rate of capital)
C. - (rental rate of capital/wage rate)
D. (rental rate of capital/wage rate)
10. (p. 11) Suppose a firm's total cost of production is $40,000 per week, the wage rate is
$1,000 per week and the cost of capital is $2000. The firm's cost function would be written as
A. L = 40 - .5K
B. K = 40 - 2L
C. K = 2000 + 1000L
D. K = 40 - .5L
11. (p. 15) Suppose that MPL = 50 and MPK = 30. If W = 25 and R = 10, then a firm
A. Is producing its output at the lowest possible cost
B. Could reduce costs by employing more labor and less capital
C. Could reduce costs by employing more capital and less labor
D. Could minimize costs by employing more of both inputs
12. (p. 15) Suppose that labor is measured on the horizontal axis and capital is measured on
the vertical axis. At an interior solution
A. MRTSLK = PL/PK
B. MRTSLK = - PL/PK
C. MRSTLK = PK/PL
D. MRTALK = - PK/PL
13. (p. 18) A firm's ______ shows the least-cost input combinations at all possible levels of
output for fixed input prices.
A. Cost function
B. Output expansion path
C. Isocost line
D. Efficient production frontier

8-2

Chapter 08 - Cost

14. (p. 18) Refer to Figure 8.2. Which graph illustrates an output expansion path with a
constant capital-labor ratio?
A. A
B. B
C. C
D. D
15. (p. 18) Refer to Figure 8.2. Which graph illustrates an output expansion path with an
increasing capital-labor ratio?
A. A
B. B
C. C
D. D

8-3

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