Economics and Management 550 Quiz
Economics and Management 550 Quiz
1. A firm using two inputs, X and Y, is using them in the most efficient manner when
A. MPX = MPY
B. PX = PY and MPX = MPY
C. MPX/PY = MPY/PX
D. MPX/MPY = PX/PY
It would be in the most efficient manner when MPX = MPY with a firm using two inputs, X and Y
2. Which of the following indicate when State I ends and State II begins in the short run production?
A. When AP= 0
B. When MP = 0
C. When MP = AP
D. When MP starts to diminish
Stage 1 of the production ends and Stage 2 begins in the point where MP = AP as shown in the graph above.
3. Which of the following is the best example of two inputs that would exhibit a constant marginal rate of technical substitution?
A. Trucks and truck drivers
B. Natural gas and oil
C. Personal computers and clerical workers
D. Company employed computer programmers and temporary supplemental computer programmers.
Marginal rate of technological substitutions is defined as the amount of by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant. From the choices, natural gas and oil is the best example that would exhibit a constant marginal rate of substitution.
4. If MRP>MLC, it means that a firm should
A. Use less labor
B. Use more labor
C. Increase its fixed capacity
D. decrease its fixed capacity
If MRP > MLC, the firm can use more labor because as long as the labor cost is less than the marginal revenue product, an additional worker hired can increase profits but in a given diminishing rate. Thus, the firm should use more labor. However, a firm can only increase its employment of labor until marginal revenue product is equal to the labor cost.
5. Which of the following cost functions indicates that the law of diminishing returns takes effect as soon as production begins?
A. 1000 + 2.5Q + 0.05Q2
B. 1000 + 2.5Q
C. 1000 + 2.5Q -1.2Q2 + 0.03Q3
D. Not enough information to determine this.
The law of diminishing returns is defined as a relationship in which in a production system with fixed and variable inputs beyond some point will yield less and less output with every additional unit of variable input.
1000 + 2.5Q + 0.05Q2 exhibits a diminishing returns since as we add another Q the rate of increase has dropped from 2.5 to 0.05.
6. Economists consider which of the following costs to be irrelevant to a short-run business decision?
A. Opportunity cost
B. Out-of-pocket cost
C. Historical cost
D. Replacement cost
The short run is a period of time when there is at least one fixed factor of the production that can not be altered. Thus, replacement cost is irrelevant in the business decisions in the short run.
7. Which of the following actions has the best potential for experiencing economies of scope?
A. Producing a product that has appeal to a wider segment of the market
B. Producing computers and software
C. Producing spaghetti and soft drinks
D. Producing cars and trucks
Economies of scope refer to efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products. Thus, it can be known that producing a product that has appeal to the wider segment of the market has the potential to experience economies of scope.
8. Which of the following products is the best example of perfect competition:
D. Designer clothing
An apple is basic need in which generally would consume.
9. A perfectly competitive firm sells 15 units of output at the going market rate of $10. Suppose its average cost is $15 and its average variable cost is $8. Its contribution margin (i.e. contribution to fixed cost) is
D. Cannot be determined from the above information
The contribution margin is total revenue minus total variable cost.
Output = 15
Price = $10
AV = $15
AVC = $8
Contribution Margin = TR – TVC
TR = p (q) = $10 (15) = 150
AVC = TVC/no. of goods
$8 = TVC / 15
TVC = $8 (15) = 120
Contribution margin = 150 – 120 = $30
10. Which of the following is true for a monopoly?
In monopoly price is generally set where P is greater than marginal revenue.
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