Hello,
We are a group of Managerial Economics students who need help on a
sample exam for our class. We have our real exam on Friday, the 24th.
Our teacher has not yet posted the key to the sample exam, but
regardless we need help with detailed and preferably simplified
explanations to the correct answers. Below is a copy of the sample
exam:
SAMPLE EXAM
1 Which of the following best describes the difference between the
short-run and the long-run?
a. The short-run is generally regarded as a period of 3 years or
less while the long-run is generally regarded with a period of
time over 3 years.
b. The short-run is a period of time when all inputs are variable
while in the long-run at least input is variable.
c. In the short-run, at least one input is fixed and at least one
input is variable; in the long-run, all inputs are variable.
d. In the short-run, productive technology is assumed to be
restricted from advancement; in the long-run, productive
technology is allowed to progress.
2 Which of the following best describes the marginal product of an input?
a. The additional profit generated from utilizing an additional unit
of the input.
b. The additional amount of the input required to produce an
additional unit of output.
c. The amount of output generated by the last unit of the input employed.
d. None of the above are accurate.
3 Under which of the following conditions would output / total
product be maximized?
a. Marginal product of the input is zero.
b. Average product of the input is zero.
c. Marginal product is positive but decreasing.
d. Average product is positive but decreasing.
4 Which of the following best describes ?The Law of Diminishing Returns??
a. Beyond some point, output or total product from the last unit of
the input employed must fall.
b. Beyond some point, additional units of the input employed will
result in larger increases in output or total product.
c. Beyond some point, additional units of the input employed will
result in decreases to output or total product.
d. None of the above accurately describe ?The Law of Diminishing Returns?.
5 Which of the following describes characteristics of Stage II of production?
a. Average product of the input must be positive, but may be either
increasing, constant, or decreasing.
b. Marginal product is less than average product.
c. Average product must either be rising or at its maximum.
d. None of the above are characteristics of Stage II of production.
6 Which of the following best describes rationale for determining the
rational stage of production?
a. In Stage I, the fixed input is over-utilized.
b. In Stage III, the firm is realizing decreasing cost per unit of output.
c. In Stage III, additional units of the input employed result in a
higher output / total product level.
d. None of the above are rationale for determining the rational
stage of production.
7 If marginal cost (MC) for some level of output (q) is $6.50,
a. if average variable cost (AVC) at that level of output is $6.00,
AVC must be falling.
b. if average total cost (ATC) is $6.00 at that level of output, ATC
must be falling.
c. if marginal cost for the next unit of output above the given
level (q+1) is $6.75, the firm is encountering diminishing
returns to the variable input.
d. if marginal cost for the next unit of output above the given
level (q+1) is $6.00, the firm is encountering diminishing
returns to the variable input.
8 The effect of the law of diminishing returns to a variable input
can be seen in the short-run cost curves as:
a. Total cost increases at a decreasing rate when the firm is
encountering diminishing returns.
b. Marginal Cost (MC) is increasing.
c. The firms total cost per unit of output (ATC) is increasing.
d. None of the above are true.
9 All of the following affect the behavior of long-run costs except:
a. When the firm is encountering increasing returns to scale,
long-run average cost (LRAC) is decreasing.
b. The long-run is considered to be a part of a manager?s planning horizon.
c. Relatively high short-run fixed costs in the long-run determine
the shape of the LRAC curve.
d. If the firm is encountering constant returns to scale, LRAC is
constant over that range of plant sizes.
10 Under which of the following circumstances would a firm be
operating at ?maximum plant efficiency?
a. The firm is operating at minimum short-run average total cost.
b. The firm is encountering rising short-run average variable cost.
c. The firm is operating at minimum efficient scale.
d. All of the above reflect firms operating at ?maximum plant capacity?.
11 Which of the following describes the point at which the firm moves
from the planning horizon (long-run) to the operating horizon
(short-run)?
a. The firm has determined the appropriate plant size to build.
b. The firm begins construction on a new plant.
c. The firm begins production at a new plant.
d. The firm considers increasing its productive capital (production
equipment and machinery).
12. An objective measure of the value of an input
a) can be given by the marginal product of the input divided by its price
b) yields the output gained (lost) from the last dollar spent of the
input utilized
c) can be negative
d) all of the above
(e) (a) & (b) only
13. If Q = TP =1200L + 500L2 ? 1.2L3
a. The function will exhibit all 3 stages of production.
b. Only the rational stage of production is represented.
c. The marginal and average product (MP and AP, respectively)
functions will be linear.
d. Capital does not play a role in production.
14. Given a calculated labor input elasticity of 0.6
a. the product is inferior
b. the product is income elastic
c. the other product is a complement
d. none of the above
15 ? 19. Given the following Cobb/Douglas production function,
answer questions 16 through 20.
Q = TP = f(L,K) = 16L0.5K0.6
15. If PK = 40 & PL = 25 and total cost must equal $15,000, what is
the Lagrangian function to be optimized? ? 5 pts
a. £ = Max Q = 16L0.5K0.6 + ?[15,000 ? 40L ? 25K]
b. £ = Max Q = 16L0.5K0.6 + ?[15,000 ? 25L ? 40K]
c. £ = Min TC = 25L + 40K + ?[15,000 ? 16L0.5K0.6]
d. £ = Min TC = 40L + 25K + ?[15,000 ? 16L0.5K0.6]
16. Which of the following are among the first order conditions?
a. ?Q/?L = 8L-0.5K0.6 - 40? = 0
b. ?Q/?K = 9.6L0.5K-0.4 - 40? = 0
c. ?TC/?L = 8L-0.5K0.6 - 40? = 0
d. ?TC/?K = 9.6L0.5K-0.4 - 40? = 0
e. none of the above
17. What levels of L & K will optimize the Lagrangian? (Choose the
answer closest to yours).
a. L = 272; K= 204
b. L = 204; K = 272
c. L = 441.57; K = 588.76
d. L = 588.76; K = 441.57
e. None of the above
18. What will TC be at the optimal levels of L & K?
a. $32,381.89
b. 22,625.15
c. 15,000.00
d. none of the above
19. Can any conclusions be drawn regarding the returns to scale? If
so, which of the following best describes the rationale for the
conclusions?
a. Diminishing returns to scale since the individual exponents are
strictly less than 1.0.
b. Diminishing returns to scale since the sum of the exponents is greater than 1.0.
c. Both labor and capital exhibit diminishing returns since the
individual exponents are strictly less than 1.0.
d. Increasing returns to scale since the sum of the exponents is greater than 1.0.
e. No conclusions can be drawn.
Given the following information, answer questions 20 ? 22. ? 6 pts each
SRTC = 250,000 + 150,000Q ? 25,000 Q2 + 1.2Q3
LRTC = 50,000Q ? 150Q2 + 0.09Q3
20. At what SR output level does the firm encounter diminishing returns?
a. Q = 250,000
b. Q = 6,944.44
c. Q = 10,416.67
d. Q = 12,713.50
e. None of the above
21. At what SR output level does the firm enter Stage II?
a. Q = 250,000
b. Q = 6,944.44
c. Q = 10,416.67
d. Q = 12,713.50
e. None of the above
22. At what SR output level does the firm enter Stage III?
a. Q = 250,000
b. Q = 6,944.44
c. Q = 10,416.67
d. Q = 12,713.50
e. None of the above
Recall: SRTC = 250,000 + 150,000Q ? 25,000 Q2 + 1.2Q3
LRTC = 50,000Q ? 150Q2 + 0.09Q3
23. At what level of output does the firm achieve Minimum Efficient Scale?
a. Q = 50,000
b. Q = 555.56
c. Q = 833.33
d. Q = 1215.13
e. None of the above
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Again, we would greatly appreciate explanations of the logic behind
the correct answers. Thank you so much in advance! |
