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1、Microeconomics, 9e (Pindyck/Rubinfeld)Chapter 7 The Cost of Production7.1 Measuring Cost: Which Costs Matter?1) Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night re
2、nts its plane for $30,000 a year. If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000. Which airline has the lower costs?A) Fly Right.B) Fly by NightC) Neither, the costs are identical.D) Neither, Fly by Night has lower costs at small output lev
3、els and Fly Right has lower costs at high output levels.Answer: CDiff: 1Section: 7.1In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120
4、,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land?A) YesB) NoC) It depends on what the rate of inflation was between 1985 and 1992.D) It depends on what the rate of interest was.Answer: ADiff： 2Section: 7.1Farmer Jones bought his farm for $75,000 in
5、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 expense
6、s) 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 to XYZ Corporation.C) Accept either offer as they are equivalent.D) Reject both offers.Answer: ADiff: 2Section: 7.1Diff: 1Section: 7.132) Complete the following table (round ea
7、ch answer to the nearest whole number):Total Variable Fixed Marginal Average Avg. Var. Avg. Fixed Output Cost Cost Cost Cost Cost Cost Cost 0 152 303 134 105105 1106 50Answer:OutputTotalCostVariable CostFixed Marginal AverageCost CostCostAvg. Var.CostAvg. Fixed Cost040040-145540545540260204015301020
8、379404019261313410565402626161051501104045302286200160405033277Diff: 2Section: 7.17.2 Cost in the Short Run1) 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.J) . The average cost cu
9、rve and the marginal cost curve reach their minima at the same level of output. A) Both I and II are true.K) I is true, and II is false.L) I is false, and II is true.M) Both I and II are false.Answer: DDiff： 3Section: 7.22) Use the following two statements to answer this question:I. The average tota
10、l 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 variable cost curve at that level of output.A) Both I and II are true.B) I is tr
11、ue, and II is false.C) I is false, and II is true.D) Both I and II are false.Answer: ADiff: 2Section: 7.2Use the following two statements to answer this question:1. 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 out
12、put.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.Answer: ADiff: 2Section: 7.2For any given leve
13、l 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.Answer: EDiff：
14、 3Section: 7.2In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,A) average fixed cost is constant.B) marginal cost is above average variable cost.C) marginal cost is below average fixed cost.D) marginal cost is below
15、average variable cost.Answer: DDiff: 2Section: 7.26) In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, marginal cost is:A) below average total cost.B) above average total cost.C) between the average variable and average
16、 total cost curves.D) below average fixed cost.Answer: ADiff： 2Section: 7.2Which of the following relationships is NOT valid?A) Rising marginal cost implies that average total cost is also rising.B) When marginal cost is below average total cost, the latter is falling.C) When marginal cost is above
17、average variable cost, AVC is rising.D) none of the aboveAnswer: ADiff: 3Section: 7.2cost curves.7) Refer to Figure 7.2.1 above. The diagram above containsshort-runA) intermediate runlong-runB) both short-run and long-runAnswer: ADiff： 1Section: 7.28) Refer to Figure 7.2.1 above. When 2 units of out
18、put are produced:A) marginal cost is falling.B) average total cost is falling.C) average variable cost is less than average fixed cost.D) marginal cost is less than average total cost.E) all of the aboveAnswert: EDiff: 2Section: 7.29) Refer to Figure 7.2.1 above. When 7 units of output are produced:
19、A) average fixed cost reaches its minimum.B) average total cost reaches its minimum.C) average variable cost reaches its minimum.D) marginal cost reaches its minimum.E) all of the aboveAnswer: CDiff: 2Section: 7.210) Refer to Figure 7.2.1 above. At what level of output is average total cost closest
20、to marginal cost?A) 2 units of output7 units of outputB) 8 units of output10 units of outputAnswer: CDiff: 2Section: 7.2Refer to Figure 7.2.1 above. At what level of output are average total cost, average cost, average fixed cost and marginal cost increasing?A) 2 units of output7 units of outputB) 1
21、0 units of outputnone of the aboveAnswer: DDiff： 2Section: 7.2Which of the following costs are always increasing as output increases?A) Marginal Cost onlyFixed Cost onlyB) Total Cost onlyVariable Cost onlyC) Total Cost and Variable CostAnswer: EDiff: 1Section: 7.2Consider the following statements wh
22、en answering this question:1. A firms marginal cost curve does not depend on the level of fixed costs.IL As output increases the difference between a firms average total cost and average variable cost curves cannot rise.A) I is true, and II is false.B) I is false, and II is true.C) I and II are both
23、 true.D) I and II are both false.Answer: CDiff: 3Section: 7.2Consider the following statements when answering this question1. If a firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then the marginal costs of production are constant too.IL If a
24、 firm employs only one variable factor of production, labor, and the marginal product of labor is constant, then short-run average total costs cannot rise as output rises.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: CDiff: 3
25、Section: 7.2Consider the following statements when answering this question:1. If the marginal product of labor falls whenever more labor is used, and labor is the only factor of production used by the firm, than at every output level the firm*s short-run average variable cost exceeds marginal cost.I
26、L If labor obeys the law of diminishing returns, and is the only factor of production used by the firm, then at every 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.A
27、nswer: ADiff： 3Section: 7.211) Consider the following statements when answering this question:I. Whenever a firms average variable costs are falling as output rises, marginal costs must be falling too.II. Whenever a firms average total costs are rising as output rises, average variable costs must be
28、 rising too.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: BDiff: 3Section: 7.2Consider the following statements when answering this question:I) The marginal cost curve intersects the average total cost and average variable co
29、st curves at their minimum values.J) . When a firm has positive fixed costs, the output level associated with minimum average variable costs is less than the output associated with minimum average total costs.K) I is true, and II is false.L) I is false, and II is true.M) I and II are both true.N) I
30、and II are both false.Answer: CDiff: 3Section: 7.2If a factory has a short-run capacity constraint (e.g., an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes at the capacity constraint.A) infinitezeroB) highly elasticless than the average var
31、iable costAnswer: ADiff： 2Section: 7.2In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must:A) be declining with output.B) be positive.C) equal zero.D) We do not have enough information to answer this question.
32、Answer: CDiff: 3Section: 7.212) In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that:A) marginal cost is less than average total cost.B) average total cost is positive and constant.C) average total cost equals marginal cost.D)
33、 A and B are correct.E) B and C are correct.Answer: EDiff： 3Section: 7.2From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MPl， Based on this equation, which of the following statements is NOT true?A) If the marginal product of labor is constant, then MC is constant
34、.B) If the marginal product of labor is a concave curve, then the MC curve is also concave.C) If the marginal product of labor is a concave curve, then the MC curve is U-shaped.D) MC increases as the marginal product of labor declines.Answer: BDiff: 2Section: 7.2Suppose a pizza restaurant has two pi
35、zza ovens that may be used to bake pizzas, so the restaurant has a maximum capacity constraint that affects the shape of the firms short-run marginal cost curve. What happens to maximum capacity segment of this curve if the firm adds another pizza oven?A) Shifts upwardShifts downwardB) Shifts leftwa
36、rdShifts rightwardAnswer: DDiff： 2Section: 7.2Trisha believes the production of a dress requires 4 labor hours and 2 machine hours to produce. If Trisha decides to operate in the short run, she must spend $500 to lease her business space. Also, a labor hour costs $15 and a machine hour costs $35. Wh
37、at is Trishas cost of production as a function of dresses produced?Answer: Since the production of a dress requires spending $60 for labor and $70 for machine hours, Trishas cost function is: C(q) = 130q + 500.Diff: 2Section: 7.224) A firms total cost function is given by the equation:TC = 4000 + 5Q
38、 + 10Q2.(1) Write an expression for each of the following cost concepts:a. Total Fixed Cost b. Average Fixed Cost c. Total Variable Cost d. Average Variable Cost e. Average Total Cost f. Marginal CostDetermine the quantity that minimizes average total cost. Demonstrate that the predicted relationshi
39、p between marginal cost and average cost holds.Answer: PART (1)TFC = 4000 b.AFC Q c.TVC = TC - TFC7VC = 5Q + 10q2AVC= TVC =5 +Q Q e.a” TC 4000 + 5Q + 10Q2 AIL = = -Q QMC = 5 + 20QPART (2)ATC is minimized where MC is equal to ATC.Equating MC to ATC4000 + 5Q+10Q2=5 + 20Q4000 +5Q + 1()2 =5Q + 20Q24000
40、= 10Q2Q2 = 400Q = 20ATC is minimized at 20 units of output. Up to 20, ATC falls, while beyond 20 ATC rises.MC should be less than ATC for any quantity less than 20.For example, let Q = 10:MC = 5+ 20(10) = 205a 4000 + 5(10) + 10(10)2 “二ATC = = 50510MC is indeed less than ATC for quantities smaller th
41、an 20.MC should exceed ATC for any quantity greater than 20.For example, let Q = 25:MC = 5 + 20(25) = 505atc 4000 + 5(25) + 10(25)2 人二ATC = _L_ = 41525MC is indeed greater than ATC for quantities greater than 20.Diff: 2Section: 7.27.3 Cost in the Long Run1) In our analysis, it is best to treat capit
42、al as if it was: A) rented, even if it was purchased.B) purchased, even if it is just rented.C) purchased and also rented.D) rented first, then purchased.Answer: ADiff: 1Section: 7.32) Annual economic depreciation equals:A) the value of capital at end of year minus new investment.B) the amortization
43、 payment made annually for the purchase of an asset, spread over the life of the asset.C) the annual loss of value of buildings and machines due to deterioration.D) the change in the weighted average cost of capital, or percentage change in the components of debt and equity.Answer: BDiff: 1Section:
44、7.3Which of the following is the user cost of capital?A) implicit cost of capital + explicit cost of capitalinterest rate x value of capital 一 depreciationC) economic depreciation + (interest rate) (value of capital)D) interest rate - depreciationAnswer: CDiff: 1Section: 7.3Which of the following is
45、 the user cost of capital per dollar of capital?A) depreciation + interest ratethe user cost of capitalB) the opportunity cost of capitalall of the aboveAnswer: DDiff： 1Section: 7.3If the capital market is competitive, the user cost of capital equals:A) the rental rate of capital.B) the return in th
46、at market.C) the rate of return of investing elsewhere.D) all of the above.Answer: DDiff: 1Section: 7.3In the long run, which of the following is considered a variable cost?A) Expenditures for wagesExpenditures for research and developmentB) Expenditures for raw materialsExpenditures for capital mac
47、hinery and equipmentC) all of the aboveAnswer: EDiff： 1Section: 7.34) Which of the following statements is true regarding the differences between economic and accounting costs?A) Accounting costs include all implicit and explicit costs.B) Economic costs include implied costs only.C) Accountants consider only implicit costs when calculating costs.D) Accounting costs include only explicit costs.Answer: DDiff: 1Section: 7.1Constantine purchased 100 shares of IBM stock several years ago for $150 per