MULTIPLE CHOICE.Choose the one alternative that best completes the statement or answers the question.

1)

If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use:

1)

_______

A)

less capital and more labor.

B)

less labor and less capital.

C)

less labor and more capital.

D)

more labor and more capital.

2)

Suppose the cost function is C(Q) = 50 + Q 10Q2+ 2Q3. At 10 units of output, the average cost curve is:

2)

_______

A)

at the minimum level.

B)

in the declining stage.

C)

in the increasing stage.

D)

at the maximum level.

3)

What is the value marginal product of labor if: P = $10, MPL= $25, and APL= 40?

3)

_______

A)

$250

B)

$10,000

C)

$1,000

D)

$400

4)

Which of the following is NOT a means of acquiring product and process innovations?

4)

_______

A)

Reverse engineering

B)

Mass production of the existing product

C)

Hiring employees of innovating firms

D)

Independent research and development

5)

Suppose that production for good X is characterized by the following production function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the average fixed cost of using 81 units of capital and 9 units of labor is:

5)

_______

A)

$75.

B)

$80.

C)

$5.

D)

There is insufficient information to determine the average fixed costs.

6)

Which of the following is NOT a solution to the manager-worker principal-agent problem?

6)

_______

A)

Profit sharing

B)

Revenue sharing

C)

The threat of a takeover

D)

Time clocks and spot checks

7)

It would be undesirable to reduce the executive's compensation if her earnings are due largely to:

7)

_______

A)

the employee's demand.

B)

performance.

C)

the owner's demand.

D)

a flat fee.

8)

A spot exchange involves a market where goods are bought and sold at a:

8)

_______

A)

predetermined market price.

B)

post-determined market price.

C)

contracted market price.

D)

prevailing market price.

9)

A Herfindahl index of 10,000 suggests:

9)

_______

A)

oligopoly.

B)

monopoly.

C)

perfect competition.

D)

monopolistic competition.

10)

A firm has a marginal cost of $20 and charges a price of $40. The Lerner index for this firm is:

10)

______

A)

0.20.

B)

0.33.

C)

0.75.

D)

0.50.

11)

The causal view of an industry is that:

11)

______

A)

market performance causes firms to behave in a certain way.

B)

behavior causes firms to have a certain structure.

C)

market structure causes firms to behave in a certain way.

D)

market performance causes firms to have a certain structure.

12)

You are a manager in a perfectly competitive market. The price in your market is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q2. Hint: Marginal Cost Curve is: MC(Q) = 4 + Q. What will happen in the long run if there is no change in the demand curve?

12)

______

A)

Some firms will enter the market eventually.

B)

Some firms will leave the market eventually.

C)

There will be neither entry nor exit from the market.

D)

None of the answers is correct.

13)

You are the manager of a monopoly that faces a demand curve described by P = 63 5Q. Your costs are C = 10 + 3Q. Hint: MR = 63 - 10Q. The revenue-maximizing output is:

13)

______

A)

6.3.

B)

5.

C)

10/63.

D)

None of the answers is correct.

14)

The average product of labor depends on how many units of:

14)

______

A)

labor and capital are used.

B)

capital are used.

C)

labor are used.

D)

None of the statements is correct.

15)

The LEAST risky payment plan from the viewpoint of the worker is:

15)

______

A)

revenue sharing.

B)

piece rate.

C)

profit sharing.

D)

hourly wage.

16)

Which of the following is NOT considered a measure of firm conduct?

16)

______

A)

Advertising measures

B)

Lerner index of pricing behavior

C)

Research and development measures

D)

Dansby-Willig index

17)

Suppose that initially the price is $50 in a perfectly competitive market. Firms are making zero economic profits. Then the market demand shrinks permanently, some firms leave the industry, and the industry returns to a long-run equilibrium. What will be the new equilibrium price, assuming cost conditions in the industry remain constant?

17)

______

A)

$50

B)

$45

C)

Larger than $45, but exact value cannot be known without more information.

D)

Lower than $50, but exact value cannot be known without more information.

18)

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

18)

______

A)

The MRTS is equal to the ratio of the quantity of inputs.

B)

The marginal product per dollar spent on all inputs is equal.

C)

The marginal products of all inputs are equal.

D)

The marginal product per dollar spent on all inputs is equal and the MRTS is equal to the ratio of the quantity of inputs.

19)

Which type of compensation method works by performance bonus?

19)

______

A)

Revenue sharing

B)

Profit sharing

C)

Piece rate

D)

All of the statements associated with this question are correct.

20)

Producer and consumer surpluses are measures of:

20)

______

A)

industry performance.

B)

firm conduct.

C)

market structure.

D)

None of the answers are correct.