In the long run, the expansion path is

In the long run, the expansion path is

A) horizontal.
B) vertical.
C) diagonal.
D) Not enough information.


Answer: Not enough information.

In the short run, the expansion path is

In the short run, the expansion path is

A) horizontal.
B) vertical.
C) diagonal.
D) indeterminate.


Answer: horizontal.

Long-run average cost is never greater than short-run average cost because in the long run

Long-run average cost is never greater than short-run average cost because in the long run

A) capital costs equal zero.
B) the firm can move to the lowest possible isocost curve.
C) wages always increase over time.
D) wages always decrease over time.


Answer: the firm can move to the lowest possible isocost curve.

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits

A) economies of scale.
B) rising average costs.
C) increasing marginal costs.
D) constant returns to scale.


Answer: economies of scale.

If there are diseconomies of scale within a given range of output, which of following is(are) TRUE?

If there are diseconomies of scale within a given range of output, which of following is(are) TRUE?

A) The short-run average cost curve must be upward sloping within that range of output.
B) The long-run average cost curve must be upward sloping within that range of output.
C) Long-run average cost must equal short-run average cost.
D) All of the above.


Answer: The long-run average cost curve must be upward sloping within that range of output.

If a production function is represented as q = L^a*K^b, the long-run average cost curve will be horizontal as long as

If a production function is represented as q = L^a*K^b, the long-run average cost curve will be horizontal as long as

A) a + b = 0.
B) a + b = 1.
C) q > 0.
D) L = K.


Answer: a + b = 1.

The long run average cost curve may initially slope downward due to

The long run average cost curve may initially slope downward due to

A) decreasing average fixed costs.
B) increasing marginal returns.
C) economies of scale.
D) All of the above.


Answer: economies of scale.

Assuming that w and r are both positive, if the long-run expansion path is horizontal, then

Assuming that w and r are both positive, if the long-run expansion path is horizontal, then

A) MPK = 0.
B) MRTS is a function of capital only.
C) w = r.
D) All of the above.




Answer: MRTS is a function of capital only.

A change in relative factor prices will always result in

A change in relative factor prices will always result in

A) a change in the slope of the isoquants.
B) a tangency between the new isocost line and a new isoquant.
C) a rotation of the isocost lines.
D) All of the above.


Answer: a rotation of the isocost lines.

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

Suppose that capital and labor must be kept in a fixed proportion to produce a particular good. For example, digging a trench requires one worker who has one shovel. What does this imply about returns to scale?

A) There are constant returns to scale.
B) There are increasing returns to scale.
C) There are decreasing returns to scale.
D) Nothing.



Answer: There are constant returns to scale.

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely

The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely

A) economies of scale.
B) economies of scope.
C) constant returns to scale.
D) increasing returns to scale.


Answer: constant returns to scale

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, the firm will experience

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, the firm will experience

A) increasing returns to scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) The returns to scale cannot be determined from the information provided.


Answer: constant returns to scale.

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in

Suppose that each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the long run, an increase in the price of shovels will result in

A) fewer shovels being purchased to produce the same number of trenches.
B) more workers being hired to produce the same number of trenches.
C) the firm wishing to produce more trenches.
D) no change in the firm's input mix.


Answer: no change in the firm's input mix.

Suppose MPL = 0.5 (q/L) and MPK = 0.5 (q/K). In the long run, the firm will hire equal amounts of capital and labor

Suppose MPL = 0.5 (q/L) and MPK = 0.5 (q/K). In the long run, the firm will hire equal amounts of capital and labor

A) all of the time.
B) only when w = r.
C) only when w = 0.5 * r.
D) at no point in time.


Answer: only when w = r.

If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital in dollars?

If the marginal rate of technical substitution for a cost minimizing firm is 10, and the wage rate for labor is $5, what is the rental rate for capital in dollars?

A) .5
B) 1
C) 2
D) 10


Answer: 0.5

If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will

If the isoquants are straight lines or L-shaped, then a cost-minimizing firm will

A) not be able to minimize costs.
B) find the lowest isocost line touching the relevant isoquant.
C) find the highest isocost line touching the relevant isoquant.
D) choose not to produce any output.


Answer: find the lowest isocost line touching the relevant isoquant.

If the cost of labor increases the isocost line will

If the cost of labor increases the isocost line will

A) stay the same.
B) shift outward in parallel fashion.
C) rotate inward around the point where only capital is employed in production.
D) shift inward in parallel fashion


Answer: rotate inward around the point where only capital is employed in production.

When the isocost line is tangent to the isoquant, then

When the isocost line is tangent to the isoquant, then

A) MPL = MPK.
B) the firm is producing that level of output at minimum cost.
C) the firm has achieved the right economies of scale.
D) All of the above.


Answer: the firm is producing that level of output at minimum cost.

A firm can minimize cost by

A firm can minimize cost by

A) picking the bundle of inputs where the lowest isocost line touches the isoquant.
B) picking the bundle of inputs where the isoquant is tangent to the isocost line.
C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input.
D) All of the above.


Answer: All of the above.

When the isocost line is tangent to the isoquant, then

When the isocost line is tangent to the isoquant, then

A) MRTS = -w/r.
B) the firm is producing that level of output at minimum cost.
C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor.
D) All of the above.


Answer: All of the above.

If an isocost line crosses the isoquant twice, a cost minimizing firm will

If an isocost line crosses the isoquant twice, a cost minimizing firm will

A) use a different isocost line to select the bundle of inputs.
B) use the input bundle associated with the intersection on the higher point of the isoquant.
C) use the input bundle associated with the intersection on the lower point of the isoquant.
D) Both B and C.


Answer: use a different isocost line to select the bundle of inputs

The slope of the isoquant tells the firm how much

The slope of the isoquant tells the firm how much

A) output increases when labor increases by one unit.
B) output increases when capital and labor are doubled.
C) capital must decrease to keep output constant when labor increases by one unit.
D) a unit of capital costs relative to the cost of labor.


Answer: capital must decrease to keep output constant when labor increases by one unit.

Which of the following does NOT represent a possible shape of the long-run average cost curve?

Which of the following does NOT represent a possible shape of the long-run average cost curve?

A) downward-sloping
B) upward-sloping
C) U-shaped
D) vertical


Answer: vertical

The slope of the isocost line tells the firm how much

The slope of the isocost line tells the firm how much

A) capital must be reduced to keep total cost constant when hiring one more unit of labor.
B) capital must be increased to keep total cost constant when hiring one more unit of labor.
C) more expensive a unit of capital costs relative a unit of labor.
D) the isocost curve will shift outward if the firm wishes to produce more.


Answer: capital must be reduced to keep total cost constant when hiring one more unit of labor.

In the long run, fixed costs are

In the long run, fixed costs are

A) sunk.
B) avoidable.
C) larger than in the short run.
D) not included in production decisions.


Answer: avoidable.

Assume Congress decides that Social Security taxes must increase in order to fund the system. This would

Assume Congress decides that Social Security taxes must increase in order to fund the system. This would 

A) shift up the marginal cost curve for any firms that hire labor.
B) guarantee a decrease in profits.
C) shift up the average fixed cost curve for any firms that hire labor.
D) guarantee an increase in tax revenues.


Answer: shift up the marginal cost curve for any firms that hire labor.

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced. This would

Assume Congress decides that oil companies are making too much profit and decides to increase the tax on oil companies for each gallon of gasoline produced. This would 

A) guarantee a decrease in profits.
B) guarantee an increase in profits.
C) guarantee an increase in tax revenues.
D) None of the above.


Answer: None of the above.

Assume Congress decides that oil companies are making too much profit and decides to tax oil companies for each gallon of gasoline produced. This would

Assume Congress decides that oil companies are making too much profit and decides to tax oil companies for each gallon of gasoline produced. This would 

A) shift the marginal cost curve up.
B) shift the marginal cost curve down.
C) shift the average fixed cost curve up.
D) shift the average fixed cost curve down.


Answer: shift the marginal cost curve up.

A firm's cost curve is determined by

A firm's cost curve is determined by

A) congressional laws.
B) whether the firm hires engineers or not.
C) natural laws.
D) the firm's production function


Answer: the firm's production function

Marginal cost is

Marginal cost is

A) positive or zero.
B) negative or zero.
C) positive or negative but not zero.
D) positive, negative, or zero.


Answer: positive or zero.

A specific tax of $1 per unit of output will affect a firm's

A specific tax of $1 per unit of output will affect a firm's

A) average total cost, average variable cost, average fixed cost, and marginal cost.
B) average total cost, average variable cost, and average fixed cost.
C) average total cost, average variable cost, and marginal cost.
D) marginal cost only.


Answer: average total cost, average variable cost, and marginal cost.

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

Which of the following will cause the average fixed cost curve of making cigarettes to shift?

A) A $5 million penalty charged to each cigarette maker.
B) A $1 per pack tax on cigarettes.
C) A $3 per hour wage increase.
D) An increase in the demand for cigarettes.


Answer: A $5 million penalty charged to each cigarette maker.

Which of the following will cause the average cost curve of making cigarettes to shift?

Which of the following will cause the average cost curve of making cigarettes to shift?

A) A $5 million penalty charged to each cigarette maker.
B) A $1 per pack tax on cigarettes.
C) A $1 an hour wage increase paid to all cigarette production workers.
D) All of the above.


Answer: All of the above.

Which of the following will cause the marginal cost curve of making cigarettes to shift?

Which of the following will cause the marginal cost curve of making cigarettes to shift?

A) A $5 million penalty charged to each cigarette maker.
B) A $1 per pack tax on cigarettes.
C) A $1 million advertising campaign by the American Cancer Society.
D) All of the above.


Answer: A $1 per pack tax on cigarettes.

Suppose each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the short run, an increase in the price of shovels will result in

Suppose each worker must use only one shovel to dig a trench, and shovels are useless by themselves. In the short run, an increase in the price of shovels will result in

A) fewer shovels being purchased.
B) more workers being hired.
C) a decrease in the firm's output.
D) no change in the firm's output.


Answer: no change in the firm's output.

If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output

If a particular production process is subject to diminishing marginal returns to labor at every level of output, then at every level of output

A) AC is upward sloping.
B) MC exceeds AVC.
C) AFC is constant.
D) None of the above



Answer: None of the above

If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

If the average cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

A) AFC is falling.
B) AVC is rising.
C) MC > AVC.
D) All of the above.


Answer: All of the above.

If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

If the marginal cost of producing a good is increasing as a firm produces more of the good, then which of the following must be TRUE?

A) AFC is rising.
B) AVC is rising.
C) MC > AVC.
D) MPL is falling.


Answer: MPL is falling.

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

In the short run, the point at which diminishing marginal returns to labor begin is the point at which the marginal cost curve

A) peaks.
B) bottoms out.
C) is upward sloping.
D) is downward sloping.


Answer: bottoms out.

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AFC equals

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AFC equals

A) 0.
B) 1.
C) 10/q.
D) It cannot be determined from the information provided.


Answer: It cannot be determined from the information provided.

Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?

Suppose the short-run production function is q = L0.5. If the marginal cost of producing the tenth unit is $5, what is the wage per unit of labor?

A) $1
B) $0.5
C) $0.25
D) It cannot be determined without more information.


Answer: $0.25

If average cost is positive

If average cost is positive

A) marginal cost equals average cost.
B) marginal cost exceeds average cost.
C) marginal cost is less average cost.
D) Not enough information is given.


Answer: Not enough information is given.

If average cost is decreasing

If average cost is decreasing

A) marginal cost equals average cost.
B) marginal cost exceeds average cost.
C) marginal cost is less than average cost.
D) Not enough information


Answer: marginal cost is less than average cost.

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then MC equals

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then MC equals

A) q.
B) q/10.
C) 10/q.
D) 1.


Answer: 1.

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AVC equals

Suppose the short-run production function is q = 10 * L. If the wage rate is $10 per unit of labor, then AVC equals

A) q.
B) q/10.
C) 10/q.
D) 1.


Answer: 1.

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

Suppose the total cost of producing T-shirts can be represented as TC = 50 + 2q. Which of the following statements is TRUE at all levels of production?

A) MC = AVC
B) MC = AC
C) MC > AFC
D) All of the above.


Answer: MC = AVC

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will

Suppose a firm can only vary the quantity of labor hired in the short run. An increase in the cost of capital will

A) increase the firm's marginal cost.
B) decrease the firm's marginal cost.
C) have no effect on the firm's marginal cost.
D) More information is needed to answer the question.


Answer: have no effect on the firm's marginal cost.

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

Joey's Lawncutting Service rents office space from Joey's dad for $300 per month. Joey's dad is thinking of increasing the rent to $400 per month. As a result Joey's marginal cost of cutting grass will

A) increase by $100 divided by the amount of grass cut.
B) increase by $100.
C) decrease by $100.
D) not change.


Answer: not change.

Which of the following statements is NOT true?

Which of the following statements is NOT true? 

A) AC = AFC + AVC
B) C = F + VC
C) AVC = wage/MPL
D) AFC = AC - AVC


Answer: AVC = wage/MPL

Fixed costs are

Fixed costs are

A) a production expense that does not vary with output.
B) a production expense that changes with the quantity of output produced.
C) equal to total cost divided by the units of output produced.
D) the amount by which a firm's cost changes if the firm produces one more unit of output.


Answer: a production expense that does not vary with output.

A firm's marginal cost can always be thought of as the change in total cost if

A firm's marginal cost can always be thought of as the change in total cost if

A) the firm produces one more unit of output.
B) the firm buys one more unit of capital.
C) the firm's average cost increases by $1.
D) the firm moves to the next highest isoquant.


Answer: the firm produces one more unit of output.

Why might a police officer not pull over someone speeding two miles over the speed limit?

Why might a police officer not pull over someone speeding two miles over the speed limit?

A) The explicit costs of stopping the driver over are too high.
B) The opportunity costs of stopping the driver are too high.
C) The opportunity costs of topping he driver are too low.
D) The explicit costs of stopping the driver are too low.


Answer: The opportunity costs of stopping the driver are too high.

If Option A costs $40 and yields 20 units of output and Option B costs $50 and yields 30 units of output

If Option A costs $40 and yields 20 units of output and Option B costs $50 and yields 30 units of output

A) Option B and Option A are equally economically efficient.
B) Option B is economically efficient relative to Option A.
C) Option A is economically efficient relative to Option B.
D) It is not possible to determine which option is more economically efficient.


Answer: It is not possible to determine which option is more economically efficient.

Economic efficiency entails

Economic efficiency entails

A) producing a given amount of output with the most expensive mix of inputs.
B) producing a given amount of output with the least number of inputs.
C) producing a given amount of output with the most inputs.
D) producing a given amount of output with the cheapest mix of inputs.


Answer: producing a given amount of output with the cheapest mix of inputs.

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

If a firm buys a building so as to have office space for its workers, the monthly opportunity cost of the building is best measured as

A) the monthly mortgage payment the firm must pay.
B) the price the firm paid divided by twelve.
C) zero.
D) the rent the firm could earn if it rented the building to another firm.


Answer: the rent the firm could earn if it rented the building to another firm.

Economists proclaim that competitive firms make zero economic profit in the long run. This shows how

Economists proclaim that competitive firms make zero economic profit in the long run. This shows how

A) detached economists are from the real world.
B) unrealistic economic theory is.
C) firms cover all their cost, both monetary and non-monetary.
D) firms cover only monetary cost when economic profits are zero


Answer: firms cover all their cost, both monetary and non-monetary.

Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents

Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents

A) the opportunity cost of this endeavor.
B) a sunk cost.
C) an expense.
D) a variable cost.


Answer: a sunk cost.

The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

The Nifty Gum Co. has purchased a large parcel of land for $1 million. The company recently discovered that the land is contaminated and is worthless to all possible buyers. The opportunity cost of the land is

A) $0.
B) $1 million.
C) some amount greater than $0 but less than $1 million.
D) equal to the cost of the factory that was planned to be built there.


Answer: $0.

Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is

Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this job to work full time in her own business. She will invest her savings of $50,000 (which currently has an annual 10% rate of return) into the business. Her annual opportunity cost of this new business is

A) $0.
B) $40,000.
C) $45,000.
D) $90,000


Answer: $45,000.

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

The cost of waiting two months for health care to address a debilitating problem in Canada is most accurately described as

A) an explicit cost.
B) an accounting cost.
C) no real cost.
D) an opportunity cost.


Answer: an opportunity cost.

Economic costs of an input include

Economic costs of an input include

A) only implicit costs.
B) only explicit costs.
C) both implicit and explicit costs.
D) whatever management wishes to report to the shareholders.


Answer: both implicit and explicit costs

If the food stamp program in the United States moved from coupons redeemable for food to cash payments

If the food stamp program in the United States moved from coupons redeemable for food to cash payments 

A) everyone would buy less food and more of other goods.
B) everyone would buy more food and less of other goods.
C) some people might buy less food and obtain a higher level of utility.
D) some people might buy less food and obtain a lower level of utility.


Answer: some people might buy less food and obtain a higher level of utility.

Cash may be preferred to food stamps because additional cash

Cash may be preferred to food stamps because additional cash

A) rotates the budget constraint.
B) shifts out the budget constraint at every point.
C) provides a smaller opportunity set.
D) allows the purchase of more food


Answer: shifts out the budget constraint at every point.

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. Which of the following best describes Max's preferences?

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. Which of the following best describes Max's preferences?

A) d > b > e
B) d = b = e
C) a = b > c
D) a = b > e


Answer: a = b > e

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. What happens if Max receives a $100 cash grant to buy either meat or chicken?

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. What happens if Max receives a $100 cash grant to buy either meat or chicken?

A) Max will double his consumption of both meats.
B) Max will spend it all on burger. Because of its lower price, he can buy more of it.
C) Max will take advantage of the gift by buying all chicken because it is the more expensive meat.
D) There is not enough information to answer the question.


Answer: There is not enough information to answer the question.

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. What happens if Max's mother gives him 10 pounds of burger?

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. What happens if Max's mother gives him 10 pounds of burger?

A) Max would have preferred receiving the dollar value of the burger.
B) Max is indifferent between this gift and the dollar value of the burger.
C) Max prefers this gift to the dollar value of the burger.
D) None of the above.


Answer: Max is indifferent between this gift and the dollar value of the burger.

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. If the price of burger increases,

Max has allocated $100 toward meats for his barbecue. His budget line and an indifference map are shown in the above figure. If the price of burger increases,

A) Max will buy less burger and more chicken.
B) Max will buy less burger and the same quantity of chicken.
C) Max will buy less of both meats.
D) More information is needed to answer the question.


Answer: More information is needed to answer the question.

Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will

Johnny has allocated $30 toward coffee and tea and feels that coffee and tea are perfect substitutes. Due to differences in caffeine levels, his MRS of tea for coffee equals 2. If coffee and tea sell for the same price, Johnny will

A) spend all $30 on tea.
B) spend all $30 on coffee.
C) spend $20 on coffee and $10 on tea.
D) be indifferent between any bundle of coffee and tea costing $30.


Answer: spend all $30 on coffee.

With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that

With respect to consuming food and shelter, two consumers face the same prices and both claim to be in equilibrium. We therefore know that

A) they both have the same marginal utility for food.
B) they both have the same marginal utility for shelter.
C) they both have the same MRS of food for shelter.
D) All of the above.


Answer: they both have the same MRS of food for shelter.

By selecting a bundle where MRS = MRT, the consumer is

By selecting a bundle where MRS = MRT, the consumer is

A) achieving a corner solution.
B) reaching the highest possible indifference curve she can afford.
C) not behaving in an optimal way.
D) All of the above.


Answer: reaching the highest possible indifference curve she can afford.

The consumer is in equilibrium when

The consumer is in equilibrium when

A) MRT = MRS.
B) Px/Py = MUx/MUy.
C) the budget line is tangent to the indifference curve at the bundle chosen.
D) All of the above.


Answer: All of the above.

Economists assume consumers select a bundle of goods that maximizes their well-being subject to

Economists assume consumers select a bundle of goods that maximizes their well-being subject to

A) their budget constraint.
B) their income.
C) relative prices.
D) their marginal rate of substitution.


Answer: their budget constraint.

What is the intuition that an expansion of an individual's budget set represents a gain?

What is the intuition that an expansion of an individual's budget set represents a gain?

A) More options are preferred to less.
B) Money is the root of all happiness.
C) Information is power.
D) Scarcity is avoidable with prosperity.


Answer: More options are preferred to less.

If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S, we know that

If a consumer's budget line for food (F) and shelter (S) is represented as F = 250 - 5S, we know that

A) the consumer's income is 250.
B) the price of shelter is 5.
C) the price of shelter is 5 times the price of food.
D) All of the above.


Answer: the price of shelter is 5 times the price of food.

If both prices decreases by 50%

If both prices decreases by 50% 

A) budget constraint will be unchanged.
B) slope of the budget constraint will increase.
C) slope of the budget constraint will decrease.
D) budget constraint will shift outward in a parallel fashion.


Answer: budget constraint will shift outward in a parallel fashion.

If both prices increases by 50%

If both prices increases by 50% 

A) budget constraint will be unchanged.
B) slope of the budget constraint stay the same.
C) slope of the budget constraint will decrease.
D) budget constraint will shift outward in a parallel fashion.


Answer: slope of the budget constraint stay the same.

A consumer buys food (F) and shelter (S). If the consumer's income rises and there is no change in the prices of F or S, the marginal rate of transformation of F for S will

A consumer buys food (F) and shelter (S). If the consumer's income rises and there is no change in the prices of F or S, the marginal rate of transformation of F for S will

A) increase.
B) decrease.
C) stay the same.
D) change, but there is not enough information to know how.



Answer: stay the same.

If the consumer's income increases while the prices of both goods remain unchanged, what will happen to the budget line?

If the consumer's income increases while the prices of both goods remain unchanged, what will happen to the budget line?

A) The budget line rotates inward from the intercept on the horizontal axis.
B) The budget line rotates outward from the intercept on the vertical axis.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.


Answer: The budget line shifts outward without a change in slope.

Lisa eats both pizzas and burritos. If the price of a pizza increases, Lisa's opportunity set

Lisa eats both pizzas and burritos. If the price of a pizza increases, Lisa's opportunity set

A) becomes larger.
B) becomes smaller.
C) is unchanged.
D) cannot be determined without more information


Answer: becomes smaller.

If the price of one good increases while the price of the other good and the consumer's income remain unchanged, what will happen to the budget line?

If the price of one good increases while the price of the other good and the consumer's income remain unchanged, what will happen to the budget line?

A) The budget line rotates inward from the intercept on the axis of the good that did not change in price.
B) The budget line rotates outward from the intercept on the axis of the good that did not change in price.
C) The budget line shifts inward without a change in slope.
D) The budget line shifts outward without a change in slope.


Answer: The budget line rotates inward from the intercept on the axis of the good that did not change in price.

Betty consumes good x and good y. If the price of x = $3 and the price of y = $4, then

Betty consumes good x and good y. If the price of x = $3 and the price of y = $4, then

A) an extra unit of x costs 4/3 units of y.
B) an extra unit of y costs 4/3 units of x.
C) an extra unit of x costs 3/4 units of y.
D) Both B and C.


Answer: Both B and C.

The rate at which a consumer must give up y to get one more x is equal to

The rate at which a consumer must give up y to get one more x is equal to

A) -Px/Py.
B) -Py/Px.
C) -MUx/MUy.
D) MUy/MUx


Answer: -Px/Py.

The marginal rate of transformation of y for x represents

The marginal rate of transformation of y for x represents

A) the slope of the budget constraint.
B) the rate at which the consumer must give up x to get one more y.
C) -Py/Px.
D) All of the above.



Answer: the slope of the budget constraint.

The marginal rate of transformation of y for x represents

The marginal rate of transformation of y for x represents

A) the slope of the budget constraint.
B) the rate at which the consumer must give up y to get one more x.
C) -Px/Py.
D) All of the above.


Answer: All of the above.

Joe's income is $500, the price of food (F) is $2, and the price of shelter (S) is $100. Which of the following bundles is in Joe's opportunity set?

Joe's income is $500, the price of food (F) is $2, and the price of shelter (S) is $100. Which of the following bundles is in Joe's opportunity set?

A) 50 units of food, 5 units of shelter
B) 200 units of food, 2 units of shelter
C) 100 units of food, 1 unit of shelter
D) 150 units of food, 3 units of shelter


Answer: 100 units of food, 1 unit of shelter

Joe's budget constraint equals 500 = 2F + 100S, where $500 is Joe's income, $2 is the price of food (F) and $100 is the price of shelter (S). How much food can Joe buy if he buys one unit of shelter?

Joe's budget constraint equals 500 = 2F + 100S, where $500 is Joe's income, $2 is the price of food (F) and $100 is the price of shelter (S). How much food can Joe buy if he buys one unit of shelter?

A) 2 units
B) 200 units
C) 250 units
D) 400 units


Answer: 200 units

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?

A) 500 = 100F + 2S
B) 500 = 2F + 100S
C) S = 500 - 2F
D) All of the above.


Answer: 500 = 2F + 100S

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his marginal rate of transformation of food for shelter?

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his marginal rate of transformation of food for shelter?

A) -5
B) -50
C) -.02
D) None of the above.


Answer: -50

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?

Joe's income is $500, the price of food (F) is $2 per unit, and the price of shelter (S) is $100. Which of the following represents his budget constraint?

A) 500 = 2F + 100S
B) F = 250 - 50S
C) S = 5 - .02F
D) All of the above.


Answer: All of the above.

If two bundles are on the same indifference curve, then

If two bundles are on the same indifference curve, then

A) the consumer derives the same level of utility from each.
B) the consumer derives the same level of ordinal utility from each but not the same level of cardinal utility.
C) no comparison can be made between the two bundles since utility cannot really be measured.
D) the MRS between the two bundles equals one.


Answer: the consumer derives the same level of utility from each.

Utility is the set of numerical values that

Utility is the set of numerical values that

A) yields an absolute level of pleasure from a bundle of goods.
B) reflects the relative ranking of various bundles of goods.
C) describes how much more a consumer prefers one bundle to another.
D) yields a cardinal ranking of bundles


Answer: reflects the relative ranking of various bundles of goods.

Why might someone respond with "I don't care" to the general question "Where do you want to eat?"

Why might someone respond with "I don't care" to the general question "Where do you want to eat?"

A) The individual does not have two options to compare.
B) The individual is not able to compare all restaurants in the area.
C) The individual is lazy and won't compare all restaurants in the area.
D) The individual has no preferences.


Answer: The individual does not have two options to compare.

If two goods are perfect substitutes, then the indifference curves for those two goods would be

If two goods are perfect substitutes, then the indifference curves for those two goods would be

A) upward sloping and concave to the origin.
B) downward sloping and convex to the origin.
C) downward sloping and straight.
D) L-shaped.


Answer: downward sloping and straight.

Diminishing marginal rate of substitution can be seen when indifference curves

Diminishing marginal rate of substitution can be seen when indifference curves

A) cross.
B) are convex.
C) are downward sloping.
D) become flatter as we move down and to the right.


Answer: become flatter as we move down and to the right.

Convexity of indifference curves implies that consumers are willing to

Convexity of indifference curves implies that consumers are willing to

A) give up more "y" to get an extra "x" the more "x" they have.
B) give up more "y" to get an extra "x" the less "x" they have.
C) settle for less of both "x" and "y".
D) acquire more "x" only if they do not have to give up any "y".


Answer: give up more "y" to get an extra "x" the less "x" they have.

A consumer's willingness to trade one good for another can be expressed by the consumer's

A consumer's willingness to trade one good for another can be expressed by the consumer's

A) indifference curve.
B) marginal rate of substitution.
C) Both A and B above.
D) None of the above.


Answer: Both A and B above.

Indifference curves are downward sloping because of the assumption of

Indifference curves are downward sloping because of the assumption of

A) completeness.
B) transitivity.
C) more is better.
D) All of the above.


Answer: more is better.

There is an indifference curve through every bundle because of the assumption of

There is an indifference curve through every bundle because of the assumption of

A) transitivity.
B) completeness.
C) rationality.
D) nonsatiation.


Answer: completeness.

The principle that "More is better" results in indifference curves

The principle that "More is better" results in indifference curves

A) sloping down.
B) not intersecting.
C) reflecting greater preferences the further they are from the origin.
D) All of the above.


Answer: All of the above.

An indifference curve represents bundles of goods that a consumer

An indifference curve represents bundles of goods that a consumer

A) views as equally desirable.
B) ranks from most preferred to least preferred.
C) refers to any other bundle of goods.
D) All of the above.


Answer: views as equally desirable.

In the apparel and textile products industry, it is estimated that the elasticity of output with respect to labor is 0.70 and the elasticity of output with respect to capital is 0.31. These two measures indicate that the primary metals industry is most closely characterized by

In the apparel and textile products industry, it is estimated that the elasticity of output with respect to labor is 0.70 and the elasticity of output with respect to capital is 0.31. These two measures indicate that the primary metals industry is most closely characterized by

A) weak decreasing returns to scale.
B) nearly constant returns to scale.
C) strong increasing returns to scale.
D) no returns to scale.


Answer: nearly constant returns to scale.

In the food and kindred products industry, it is estimated that the elasticity of output with respect to labor is 0.43 and the elasticity of output with respect to capital is 0.48. These two measures indicate that the primary metals industry is characterized by

In the food and kindred products industry, it is estimated that the elasticity of output with respect to labor is 0.43 and the elasticity of output with respect to capital is 0.48. These two measures indicate that the primary metals industry is characterized by

A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) no returns to scale.


Answer: decreasing returns to scale.

In the Primary Metals industry, it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73. These two measures indicate that the primary metals industry is characterized by

In the Primary Metals industry, it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73. These two measures indicate that the primary metals industry is characterized by

A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) no returns to scale.


Answer: increasing returns to scale.

One reason "micro-managers" might be less successful than so-called "delegators"?

One reason "micro-managers" might be less successful than so-called "delegators"?

A) Delegators are smarter.
B) Delegators enjoy increasing returns to scale.
C) Micro-managers suffer decreasing returns to scale
D) Micro-managers have constant returns to scale.


Answer: Micro-managers suffer decreasing returns to scale

If a farmer produces 1000 bushels of corn using ten acres of land and one tractor and is able to produce 2000 bushels of corn using twenty acres of land and one tractor, the farmer has

If a farmer produces 1000 bushels of corn using ten acres of land and one tractor and is able to produce 2000 bushels of corn using twenty acres of land and one tractor, the farmer has

A) increasing returns to scale.
B) constant returns to scale.
C) decreasing returns to scale.
D) no returns to scale.


Answer: increasing returns to scale.

The returns to scale of the production function Q = 50 L0.4 K0.2 are

The returns to scale of the production function Q = 50 L0.4 K0.2 are

A) 50.
B) .6.
C) .8.
D) 500.6.


Answer: .6.

The above figure shows the isoquants for producing steel. Decreasing returns to scale are

The above figure shows the isoquants for producing steel. Decreasing returns to scale are

A) present when producing more than 10,000 tons.
B) present when producing more than 20,000 tons.
C) present when producing more than 30,000 tons.
D) never present.


Answer: present when producing more than 20,000 tons.

The above figure shows the isoquants for producing steel. Increasing returns to scale are

The above figure shows the isoquants for producing steel. Increasing returns to scale are

A) present when producing less than 10,000 tons.
B) present when producing less than 20,000 tons.
C) present when producing less than 30,000 tons.
D) never present.


Answer: present when producing less than 10,000 tons.

Returns to scale is a concept that operates

Returns to scale is a concept that operates

A) only in the short run.
B) only in the long run.
C) in both the long run and the short run.
D) in either the long run or the short run but never both.


Answer: only in the long run.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. The firm currently produces q units. If all inputs doubled, the new level of output will equal

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. The firm currently produces q units. If all inputs doubled, the new level of output will equal

A) 2^0.4 q1.
B) 2^0.8 q1.
C) 0.8 q1.
D) 1.6 q1.


Answer: 2^0.8 q1.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is TRUE?

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is TRUE?

A) The production function has decreasing returns to scale.
B) The production function has increasing returns to scale.
C) The production function has constant returns to scale.
D) Returns to scale vary with the level of output.


Answer: The production function has decreasing returns to scale.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is (are) TRUE?

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is (are) TRUE?

A) The production function has decreasing returns to scale.
B) The marginal productivity of labor falls as labor increases in the short run.
C) Capital and labor can be substituted for one another.
D) All of the above.


Answer: All of the above.

Let the production function be q=AL^a*K^b. The function exhibits constant returns to scale if

Let the production function be q=AL^a*K^b. The function exhibits constant returns to scale if

A) a + b = 1.
B) a + b > 1.
C) a + b < 1.
D) Cannot be determined with the information given.


Answer: a + b = 1.

Let the production function be q=AL^a*K^b. The function exhibits decreasing returns to scale if

Let the production function be q=AL^a*K^b. The function exhibits decreasing returns to scale if

A) a + b = 1.
B) a+ b > 1.
C) a + b < 1.
D) Cannot be determined with the information given.


Answer: a + b < 1.

Let the production function be q=AL^a*K^b. The function exhibits increasing returns to scale if

Let the production function be q=AL^a*K^b. The function exhibits increasing returns to scale if

A) a + b = 1.
B) a + b > 1.
C) a + b < 1.
D) Cannot be determined with the information given.


Answer: a + b > 1.

Let the production function be q=AL^a*K^b. Returns to scale are equal to

Let the production function be q=AL^a*K^b. Returns to scale are equal to

A) a * b.
B) a + b.
C) La + Kb.
D) A * L.


Answer: a + b.

The table in the above figure shows the levels of output resulting from different levels of inputs. Which of the following conclusions can be drawn from this information?

The table in the above figure shows the levels of output resulting from different levels of inputs. Which of the following conclusions can be drawn from this information?

A) Increasing returns to scale exist between 100 and 200 units of output.
B) Constant returns to scale exist throughout all levels of production.
C) Labor is subject to diminishing marginal productivity in the short run.
D) No firm conclusions can be drawn.


Answer: Increasing returns to scale exist between 100 and 200 units of output.

Decreasing returns to scale may occur as increasing the amount of inputs used

Decreasing returns to scale may occur as increasing the amount of inputs used

A) increases specialization.
B) always increases the amount of output produced.
C) may cause coordination difficulties.
D) increases efficiency.


Answer: may cause coordination difficulties.

Returns to scale refers to the change in output when

Returns to scale refers to the change in output when

A) all inputs increase proportionately.
B) labor increases holding all other inputs fixed.
C) capital equipment is doubled.
D) specialization improves.


Answer: all inputs increase proportionately.

The marginal rate of technical substitution always equals

The marginal rate of technical substitution always equals

A) the slope of the total product curve.
B) minus the ratio of the marginal products of inputs.
C) the change in output due to a change in the amount of one input.
D) the distance between two isoquants.


Answer: minus the ratio of the marginal products of inputs.

With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that

With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that

A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive.


Answer: capital is not productive.

The steeper an isoquant is

The steeper an isoquant is

A) the greater is the marginal productivity of labor relative to that of capital.
B) the greater is the substitutability between capital and labor.
C) the greater is the need to keep capital and labor in fixed proportions.
D) the greater is the level of output.


Answer: the greater is the marginal productivity of labor relative to that of capital

The slope of an isoquant tells us

The slope of an isoquant tells us

A) how much output increases when both inputs are increased.
B) the increase in MPL when capital increases.
C) the decrease in capital necessary to keep output constant when labor increases by one unit.
D) the decrease in capital necessary to keep MPL constant when labor increases by one unit.


Answer: the decrease in capital necessary to keep output constant when labor increases by one unit.

Isoquants that are downward-sloping straight lines exhibit

Isoquants that are downward-sloping straight lines exhibit

A) an increasing marginal rate of technical substitution.
B) a decreasing marginal rate of technical substitution.
C) a constant marginal rate of technical substitution.
D) a marginal rate of technical substitution that cannot be determined.


Answer: a constant marginal rate of technical substitution.

Isoquants that are downward-sloping straight lines imply that the inputs

Isoquants that are downward-sloping straight lines imply that the inputs

A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.


Answer: are perfect substitutes.

L-shaped isoquants imply that production requires that the inputs

L-shaped isoquants imply that production requires that the inputs

A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.


Answer: must be used together in a certain proportion.

Suppose the production of paved roadways can be represented as q = L0.5 + K0.5. Which of the following statements is (are) TRUE?

Suppose the production of paved roadways can be represented as q = L0.5 + K0.5. Which of the following statements is (are) TRUE?

A) Labor is subject to diminishing marginal productivity in the short run.
B) Labor and capital are imperfect substitutes.
C) The isoquants for paved roadways are convex.
D) All of the above.


Answer: All of the above.

An isoquant represents levels of capital and labor that

An isoquant represents levels of capital and labor that

A) have constant marginal productivity.
B) yield the same level of output.
C) incur the same total cost.
D) All of the above.


Answer: yield the same level of output.

One way to explain the convexity of isoquants is to say that

One way to explain the convexity of isoquants is to say that

A) as labor increases and capital decreases, MPL rises while MPK falls.
B) as labor increases and capital decreases, MPL falls while MPK rises.
C) as labor increases and capital decreases, MPL and MPK both fall.
D) as labor increases and capital decreases, MPL and MPK both rise.


Answer: as labor increases and capital decreases, MPL falls while MPK rises.

To say that isoquants are convex is to say that

To say that isoquants are convex is to say that

A) the marginal rate of technical substitution falls as labor increases.
B) capital and labor are perfect substitutes.
C) labor, but not capital, is subject to the law of diminishing marginal returns.
D) there are constant returns to scale.


Answer: the marginal rate of technical substitution falls as labor increases.

In general,

In general,

A) the marginal product curve never intersects the average product curve.
B) the marginal product curve "chases" the average product curve.
C) the average product curve "chases" the marginal product curve.
D) the average product curve is identical to the marginal product curve.


Answer: the average product curve "chases" the marginal product curve.

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is most accurate?

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is most accurate?

A) Applicant B has a marginal product of 75 units.
B) Applicant B has an average product of 77.5 units.
C) Applicant A has a marginal product of 75 units.
D) Applicant A has an average product of 87.5 units.


Answer: Applicant A has a marginal product of 75 units.

At any given point on the curve, the slope of the total product curve always equals

At any given point on the curve, the slope of the total product curve always equals

A) the ratio of the marginal product and the average product.
B) the change in input divided by the change in output.
C) the average product of the input.
D) the marginal product of the input


Answer: the marginal product of the input

Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 * L. Which of the following statements is FALSE?

Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 * L. Which of the following statements is FALSE?

A) Joey's marginal productivity equals his average productivity.
B) Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
C) Joey's average productivity is constant.
D) Joey's marginal productivity is constant.


Answer: Joey's marginal productivity diminishes by 0.2 for each additional hour worked.

If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor

If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor

A) is constant.
B) equals the marginal productivity of labor.
C) Both A and B above.
D) Either A or B above but not both.


Answer: Both A and B above.

Average productivity will fall as long as

Average productivity will fall as long as

A) marginal productivity is falling.
B) it exceeds marginal productivity.
C) it is less than marginal productivity.
D) the number of workers is increasing


Answer: it exceeds marginal productivity.

If the average productivity of labor equals the marginal productivity of labor, then

If the average productivity of labor equals the marginal productivity of labor, then

A) the average productivity of labor is at a maximum.
B) the marginal productivity of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.


Answer: the average productivity of labor is at a maximum.

The above figure shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor

The above figure shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor

A) for all levels of labor.
B) at none of the levels of labor.
C) only for the first worker.
D) only for the fifth worker.


Answer: only for the first worker.

A production function tells the firm

A production function tells the firm

A) the maximum it can expect to produce with a given mix of inputs.
B) the average it can expect to produce with a given mix of inputs.
C) the minimum it can expect to produce with a given mix of inputs.
D) the average level of production for other firms in the industry.


Answer: the maximum it can expect to produce with a given mix of inputs.

Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?

Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey?

A) Joey's friends say they will help him, but when he calls them, they say they have other things to do.
B) When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.
C) Some customers pay Joey immediately; others wait till the following week.
D) Joey has had to turn away some customers because he is already too busy.


Answer: When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.

Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to

Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to

A) the amount of time it takes to acquire more customers.
B) the amount of time it takes to hire an additional employee.
C) the amount of time it takes to hire an additional employee and buy another lawn mower.
D) the amount of time it takes to mow one lawn.


Answer: the amount of time it takes to hire an additional employee and buy another lawn mower.

In the long run, all factors of production are

In the long run, all factors of production are

A) variable.
B) fixed.
C) materials.
D) rented.


Answer: variable.

With respect to production, the short run is best defined as a time period

With respect to production, the short run is best defined as a time period

A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed.


Answer: in which at least one input is fixed.

Which of the following statements best describes a production function?

Which of the following statements best describes a production function?

A) The maximum profit generated from given levels of inputs.
B) The maximum level of output generated from given levels of inputs.
C) All levels of output that can be generated from given levels of inputs.
D) All levels of inputs that could produce a given level of output.


Answer: The maximum level of output generated from given levels of inputs.

Technological efficiency is

Technological efficiency is

A) a necessary and sufficient condition for profit maximization.
B) a sufficient but not necessary condition for profit maximization.
C) a necessary but not sufficient condition for profit maximization.
D) a theoretical construct with little connection to the real world


Answer: a necessary but not sufficient condition for profit maximization.

Limited liability is a benefit to

Limited liability is a benefit to

A) sole proprietorships.
B) partnerships.
C) corporations.
D) All of the above


Answer: corporations.

Which entity produces the greatest proportion of U.S. gross national product?

Which entity produces the greatest proportion of U.S. gross national product? 

A) government
B) non-profit organizations such as hospitals
C) firms
D) universities


Answer: firms

Which entity produces the greatest proportion of U.S. gross national product?

Which entity produces the greatest proportion of U.S. gross national product? 

A) government
B) non-profit organizations such as hospitals
C) firms
D) universities


Answer: firms

What is one of the biggest differences between a sole proprietorship and a corporation?

What is one of the biggest differences between a sole proprietorship and a corporation?

A) Sole proprietorships offer stock.
B) Corporation shareholders elect the managers of the firm.
C) Sole proprietorships have limited liability.
D) Corporations are the only profitable firms.


Answer: Corporation shareholders elect the managers of the firm.

Efficient production occurs if a firm

Efficient production occurs if a firm

A) cannot produce its current level of output with fewer inputs.
B) given the quantity of inputs, cannot produce more output.
C) maximizes profit.
D) All of the above.


Answer: All of the above.

An organization that converts inputs (like Labor, Capital etc.) into output can be a

An organization that converts inputs (like Labor, Capital etc.) into output can be a

A) firm.
B) sole proprietorship.
C) corporation.
D) All of the above.


Answer: All of the above.

Economists typically assume that the owners of firms wish to

Economists typically assume that the owners of firms wish to

A) produce efficiently.
B) maximize sales revenues.
C) maximize profits.
D) All of the above.


Answer: maximize profits.