Question

In: Economics

1) Which of the following production functions exhibits constant returns to scale? A) q = KL...

1) Which of the following production functions exhibits constant returns to scale?
A) q = KL
B) q = KL0.5
C) q = K + L
D) q = log(KL)

2) Why do firms tend to experience decreasing returns to scale at high levels of output?
A) Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.
B) Government tax policy tends to discourage large-scale production operations.
C) Firms face fewer problems with inventory management and marketing as output reaches very high levels.
D) Firms tend to use more capital and less labor at higher levels of output.

3) Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making?
I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition."
II. "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account."
A) I only
B) II only
C) Both I and II
D) Neither I nor II

4) In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of:
A) a fixed cost.
B) a variable cost.
C) an implicit cost.
D) an opportunity cost.

5) The difference between the economic and accounting costs of a firm are:
A) the accountant's fees.
B) the corporate taxes on profits .
C) the opportunity costs of the factors of production that the firm owns.
D) the sunk costs incurred by the firm.

6) Incremental cost is the same concept as ________ cost.
A) average
B) marginal
C) fixed
D) variable

7) The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average fixed
cost?
A) 500
B) 5Q
C) 5
D) none of the above

Expert Solution

Answer-1 The correct option is C) q = K + L

Constant returns to scale says that if increase input by some proportion, Output rises by that same proportion.

q = f(aK, aL) = aK + aL

= a(K+L)

=a f(K,L)

Answer-2 The correct option is A) Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.

Increase in the scale of production on beyond a point may create the problem of proper management.

Answer-3 The correct option is B) II only

A sunk cost is a cost that has already been incurred and cannot be recoverable in any case and future business decisions should not be affected by this expenditure. Spending on marketing is an example of sunk cost.

Answer-4 The correct option is A) a fixed cost.

Answer-5 The correct option is C) the opportunity costs of the factors of production that the firm owns.

Answer-6 The correct option is B) marginal

Answer-7 Incomplete Question, Must be given TC.

Note:- Please post only four questions at a time. Still I have answered all of them

Rahul Sunny answered 2 years ago

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