Question

Q1

The production function of a competitive firm is q = 4x₁^0.5x₂^0.5. The prices of its inputs are p₁ = $1 and p₂ = $36. The firm's marginal cost is:

A. None of the other answers is correct.

B. Constant and equal to 24.

C. Constant and equal to 3.

D. Decreasing.

E. Increasing.

Q2

Which of the following statements about a firm's cost curves is true?

A. The marginal cost curve passes through the minimum of the average fixed cost curve.

B. More than one of the other answers is correct.

C. The area under the marginal cost curve measures total fixed cost.

D. The average variable cost curve must be U-shaped.

E. If the average cost curve is U-shaped, the marginal cost curve passes through its minimum point.

Q3

Which of the following statements is not necessarily true when a competitive firm chooses its output level to maximise its profit in the short run? (Assume that marginal cost is not constant and is well defined at all levels of output.)

A. Price is at least as great as average variable cost.

B. Total revenue is at least as great as total cost.

C. Marginal cost is increasing.

D. Price is equal to marginal cost.

E. Marginal cost is at least as great as average variable cost.

Answer 1