1. What will happen to to the isocost line if the input on the X axis becomes more expensive?
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| a. The isocost line will shift inward in parallel.
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| b. The isocost line will shift in and become steeper.
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| c. The isocost line will shift in and become flatter.
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| d. The isocost line will shift out and become steeper.
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2. A company produces plays. Its production function is Y = 3P0.333333333333A0.666666666667, where A is the number of actors it uses, and P is the number of props. If it uses 10 props and 6 actors, what is the marginal product of a(n) actor?
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| a. 2.44
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| b. 0.22
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| c. 21.34
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| d. 3.56
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3. A company produces 27 cakes. Its production function is Y = 4M0.75C0.25, where C is the number of cooks it uses, and M is the number of mixers. The price of cooks is 4 each, and the price of mixers is 4 each. If we put cooks on the X axis and mixers on the Y axis, then the firm's marginal rate of technical substitution is M/3C. How many cooks will the company use?
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| a. 8.88
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| b. 1
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| c. 3
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| d. 2.96
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4. If consumer behavior exhibits altruism, then which of the following is true?
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| a. A Pareto optimal outcome may be restored by a Pigouvian tax or subsidy.
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| b. A Pareto optimal outcome may be restored by the actions of voluntary organizations.
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| c. Consumers may regret their tastes even if the outcome is ex post Pareto optimal.
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| d. Consumer preferences violate the transitivity assumption.
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5. A company has a total cost function C(Y) = 4Y3 - 136Y2 + 1431Y, and a marginal cost function of 12Y2 - 272Y + 1431. At an output of 22, what is the firm's cost-output elasticity?
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| a. 3.35
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| b. 880
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| c. 0.3
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| d. 0.05
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6. The following is a feature of the GM-Fisher dispute:
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| a. A hold-up occurred because the parties did not sign a contract.
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| b. The contract distorted the buyer's use of inputs.
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| c. The contract distorted the seller's incentive to invest in capital and equipment.
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| d. The seller's price of inputs went up unexpectedly.
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7. A company has a total cost function C(Y) = 16Y3 - 640Y2 + 7652Y. At an output of 18, what is the firm's marginal cost?
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| a. 80
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| b. 1316
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| c. -44
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| d. 23688
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8. A company produces carols. Its production function is Y = 5H0.2S0.8, where S is the number of singers it uses, and H is the number of horns. If it uses 8 horns and 8 singers, what is the average product of a(n) singer?
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| a. 0.14
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| b. 40
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| c. 5
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| d. 4.05
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9. A circular isoquant violates which of the following assumptions:
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| a. A positive marginal product and a diminishing marginal rate of substitution.
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| b. All inputs have a positive marginal product.
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| c. No assumptions are violated by this.
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| d. A positive marginal product or transitivity.
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10. If a firm has a cost-output elasticity of 4, then:
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| a. The firm faces elastic demand.
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| b. The firm's average cost is rising with output.
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| c. The firm's average cost is neither rising nor falling as output rises.
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| d. The firm faces inelastic demand.
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11. For the theory of the firm as creditworthy borrower, like for the theory of the firm as a preventer of rent seeking, the following is an important consideration:
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| a. Firm structure is affected by prior income distribution.
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| b. Production has more than one objective.
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| c. Worker effort is difficult to observe.
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| d. Firms face a small numbers condition.
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12. According to Ronald Coase's The Nature of the Firm, the following is a transaction cost:
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| a. The cost of finding inputs.
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| b. The cost of negotiating prices.
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| c. The risk that the price of outputs, but not production costs, will change.
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| d. The cost of hold-up.
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13. A firm produces 21 whutzits using thingies and hoozits, with a total cost of 30. Each thingie costs $6, and each hoozit costs $5. If we put thingies on the Y axis and hoozits on the X axis, what will be the Y-intercept of the isocost line?
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| a. 5
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| b. 30
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| c. 0.833333333333
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| d. 6
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14. A company produces cakes. Its production function is Y = 2[M0.4+C0.4]2.5, where C is the number of cooks it uses, and M is the number of mixers. If we put cooks on the X axis and mixers on the Y axis, what is the firm's marginal rate of technical substitution when it is using 8 cooks and 14 mixers?
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| a. 0.71
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| b. 0.14
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| c. 1.42
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| d. 6.9
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15. A company produces 25 cappucinos using 5 machines and 3 baristas. If the marginal product of a(n) machine is 6, and machines cost 2, and baristas cost 6, then the marginal product of a barista must be:
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| a. 6
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| b. 3
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| c. 3.6
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| d. 18
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16. A small numbers condition could best be described as a situation where:
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| a. One party is able to extract extra payment from another party purely by threatening a very bad outcome.
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| b. Firms and their business partners gain a unique ability to satisfy each other's business needs.
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| c. A person uses private information against a business partner.
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| d. Productivity is low at low levels of output.
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17. A company produces 25 bricks using 15 potters and 11 kilns. We put potters on the X axis and kilns on the Y axis. If the marginal product of a potter is 6, and the marginal product of a kiln is 7, then what is the firm's marginal rate of technical substitution?
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| a. 0.86
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| b. 0.4
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| c. 1.17
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| d. 1.36
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18. Which of the following is true in the short run?
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| a. All inputs are fixed.
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| b. Some inputs are fixed.
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| c. There is no fixed cost.
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| d. All inputs are variable.
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19. A company has a total cost function C(Y) = 4Y3 - 136Y2 + 1435Y. At an output of 14, what is the firm's average cost?
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| a. 28
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| b. -49
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| c. 315
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| d. 4410
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20. Which of the following is not a property of a Giffen good?
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| a. The good is likely to comprise a large portion of a consumer's total expenditure.
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| b. The Engel curve for the good is upward-sloping.
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| c. The law of demand fails.
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| d. The good is an inferior good.
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