1. ECO 550 Week 3 Chapter 4 Quiz 2
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Question 16
1. Refer to Figure 4-2. The area EFGH is:
Figure 4-2
The following figure shows the cost curves of a firm producing good X.
Answer
the loss incurred by the firm when market price is $3.5.
the profit earned by the firm when the market price is $3.5.
the loss incurred by the firm when the market price is $5.
the revenue earned by the firm when the market price is $5.
Question 17
1. The greater the curvature of the isoquant:
the greater the degree of substitutability between the inputs.
the lower the possibility of substitution between inputs.
the higher the impact of a change in relative prices of inputs.
the lower the prices of inputs.
Question 18
1. Investments with _____ risk usually carry a _____ return.
higher; lower
lower; higher
zero; high
higher; higher
2 points

2. Question 19
1. The introduction of new technology and changes in organization are:
likely to shift the LRAC curve.
unlikely to help in the short-run.
likely to shift the SRAC upward.
unlikely to affect a firm’s cost curves in the long-run.
Question 20
1. You decide that it is time to buy a big family car. The opportunity cost you consider is:
the cost of the car.
the increase in comfort for your family while traveling.
the return this money would have earned if it was invested otherwise.
the inconvenience you and your family are bearing on account of your old car.
Question 21
1. Let the marginal product of capital (MPK ) be 6; the marginal product of labor (MPL) be
2; the price of labor is given by $10. What will be the price of capital such that the isocost
and the isoquant are tangent to each other?
$30
$3
$60
$6
Question 22
1. _____ is the locus of the minimum points of various short-run average cost curves
depicting different plant sizes.
Long-run marginal cost
Expansion path
Long-run average cost
Isocost

3. Question 23
1. A manufacturer of towels finds that his returns to scale are constant. Which of the
following conclusions can be drawn?
The long-run total cost curve is horizontal.
The long-run average cost curve is horizontal.
The long-run total cost curve is downward sloping.
The long-run average cost curve is downward sloping.
Question 24
1. The production function shows:
the total cost incurred to produce a certain level of output.
the changes in cost incurred as output level varies.
the relationship between inputs used and output produced.
the impact of a change in production on the firm’s revenues.
Question 25
1. A firm uses two inputs, labor (L) and capital (K) in the production of umbrellas. It can
invest $50,000 in the purchase of the two inputs annually. The firm hires 5 units of
capital at $1,000 per unit. If the going annual wage rate is $4,500, calculate the number of
workers employed by the firm. (Assume that the firm spends the entire budget on K and
L.)
10
5
15
9
Question 26
1. An isocost line depicts:
the minimum cost required to produce a certain level of output, given input
prices.
the input combination to produce a certain level of output.
the input combinations that satisfy a budget constraint, given input prices.
the maximum output that can be produced by a firm given its budget

4. constraint.
2 points
Question 27
1. The gap between average total cost and average variable cost:
is constant at all ranges of output.
is high at high levels of production.
declines as output expands.
depends on the production technology.
Question 28
1. Jeff owns a garage and has 3 mechanics to help him. With the tools used being fixed in
the short run, his production function is given by 5 + 2L = Y , where L is the number of
mechanics and Y is the number of cars they can fix. If Jeff hires a fourth mechanic, what
will be the marginal product of the new mechanic hired?
11
13
2
7
Question 29
1. At outputs less than the minimum of average variable cost:
marginal cost is greater than average variable cost.
marginal cost is less than average variable cost.
marginal cost is equal to average variable cost.
marginal cost is parallel to average variable cost.
Question 30
1. In an industry characterized by a natural monopoly, which of the following
characteristics will be observed?
The long-run average cost curve will be upward sloping.
The market price of the product will be very low.
Competition is both impossible and inefficient.

5. Number of producers operating in this market will be low.

6. Number of producers operating in this market will be low.