TEST BANK FOR CHAPTER 7: Costs

TEST BANK
TEST BANK FOR
FOR CHAPTER
CHAPTER 7: Costs7 : COSTS
MULTIPLE CHOICE

1. Suppose the production function for coffee (C) is C = min(B,W) where B = beans in pounds
and W = water in gallons and the price of water is $.10 per gallon and the price of beans is
$10 per pound. the cost minimizing combination of beans and water for C = 200 is
a. B = 200, W = 2000
b. B = 2000, W = 200
c. B = 100, W = 100
d. B = 200, W = 200
ANS: d

2. Suppose the production function for coffee (C) is C = min(B,W) where B = beans in pounds
and W = water in gallons and the price of water is $.10 per gallon and the price of beans is
$10 per pound. The expansion path is
a. B = 10W
b. B = .1W
c. B = W
d. -10 = B + W
ANS: c

3. Suppose the production function for coffee (C) is C = min(B,W) where B = beans in pounds
and W = water in gallons and the price of water is $.10 per gallon and the price of beans is
$10 per pound. The expansion path
a. depends on the price of beans only.
b. depends on the price of water only
c. depends on the price of neither beans nor water.
d. depends of the costs of both beans and water.
ANS: c

4. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the
production function is P = 2C + 5S. If the price of corn feed is $4 and the price of soybean
feed is $5, what is the cost minimizing combination of producing P = 200?
a. C = 100
b. S = 40
c. C = 50, S = 20
d. C = 20, S = 50
ANS: b

5. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the
production function is P = 2C + 5S. If the price of corn feed is $2 and the price of soybean
feed is $5, what is the cost minimizing combination of producing P = 100?
a. C = 50
b. S = 20
c. C = 25, S = 10
d. All points on the P = 100 isoquant, including those listed in a-c would cost the same.
ANS: d




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, 2 Chapter 7: Costs


6. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the
production function is P = 2C + 5S. If the price of corn feed is $2 and the price of soybean
feed is $6, what is the cost minimizing combination of producing P = 200?
a. C = 100
b. S = 40
c. C = 50, S = 20
d. All points on the isoquant would cost the same, Q = 200.
ANS: a

7. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the
production function is P = 2C + 5S. If the price of corn feed is $4 and corn feed is on the
horizontal axis, and the price of soybean feed is $5 and soybean feed lies on the vertical axis,
what is expansion path?
a. C = S

b. S = C
c. the horizontal axis
d. the vertical axis
ANS: d

8. Suppose pigs (P) can be fed corn-based feed (C) or soybean-based feed (S) such that the
production function is P = 2C + 5S. The expansion path depends
a. on the price of corn based feed only.
b. on the price of soybean based feed only.
c. on neither the price of corn based or soybean based feed.
d. on whether the price of corn based feed is greater than or less than 2/5 the price of
soybean based feed.
ANS: d

9. Suppose that a lawn mowing services production function for lawns mowed in a week is M =
(LK)1/2 where L is labor hours and K is the amount of capital (mowers and trimmers). The
expansion path depends on
a. the wage rate only.
b. the rental rate only.
c. both the wage and rental rates.
d. neither the wage nor rental rates.
ANS: c

10. Suppose a cost function is TC = Aq3 + bq2 + cq + d then the total fixed cost is
a. Aq2 + bq + cq +d/q
b. Aq2 + bq + c
c. Aq3 + bq2 + cq
d. d
ANS: d




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