### Microeconomics Practice Set - 7: Costs of Production

##### Click on the correct option. Text colour will change into green if your chosen option is corret and if it is wrong, it will change into red:
1. An entrepreneur running a business takes out $20,000/year as “salary” from the total receipts of the firm. The implicit cost of this entrepreneur is 1.$20,000/year

2. more than $20,000/year 3. less than$20,000/year

4. any of the above is possible

2. If only part of the labor force employed by a firm can be dismissed at any time and without pay, the total wages and salaries paid out by the firm must be considered

1. a fixed cost

2. a variable cost

3. partly a fixed and partly a variable cost

4. any of the above

3. When the law of diminishing returns begins to operate, the TVC curve begins to

1. fall at an increasing rate

2. rise at a decreasing rate

3. fall at a decreasing rate

4. rise at an increasing rate

4. MC is given by

1. the slope of the TFC curve

2. the slope of the TVC curve but not by the slope of the TC curve

3. the slope of the TC curve but not by the slope of the TVC curve

4. either the slope of the TVC curve or the slope of the TC curve

5. The MC curve reaches its minimum point before the AVC curve and the AC curve. In addition, the MC curve intersects the AVC curve and the AC curve at their lowest point. The above statements are both true

1. Always

2. never

3. often

4. sometimes

6. At the point where a straight line from the origin is tangent to the TC curve, AC

1. is minimum

2. equals MC

3. equals AVC plus AFC

4. is all of the above

7. If the LAC curve falls as output expands, this is due to

1. economies of scale

2. the law of diminishing returns

3. diseconomies of scale

4. any of the above

8. When $$\alpha = 3/4{\rm{ and }}\beta = 1/4$$ for the Cobb-Douglas production function, returns to scale are

1. constant
2. increasing
3. decreasing
4. first increasing and then decreasing

9. The output elasticity of labor measures

1. $$\left( {\Delta Q} \right)/\left( {\Delta L} \right)$$

2. $$\left( {\% \Delta Q} \right)/\left( {\% \Delta L} \right)$$

3. $$\left( {\Delta L} \right)/\left( {\Delta Q} \right)$$

4. \$$\left( {\% \Delta L} \right)/\left( {\% \Delta Q} \right)$$

10. Which of the following statements is false with regard to X-inefficiency?

1. It measures the degree by which the output of a commodity falls short of the maximum indicated by the production function

2. it results from lack of adequate motivation

3. it has been found to exist, according to several empirical studies

4. all of the above

11. Technological progress refers to

1. an increase in MPL and MPK

2. the reduction in L and K to produce any level of output

3. a shift of the isoquants toward the origin

4. all of the above

12. Labor-using technological progress

1. means L-deepening

2. meansK-saving

3. reducesK/L

4. all of the above