Can consumption efficiency be achieved even if the efficient product mix is not achieved? What will be an ideal response? ANSWER Efficiency in consumption implies that all consumers have the same MRS. This can be achieved with any product mix. Thus, consumers can be as well off as possible for any given product mix. […]
If a production function is represented as q = LaKb, the long-run average cost curve will be horizontal as long as A) a + b = 0. B) a + b = 1. C) q > 0. D) L = K. ANSWER B
Suppose an economy with two goods (candy and desk) and two identical agents that is in a competitive equilibrium. The marginal cost of a piece of candy is given by MCc = 4Qc and the marginal cost of a desk is MCd = 2 + Qd. The current production level of candy (Qc) is 4 […]
Suppose that productivity-enhancing technological progress affected more the production of chairs than the production of tables. This can be depicted using a production possibilities frontier in which A) only the chair axis intercept increases. B) only the table axis intercept decreases. C) both intercepts increase; however, the chair intercept increases by more. D) both intercepts […]
Suppose a society’s PPF for food (F) and clothing (C) can be written as 25 = F2 + C2. If all consumers have the same endowment and the same utility function Ui = Fi Ci, what is the efficient product mix of food and clothing? What will be an ideal response? ANSWER The […]
Assuming that w and r are both positive, if the long-run expansion path is horizontal, then A) MPK = 0. B) MRTS is a function of capital only. C) w = r. D) All of the above. ANSWER B
In a perfectly competitive equilibrium with production and trade, which of the following results occur(s)? A) Pareto-efficiency is obtained. B) The First Welfare Theorem is satisfied. C) There is efficiency in production. D) All of the above. ANSWER D
A firm can minimize cost by A) picking the bundle of inputs where the lowest isocost line touches the isoquant. B) picking the bundle of inputs where the isoquant is tangent to the isocost line. C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as […]
Competition results in the efficient product mix because A) producers are setting MRT equal to minus the price ratio while consumers are setting MRS equal to minus the price ratio ensuring that MRT will equal MRS. B) consumers are on the contract curve. C) the slope of the production possibility frontier will equal the slope […]
The slope of the isoquant tells the firm how much A) output increases when labor increases by one unit. B) output increases when capital and labor are doubled. C) capital must decrease to keep output constant when labor increases by one unit. D) a unit of capital costs relative to the cost of labor. […]
