WHICH OF THE FOLLOWING STATEMENTS ABOUT THE LONG AND SHORT RUN IS TRUE?

15 May WHICH OF THE FOLLOWING STATEMENTS ABOUT THE LONG AND SHORT RUN IS TRUE?

Instructions.

This is a closed book/closed notes exam. Questions 1 to 20

are multiple choice, each is worth 5 points and has only one correct answer.
BUBBLE YOUR ANSWERS TO THE MULTIPLE CHOICES IN
THE SCANTRON.
Question 1.

Which of the following statements about the long and short

run is true?
(a) In the long run there will be at least one factor of production which is
fixed.
(b) In the short run all factors of production are variable.
(c) In the long run there are no fixed factors of production.
(d) In the short run all factors of production are variable.
Question 2.

If a factor of production presents diminishing marginal prod-

uct, this means :
(a) as we increase the amount of all inputs, the marginal product of any
one input eventually begins to decrease.
(b) as we increase the amount of an input, while keeping all others at the
same level, the marginal product of that input eventually begins to
decrease.
(c) as we increase the amount of any one input, while keeping all others
at the same level, the output decreases.
1

Intermediate Microeconomic Theory – Midterm 2

(d) as we increase the amounts of all inputs, eventually output begins to
decrease.
Question 3. Which of the following production function presents constant
returns to scale?
(a)

p

x1 + 2×2 .

3/2 2/3

(b) x1 x2 .
(c) x1 + 2×2 .
(d) x1 +

p

x2 .

Question 4.

The iso-quant curves associated with a production function

specify which of the following?
(a) The elasticity of substitution.
(b) The set of all input combinations that produce a given output level.
(c) The set of all input combinations that result in the same profit.
(d) The set of all input combinations such that the ratio of all factors is
constant.
Question 5.

The marginal product of an input refers to which of the

following?
(a) The amount of extra revenue or profit that results from the use of one
more unit of the input.
(b) The total output divided by the number of units of the input.
(c) The smallest amount of the input without which production cannot
take place.
(d) The amount of extra output that results from the use of one more unit
of the input.
2

Intermediate Microeconomic Theory – Midterm 2

Question 6.

Suppose that with K units of capital and L units of labor the

output produced by a firm is min{2K, 3L}. The iso-quants of this production
function are:
(a) downward sloping and linear.
(b) downward sloping and bowed-in towards the origin.
(c) L-shaped.
(d) downward sloping and bowed-out away from the origin.
Question 7.

A firm uses capital (K) and labor (L) to produce output

with a technology represented by the production function min{K, L}. The
firm currently uses 3 units of K and 6 units of L. If the firm increases its
capital usage to 4 units, then the marginal product of K related to this
increase is:
(a) 4.
(b) 3.
(c) 1.
(d) 6.
Question 8.

You have been hired to advise a firm on whether it is pro-

ducing efficiently or not. The firm uses two inputs, capital and labor, to
produce output. Suppose each of the output can be sold at $ 1.5. At the
current level of operation you know that the marginal products of capital
and labor are 80 and 6, respectively. If the prices of capital and labor are
$150 and $6, then what advice would you give the firm?
(a) Decrease the use of both inputs.
(b) Do not change the use of both inputs.
(c) Decrease the use of labor and increase the use of capital.
(d) Increase the use of labor and decrease the use of capital.
3

Intermediate Microeconomic Theory – Midterm 2

Question 9.

Refer to the question above. Which of the following is cor-

rect?
(a) The firm is operating efficiently.
(b) The firm is operating inefficiently.
(c) Capital is not necessary to production.
(d) Labor is not necessary to production.
Question 10. Let the production function of a firm be given by f (K, L) =
p
KL. The equation for the isoquant associated with production level 10 is:
p
(a) K = 10 L.
(b) K = 100/L.
(c) K = L/100.
(d) K = 10L.
Question 11.

Refer to the question above. The marginal product of cap-

ital at (K, L) = (9, 4) is:
(a) 1/9.
(b) 9.
(c) 1/3.
(d) 3.
Question 12. Suppose you are a firm owner and you want to maximize
2/3 1/4

your firm’s profit. In the short run, you have the technology as y = x1 x2 ,
but the amount of your second input is fixed, so that x2 = 64 . We know
the price of the output is p=$3, the price of the input 1 is w1 =$ 6. Which
would be your optimal amount of the first input to choose (suppose you do
not need to pay for the second input, or, w2 = 0)?
4

Intermediate Microeconomic Theory – Midterm 2

(a) 7.
(b) 8.
(c) 9.
(d) 10.
Question 13.

Refer to Question 12. The highest possible profit the firm

can get is:
(a) 12.
(b) 18.
(c) 24.
(d) 28.
Question 14. Suppose you are a firm owner and you want to maximize
your firm’s profit. Now you are in the long run, you have the technology as
1/2 1/4

y = x1 x2

. We know the price of the output is p= $4, the price of the

input 1 is w1 = $2, the price of the input 2 is w2 = $1. Which would be your
optimal amount of the second input to choose?
(a) 1/3.
(b) 1/2.
(c) 2/3.
(d) 1.
Question 15.

Refer to Question 14. The highest possible profit the firm

can get is:
(a) 1/3.
(b) 1/2.
5

Intermediate Microeconomic Theory – Midterm 2

(c) 2/3.
(d) 1.
Question 16.

Which of the following statements is correct?

(a) When the marginal cost curve lies below the average cost curve, the
average cost curve is decreasing.
(b) When the marginal cost curve lies below the average cost curve, the
average cost curve is increasing.
(c) The average cost curve intersects the marginal cost curve at the minimum of the marginal cost curve.
(d) When the average cost curve is decreasing, the marginal cost curve
must also be decreasing.
Question 17. If a firm produces its output with technology given by
f (x1 , x2 ) = min{x1 , x2 }, then the minimum cost to produce y units of output, when wi is the unit price of input i, is
a

b

1

(a) w1a+b w2a+b y a+b , where a and b are arbitrary positive constants.
(b) min{w1 , w2 }y.
(c) (w1 + w2 )y.
(d) y 2 .
Question 18.

The total cost function of a firm is c(y) = 2y 3

The firm’s marginal cost function is given by
(a) 6y 2

12.

(b) 6y 2

24y + 38.

(c) 2
(d) 2y 2

12/y + 38/y 2 .
12y + 38.
6

12y 2 + 38y.

Intermediate Microeconomic Theory – Midterm 2

Question 19.

Refer to Question 18. The firm’s average total cost function

is then given by
(a) 6y 2

12.

(b) 6y 2

24y + 38.

(c) 2
(d) 2y 2

12/y + 38/y 2 .
12y + 38.

Question 20.

Refer to Question 18. If the firm operates in a perfectly

competitive market and the market price at which it can sell its output is
p = 20, then the firm should produce
(a) 0.
(b) 1.
(c) 2.
(d) 3.