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##### Page 7
Q
u
e
st
io
n
:
Margin
al
factor
cost is
defined
as the
amount
that an
nal unit
of the
variabl
e unit
of the
variabl
e input
______
______
.

a. marginal cost
b. variable cost
c. marginal rate of technical
substitution
d. total cost
e. none of the above

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##### Page 8
Q
u
e
st
io
n
:
In the
Cobb-
Dougla
s
product
ion
functio
n   Q=a
L^β1.K
^β2 __
______
______
.

a. the marginal product of labor (L) is equal to β1
b. the average product
of labor (L) is equal to β2
c. if the amount of labor input (L) is increased by 1 percent, then
output will increase by β1 percent
d. a and b
e. a and c

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##### Page 9
Q
u
e
st
io
n
:
The
short-
run
cost
functio
n is:

a. where all inputs to the production process are available
b. relevant to
decisions in which one or more inputs to the production process are fixed
c. not relevant to
optimal pricing and production output decision facilities
d. crucial in making optimal
investment decisions in new production facilities
e. none of the above

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Q
u
e
st
io
n
:
Theore
tically,
in a
long-
run
cost
functio
n:

a. all inputs are fixed
b. all inputs are considered variable
c. some
inputs are always fixed
d. capital and labor are always combined in fixed proportions

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##### Page 10
Q
u
e
st
io
n
:
A
linear
total
cost
functio
n
implies
that:

a. marginal costs are constant as output increases
b. average total costs
are continually decreasing as output increases
c. a and b
d. none of the above

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Q
u
e
st
io
n
:
Produc
tion
elastici
ty

a. measure how a % change in output affect the % change in an input
b.
is not important for a company that makes a physical product
c. measure the % change in
output for a % change in an input
d. is given by the exponent on the input in a linear
production function

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##### Page 11
Q
u
e
st
io
n
:
How
do you
determi
ne the
optimal
amount
of
labor
to use
when
labor is
the
only
variabl
e
input?

a. MP
L
=C
L

b. MP
L
=MP
K

c. MP
L
/MP
K
=1
d. None of above

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Q
u
e
st
io
n
:
The
optimal
usage
of two
variabl
e
inputs
is
determi
ned by:

a. The Iso-quant for the production process
b. MP
K
=MRTS
C.
MP
K
=MCL
d. None of above

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##### Page 12
Q
u
e
st
io
n
:
Producti
ve
activity
includes
all but

a. stockbrokers
b. loan officers at a bank
c. work around the
house, which you perform
d. the service industries
e. none above