1. The point of tangency between a ray and a TC curve represents: A. Minimum MC
ID: 1217941 • Letter: 1
Question
1. The point of tangency between a ray and a TC curve represents:
A. Minimum MC
B. Minimum AC
C. Maximum TC
D. Maximum AVC
2. Given an isocost drawn on a graph with capital on the vertical axis and labor on the horizontal axis. The vertical intercept is 15 units of capital and the horizontal intercept 5 units of labor. What is the slope of the isocost?
3. Given the capital on the vertical axis and labor on the horizontal axis, a decrease in the wage rate makes the:
a. isocost steeper
b. isocost flatter
c. isoquant steeper
d. isoquant flatter
4. Given the following table showing TP schedule:
Labor elasticity of production at L = 5 is equal to:
A. 2.5
B. 2.25
C. 1.5
D. 0.25
5. A perfectly competitive firm sells its product at P= $15. Its total cost function is as follows:
TC = 10 + 3Q – 2Q2 + Q3
The profit maximizing level of output is:
A. 2.77
B. 2.33
C. 3.52
D. 4.07
6.
Given the following demand function for widgets:
Q = 1.5 P-1.2 I-0.2
Where P is price and I is income. Given the above equation, widgets are considered to be:
A. normal goods
B. inferior goods
C. luxury goods
D. any of the above could be correct
K L Q 3 5 10 3 6 16 3 7 25Explanation / Answer
(1) (B)
Any other curve is tangent to TC at its highest point at which AC is minimum.
(2) Slope of isocost = - Vertical intercept / Horizontal intercept = - 15/5 = - 3
(3) (b)
Lower eage rate makes isocost flatter.
(4) (B)
Labor elasticity of production = (Change in Q / Change in L) x (L / Q)
When L = 5, Q = 10 & when L = 6, Q = 16. So,
Labor elasticity = [(16 - 10) / (6 - 5)] x (6 / 16) = 6 x 6 / 16 = 2.25
Note: First 4 questions are answered.
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