21) Suppose there are two inputs for production: labor and capital. The price of
ID: 1161194 • Letter: 2
Question
21) Suppose there are two inputs for production: labor and capital. The price of labor is $2 and the price of capital is $1. What is the slope of the isocost line given the total cost is $10? (Assume labor is on the horizontal axis.) A) -5 B)-1/2 C) -2 D) -1 22) Suppose there are two inputs for production: labor and capital. The price of labor is S2 and the price of capital is $1. If the firm only uses labor for production, what is the amount of labor input when the total cost is $20? A) 20 B) 15 C) 10 D) 20/3 23) Suppose the total cost for production is S200 and the fixed cost is S50. The average variable cost would be if 50 units of goods are produced C) 3 D) 5 24) Which of the following statements regarding isoquant is true? I. Every point on the isoquant generates the same production cost II. MRTS is the slope of the isoquant, which is constant III. MRTS is the ratio of marginal utilities of the two goods IV. Isoquants further from the origin indicate higher output level A) I and IV. B) IV only C) II and III D) None of them is correct 25) Which of the following statements regarding cost-minimization is true? I. The isocost line is tangent to the isoquant II. The slope of the isocost line equals the slope of the isoquant III. The relative price of the two inputs equals the marginal rate of technical substitution IV. The additional output that results from spending an additional dollar for two inputs are the same A) I only B) II and IV only C) II and III only D)I, II, III and IV.Explanation / Answer
21. Ans : B ) -1 / 2
22. Ans : C ) 10
Explanation :
Price of labor is $2
Total cost of production is $20
If firm uses only labor for production , then the labor input will be ;
Total cost / Price of labor
= $ 20 / $ 2 = 10 units
23. Ans: C ) 3
Explanation :
Total cost of production = $ 200
Total fixed cost = $ 50
So , total variable cost ( TVC ) = TC - TFC
= $200 - $50 = $ 150
Total units of goods ( Q ) produced = 50 units
Average variable cost = TVC / Q
= $150 / 50 = $3
24. Ans : A ) I and IV
25. Ans : D ) I ,II , III and IV
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