Chapter 10: PRODUCTION AND COST ESTIMATION
d. $38.60
10-30 Straker Industries estimated its short-run costs using a U-shaped average variable cost function of
the form
AVC =a+bQ +cQ2
and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.
DEPENDENT VARIABLE:
AVC
R−SQUARE
F−RATIO
P−VALUE ON F
OBSERVATIONS:
35
0.8713
108.3
0.0001
VARIABLE
PARAMETER
ESTIMATE
STANDARD
ERROR
T−RATIO
P−VALUE
INTERCEPT
43.40
13.80
3.14
0.0036
Q
−2.80
0.90
−3.11
0.0039
Q2
0.20
0.05
4.00
0.0004
If Straker Industries produces 12 units of output, what is estimated total variable cost (TVC)?
a. $171.40
b. $463.20
c. $1,348
d. $2,348
10-31 Straker Industries estimated its short-run costs using a U-shaped average variable cost function of
the form
AVC =a+bQ +cQ2
and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.
Chapter 10: PRODUCTION AND COST ESTIMATION
DEPENDENT VARIABLE:
AVC
R−SQUARE
F−RATIO
P−VALUE ON F
OBSERVATIONS:
35
0.8713
108.3
0.0001
VARIABLE
PARAMETER
ESTIMATE
STANDARD
ERROR
T−RATIO
P−VALUE
INTERCEPT
43.40
13.80
3.14
0.0036
Q
−2.80
0.90
−3.11
0.0039
Q2
0.20
0.05
4.00
0.0004
If Straker Industries produces 12 units of output, what is estimated total cost (TC)?
a. $1,000
b. $1,463
c. $2,348
d. $4,428
10-32 Straker Industries estimated its short-run costs using a U-shaped average variable cost function of
the form
AVC =a+bQ +cQ2
and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.
DEPENDENT VARIABLE:
AVC
R−SQUARE
F−RATIO
P−VALUE ON F
OBSERVATIONS:
35
0.8713
108.3
0.0001
VARIABLE
PARAMETER
ESTIMATE
STANDARD
ERROR
T−RATIO
P−VALUE
INTERCEPT
43.40
13.80
3.14
0.0036
Q
−2.80
0.90
−3.11
0.0039
Q2
0.20
0.05
4.00
0.0004
If Straker Industries produces 12 units of output, what is estimated average total cost (ATC)?
a. $121.93
b. $171.40
c. $463.20
d. $1,348
Chapter 10: PRODUCTION AND COST ESTIMATION
10-33 Straker Industries estimated its short-run costs using a U-shaped average variable cost function of
the form
AVC =a+bQ +cQ2
and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.
DEPENDENT VARIABLE:
AVC
R−SQUARE
F−RATIO
P−VALUE ON F
OBSERVATIONS:
35
0.8713
108.3
0.0001
VARIABLE
PARAMETER
ESTIMATE
STANDARD
ERROR
T−RATIO
P−VALUE
INTERCEPT
43.40
13.80
3.14
0.0036
Q
−2.80
0.90
−3.11
0.0039
Q2
0.20
0.05
4.00
0.0004
If Straker Industries produces 12 units of output, what is estimated short-run marginal cost
(SMC)?
a. $28.04
b. $32.40
c. $33.33
d. $62.60
10-34 For the short-run cost function AVC = a + bQ + cQ2,
a. the AVC curve is
È
-shaped when a < 0, b > 0, and c < 0.
b. the AVC curve is
È
-shaped when a > 0, b < 0, and c > 0.
c. the corresponding SMC function is
SMC=aQ +2bQ2+3cQ3
.
d. both a and c
e. all of the above
Chapter 10: PRODUCTION AND COST ESTIMATION
10-35 A cubic specification for a short-run production function is appropriate when the scatter diagram
indicates
a. an S-shaped total product curve.
b. marginal product of labor falls throughout the range of labor usage.
c. total product is decreasing throughout the range of labor usage.
d. an S-shaped marginal product of labor curve.
e. a -shaped marginal product of labor curve (MP first falls and then rises as labor usage
increases.
10-36 When estimating a cubic short-run production function
Q=AL3+BL2
using linear regression
analysis, you must
a. transform the equation into linear form by defining L3 and L2 as L3 and L2, respectively.
b. suppress the intercept term (regress through the origin).
c. convert the right-hand-side variables to logarithms.
d. both a and b
e. both b and c
10-37 The empirical specification
TVC =aQ +bQ2+cQ3
can be used to estimate
a. a short-run cubic production function.
b. short-run cubic cost function.
c. a -shaped TVC curve.
d. both b and c
e. none of the above
10-38 The empirical specification
Q=AL3+BL2
can be used to estimate
a. a short-run cubic production function.
b. short-run cubic cost function.
c. a family of U-shaped product curves.
d. both a and c
e. none of the above
Chapter 10: PRODUCTION AND COST ESTIMATION
10-39 A firm estimates its long-run production function to be
Q= – 0.0075K3L
3+12K2L2
Suppose the firm employs 12 units of capital. The product curve(s) in the short-run are
a. TP = –12.96 L3 + 1,728L2.
b. AP = –12.96 L3 + 1,728L2.
c. MP = –38.88 L2 + 3,456L.
d. both a and b
e. both a and c
10-40 A firm estimates its long-run production function to be
Q= – 0.0075K3L
3+12K2L2
Suppose the firm employs 12 units of capital. At _______ units of labor, marginal product of
labor begins to diminish.
a. 32.21
b. 44.44
c. 66.67
d. 76.66
e. 82.27
10-41 A firm estimates its long-run production function to be
Q= – 0.0075K3L
3+12K2L2
Suppose the firm employs 12 units of capital. At ________ units of labor, average product of
labor begins to diminish.
a. 32.21
b. 44.44
c. 66.67
d. 76.66
Answer: c
Chapter 10: PRODUCTION AND COST ESTIMATION
10-42 A firm estimates its long-run production function to be
Q= – 0.0075K3L
3+12K2L2
Suppose the firm employs 12 units of capital. Marginal product when 10 units of labor are
employed is
a. 12,248
b. 13,142
c. 14,287
d. 15,984
e. 30,672
10-43 A firm estimates its long-run production function to be
Q= – 0.0075K3L
3+12K2L2
Suppose the firm employs 12 units of capital. Average product when 10 units of labor are
employed is
a. 12,248
b. 13,142
c. 14,287
d. 15,984
e. 30,672
10-44 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. At what level of output does
average variable cost (AVC) reach its minimum value for Greene Enterprises?
a. 800
b. 3,144
Chapter 10: PRODUCTION AND COST ESTIMATION
c. 3,800
d. 4,333
e. 51,672
10-45 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. At Greene Enterprises, average
variable cost (AVC) reaches its minimum value at $________.
a. $28.00
b. $31.67
c. $39.64
d. $43.33
e. $82.00
10-46 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. What is total variable cost (TVC) at
Greene Enterprises when average variable cost (AVC) is at its minimum?
a. $48,000
b. $101,101
c. $137,222
d. $190,476
e. $437,212
10-47 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Chapter 10: PRODUCTION AND COST ESTIMATION
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene Enterprises produces
6,000 units, average variable cost (AVC) is $_________.
a. $40
b. $49.62
c. $55
d. $60
e. $72.46
10-48 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. If Greene Enterprises produces
6,000 units of output, what is estimated short-run marginal cost (SMC)?
a. $45.60
b. $62.40
c. $83
d. $92
e. $100
10-49 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. If Greene Enterprises produces
6,000 units of output, what is estimated average total cost (ATC)?
a. $40
b. $75.25
c. $80
d. $90
e. $168.42
Chapter 10: PRODUCTION AND COST ESTIMATION
10-50 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene’s output is 6,000
units, average variable cost (AVC) is
a. rising
b. falling
c. greater than short-run marginal cost
d. less than short-run marginal cost
e. both a and d
10-51 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene’s output is 2,000
units, what is average variable cost (AVC)?
a. $20
b. $48
c. $62
d. $72
e. $85
10-52 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene’s output is 2,000
units, average variable cost (AVC) is
a. rising
b. falling
c. greater than short-run marginal cost
d. less than short-run marginal cost
e. both b and c
Chapter 10: PRODUCTION AND COST ESTIMATION
10-53 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene’s output is 2,000
units, what is short-run marginal cost (SMC)?
a. $20
b. $42
c. $72
d. $90
e. $100
10-54 The manager of Greene Enterprises, Inc., recently estimated its average variable cost (AVC)
function to be
AVC =88 –0.026Q+0.000003Q2
Greene Enterprises faces total fixed costs (TFC) of $300,000. When Greene’s output is 2,000
units, what is total cost (TC)?
a. $144,000
b. $396,000
c. $444,000
d. $642,000
e. $846,000
10-55 A short-run marginal cost function is estimated as
SMC=96 –4Q+0.15Q2
. Which of the
following cost functions is associated with this estimated SMC equation?
a. TVC = 96Q – 2Q2 + 0.05Q3
b. SMC = 96 – 4Q + 0.1Q2
c. TVC = 96Q + 4Q2 + 0.15Q3
d. AVC = 96 – 2Q + 0.05Q2
