Managerial Economics Quiz 1: 19 July 2026 (May 2026 term)

The Cobb-Douglas production function F(K,L)=KpLq

The marginal product of capital (MPK) is defined as

The average product of labour (APL) is defined as

Suppose that you own and manage your own business and you are contemplating whether you should continue to operate over the next year or go out of business. If you remain in business, you will need to spend £100,000 to hire the services of workers and £80,000 to purchase supplies; if you go out of business, you will not need to incur these expenses. In addition, the business will require 80 hours of your time every week. The best alternative to managing your own business is to work the same number of hours in a corporation for an income of £75,000 per year.
Based on the above data, answer the given subquestions.

What is the explicit cost?

Suppose that you own and manage your own business and you are contemplating whether you should continue to operate over the next year or go out of business. If you remain in business, you will need to spend £100,000 to hire the services of workers and £80,000 to purchase supplies; if you go out of business, you will not need to incur these expenses. In addition, the business will require 80 hours of your time every week. The best alternative to managing your own business is to work the same number of hours in a corporation for an income of £75,000 per year.
Based on the above data, answer the given subquestions.

What is the implicit cost?

Suppose that you own and manage your own business and you are contemplating whether you should continue to operate over the next year or go out of business. If you remain in business, you will need to spend £100,000 to hire the services of workers and £80,000 to purchase supplies; if you go out of business, you will not need to incur these expenses. In addition, the business will require 80 hours of your time every week. The best alternative to managing your own business is to work the same number of hours in a corporation for an income of £75,000 per year.
Based on the above data, answer the given subquestions.

What is the opportunity cost of continuing the business over the next year

Based on the above data, answer the given subquestions.

What is the marginal product of labour (MPL)?

Based on the above data, answer the given subquestions.

What is marginal product of capital (MPK)?

Based on the above data, answer the given subquestions.

What is the cost minimizing combination of labour and capital for an airframe manufacturer that wants to produce 121,000 airframes?
L*= __________

Based on the above data, answer the given subquestions.

What is the cost minimizing combination of labour and capital for an airframe manufacturer that wants to produce 121,000 airframes?
K*= ___________

Based on the above data, answer the given subquestions.

What will be the minimum cost for this combination of Labour (L) and capital (K) ________

Consider two goods coconut and fish with prices Pc = 10 and Pf = 40. Robin has an income I= 1000 and he consumes only these two goods. With the help of the plot of his budget line taking coconut on the Y-axis, answer the given subquestions.

The slope of the budget line is

Consider two goods coconut and fish with prices Pc = 10 and Pf = 40. Robin has an income I= 1000 and he consumes only these two goods. With the help of the plot of his budget line taking coconut on the Y-axis, answer the given subquestions.

Intercepts on the axis are

Consider two goods coconut and fish with prices Pc = 10 and Pf = 40. Robin has an income I= 1000 and he consumes only these two goods. With the help of the plot of his budget line taking coconut on the Y-axis, answer the given subquestions.

If keeping income unchanged, price of the coconut is halved, what will be the new slope of the budget line

Consider two goods coconut and fish with prices Pc = 10 and Pf = 40. Robin has an income I= 1000 and he consumes only these two goods. With the help of the plot of his budget line taking coconut on the Y-axis, answer the given subquestions.

New intercepts on the axis are

Consider two goods coconut and fish with prices Pc = 10 and Pf = 40. Robin has an income I= 1000 and he consumes only these two goods. With the help of the plot of his budget line taking coconut on the Y-axis, answer the given subquestions.

If income is halved keeping the original prices unchanged

A chair manufacturer hires its assembly-line labour for $20 an hour and calculates that the rental cost of its machinery is $30 per hour. Suppose that a chair can be produced using 5 hours of labour or machinery in any combination.
Based on the above data, answer the given subquestions.

What will be the optimal combination of labour and capital.
L*= _________________

A chair manufacturer hires its assembly-line labour for $20 an hour and calculates that the rental cost of its machinery is $30 per hour. Suppose that a chair can be produced using 5 hours of labour or machinery in any combination.
Based on the above data, answer the given subquestions.

What will be the optimal combination of labour and capital.
K*= _________________

The short run cost function of a company is given by the equation TC=300+25Q+2Q2, where TC is total cost and q is no. of units produced.
Based on the above data, answer the given subquestions.

What will be the average fixed cost if the company produces 100 units _______

The short run cost function of a company is given by the equation TC=300+25Q+2Q2, where TC is total cost and q is no. of units produced.
Based on the above data, answer the given subquestions.

What is the marginal cost of the company at q=25? ___________

The short run cost function of a company is given by the equation TC=300+25Q+2Q2, where TC is total cost and q is no. of units produced.
Based on the above data, answer the given subquestions.

What is the average variable cost at q=25? _____________