Question 1

In the long run,the law of diminishing marginal returns

Accepted Answer

A) is not relevant because there are no fixed factors of production. 
B) is exactly the same as in the short run. 
C) does not hold because technology is a variable. 
D) does hold,regardless of production process. 
E) sometimes holds,depending on the production process. 
A) is not relevant because there are no fixed factors of production. 
B) is exactly the same as in the short run. 
C) does not hold because technology is a variable. 
D) does hold,regardless of production process. 
E) sometimes holds,depending on the production process. A

Question 2

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 3 and the marginal product of labour is 6,the cost- minimizing firm should

Accepted Answer

A) employ more of both capital and labour. 
B) employ less of both capital and labour. 
C) employ more capital and less labour. 
D) employ less capital and more labour. 
E) not change its current factor use. 
A) employ more of both capital and labour. 
B) employ less of both capital and labour. 
C) employ more capital and less labour. 
D) employ less capital and more labour. 
E) not change its current factor use. D

Question 3

Consider the short- run and long- run cost curves for a firm.If factor prices decrease,

Accepted Answer

A) there will be no change in the cost curves in the long run. 
B) the firm will move down along both its long- run and short- run average cost curves. 
C) both the long- run and short- run average cost curves will shift downward. 
D) the firm will move down along its long- run average cost curve only. 
E) there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve. 
A) there will be no change in the cost curves in the long run. 
B) the firm will move down along both its long- run and short- run average cost curves. 
C) both the long- run and short- run average cost curves will shift downward. 
D) the firm will move down along its long- run average cost curve only. 
E) there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve. C

Question 4

In the long run,a profit- maximizing firm produces any given level of output by choosing the production method that

Accepted Answer

A) equates the average cost per unit of all factors. 
B) produces that output at the lowest possible cost. 
C) is associated with a flat total cost curve. 
D) maximizes the marginal product of all factors. 
E) equates the marginal product of all factors. 
A) equates the average cost per unit of all factors. 
B) produces that output at the lowest possible cost. 
C) is associated with a flat total cost curve. 
D) maximizes the marginal product of all factors. 
E) equates the marginal product of all factors.

Question 5

Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit- maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be

Accepted Answer

A) 10. 
B) 50. 
C) 25. 
D) 100. 
E) 20. 
A) 10. 
B) 50. 
C) 25. 
D) 100. 
E) 20.

Question 6

Which of the following factors is most important as a source of sustained growth in material living standards?

Accepted Answer

A) capital- labour substitution 
B) decrease in cost of capital 
C) changing relative factor prices 
D) population increase 
E) technological improvement 
A) capital- labour substitution 
B) decrease in cost of capital 
C) changing relative factor prices 
D) population increase 
E) technological improvement

Question 7

FIGURE 8- 2 
  
-Refer to Figure 8- 2.Increasing returns to scale occur over the output range

Accepted Answer

A) beyond Q3 only. 
B) Q1 to Q2 only. 
C) 0 to Q3 only. 
D) Q2 to Q3 only. 
E) 0 to Q1 only. 
A) beyond Q3 only. 
B) Q1 to Q2 only. 
C) 0 to Q3 only. 
D) Q2 to Q3 only. 
E) 0 to Q1 only.

Question 8

FIGURE 8- 4  
-Refer to Figure 8- 4.The firm is initially operating at point B.If prices of both factors fell by 25% and the firm wished to continue expending the same amount on each resource (while continuing to maintain efficiency)the firm would

Accepted Answer

A) move toward point C. 
B) move towards point D. 
C) shift towards the origin. 
D) move toward point A. 
E) stay at point B. 
A) move toward point C. 
B) move towards point D. 
C) shift towards the origin. 
D) move toward point A. 
E) stay at point B.

Question 9

Isocost lines are downward sloping straight lines,reflecting

Accepted Answer

A) decreasing factor prices. 
B) increasing factor prices. 
C) a change in relative factor prices. 
D) that each factor price has a negative value. 
E) constant factor prices. 
A) decreasing factor prices. 
B) increasing factor prices. 
C) a change in relative factor prices. 
D) that each factor price has a negative value. 
E) constant factor prices.

Question 10

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Technique } & \text { A } & \text { B } & \text { C } & \text { D } \
\hline \text { Labour } & 25 & 35 & 50 & 30 \
\hline \text { Capital } & 50 & 35 & 25 & 60 \
\hline
\end{array}$$ TABLE 8- 1
-Refer to Table 8- 1.If the price of labour is $10 and the price of capital is $5,which production technique minimizes the costs of producing 1000 units of output?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost. 
A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost.

Question 11

The figure below shows a family of cost curves for a firm.The subscripts 1,2,and 3 for the SRATC curves refer to different plant sizes.
   FIGURE 8- 3
-Refer to Figure 8- 3.Each of the three SRATC curves shows

Accepted Answer

A) the lowest cost attainable,holding the plant size constant. 
B) optimal plant sizes in the long run. 
C) the lowest cost attainable,given that the plant size is the largest it can possibly be. 
D) technically inefficient methods of production,given that they lie above the LRAC. 
E) the output that is possible when all factors of production are fixed. 
A) the lowest cost attainable,holding the plant size constant. 
B) optimal plant sizes in the long run. 
C) the lowest cost attainable,given that the plant size is the largest it can possibly be. 
D) technically inefficient methods of production,given that they lie above the LRAC. 
E) the output that is possible when all factors of production are fixed.

Question 12

When a cost- minimizing firm is faced with an increase in the relative price of labour,it adjusts its factor usage so as to

Accepted Answer

A) increase the marginal product of labour relative to the marginal product of capital. 
B) use more labour per unit of output than before. 
C) increase the marginal product of capital relative to the marginal product of labour. 
D) maintain the previous usage of labour. 
E) use more of both capital and labour per unit of output. 
A) increase the marginal product of labour relative to the marginal product of capital. 
B) use more labour per unit of output than before. 
C) increase the marginal product of capital relative to the marginal product of labour. 
D) maintain the previous usage of labour. 
E) use more of both capital and labour per unit of output.

Question 13

Consider the short- run and long- run cost curves for a firm.If there is a fall in all factor prices faced by the firm,

Accepted Answer

A) it will move to a lower point on its existing long- run and short- run average cost curves. 
B) there will be no change in the cost curves in the long run. 
C) both the long- run and short- run average cost curves will shift downward. 
D) it will move to a lower point on its existing long- run average cost curve only. 
E) there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve. 
A) it will move to a lower point on its existing long- run and short- run average cost curves. 
B) there will be no change in the cost curves in the long run. 
C) both the long- run and short- run average cost curves will shift downward. 
D) it will move to a lower point on its existing long- run average cost curve only. 
E) there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve.

Question 14

Consider the long- run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

Accepted Answer

A) is attainable if the firm minimizes its costs according to the "principle of substitution." 
B) represents unattainable cost levels. 
C) may represent actual cost and production levels in the short run. 
D) represents less efficient cost levels than points on the long- run average cost curve. 
E) is attainable only when all factors are variable. 
A) is attainable if the firm minimizes its costs according to the "principle of substitution." 
B) represents unattainable cost levels. 
C) may represent actual cost and production levels in the short run. 
D) represents less efficient cost levels than points on the long- run average cost curve. 
E) is attainable only when all factors are variable.

Question 15

"The bigger the volume,the lower the cost,and we pass these savings on to you" is a familiar advertising slogan.It implies essentially that the

Accepted Answer

A) firm expects to experience increasing returns over the relevant level of output. 
B) firm is altruistic. 
C) consumer is able to pay less today because the total cost of the firm is expected to decline tomorrow. 
D) average fixed cost will decline or remain constant over the long run. 
E) total cost of the firm will remain constant as output expands. 
A) firm expects to experience increasing returns over the relevant level of output. 
B) firm is altruistic. 
C) consumer is able to pay less today because the total cost of the firm is expected to decline tomorrow. 
D) average fixed cost will decline or remain constant over the long run. 
E) total cost of the firm will remain constant as output expands.

Question 16

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. $$\begin{array} { | c | c | c | c | c | } 
\hline \text { Technique } & \text { A } & \text { B } & \text { C } & \text { D } \
\hline \text { Labour } & 25 & 35 & 50 & 30 \
\hline \text { Capital } & 50 & 35 & 25 & 60 \
\hline
\end{array}$$ TABLE 8- 1  
-Refer to Table 8- 1.If the price of both labour and capital is $10,which production technique minimizes the costs of producing 1000 units of output?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost. 
A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost.

Question 17

FIGURE 8- 1  
-Refer to Figure 8- 1.For which of the four firms would the family of short- run average total cost curves lie below the LRAC?

Accepted Answer

A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) none of the four firms 
A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) none of the four firms

Question 18

Increasing returns to scale for a firm is shown graphically by

Accepted Answer

A) an upward- sloping long- run average cost curve. 
B) a vertical long- run average cost curve. 
C) a horizontal long- run average cost curve. 
D) a downward- sloping long- run average cost curve. 
E) None of the above; returns to scale have nothing to do with the shape of the long- run average cost curve. 
A) an upward- sloping long- run average cost curve. 
B) a vertical long- run average cost curve. 
C) a horizontal long- run average cost curve. 
D) a downward- sloping long- run average cost curve. 
E) None of the above; returns to scale have nothing to do with the shape of the long- run average cost curve.

Question 19

FIGURE 8- 4  
-Refer to Figure 8- 4.The firm is initially operating at point B.An improvement in technology would be represented by

Accepted Answer

A) a movement toward point D. 
B) a new isocost curve. 
C) a movement toward the origin. 
D) a new isoquant map. 
E) a shift to the curve indicated by Q = 2000. 
A) a movement toward point D. 
B) a new isocost curve. 
C) a movement toward the origin. 
D) a new isoquant map. 
E) a shift to the curve indicated by Q = 2000.

Question 20

The slope of an isoquant measures

Accepted Answer

A) the average capital/labour ratio. 
B) the ratio of prices of goods. 
C) the ratio of prices of inputs. 
D) the marginal rate of (technical)substitution between factors. 
E) the marginal cost of a given level of output. 
A) the average capital/labour ratio. 
B) the ratio of prices of goods. 
C) the ratio of prices of inputs. 
D) the marginal rate of (technical)substitution between factors. 
E) the marginal cost of a given level of output.

In the long run,the law of diminishing marginal returns

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 3 and the marginal product of labour is 6,the cost- minimizing firm should

Consider the short- run and long- run cost curves for a firm.If factor prices decrease,

In the long run,a profit- maximizing firm produces any given level of output by choosing the production method that

Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit- maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be

Which of the following factors is most important as a source of sustained growth in material living standards?

FIGURE 8- 2 -Refer to Figure 8- 2.Increasing returns to scale occur over the output range

FIGURE 8- 4 -Refer to Figure 8- 4.The firm is initially operating at point B.If prices of both factors fell by 25% and the firm wished to continue expending the same amount on each resource (while continuing to maintain efficiency)the firm would

Isocost lines are downward sloping straight lines,reflecting

The figure below shows a family of cost curves for a firm.The subscripts 1,2,and 3 for the SRATC curves refer to different plant sizes. FIGURE 8- 3 -Refer to Figure 8- 3.Each of the three SRATC curves shows

When a cost- minimizing firm is faced with an increase in the relative price of labour,it adjusts its factor usage so as to

Consider the short- run and long- run cost curves for a firm.If there is a fall in all factor prices faced by the firm,

Consider the long- run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

"The bigger the volume,the lower the cost,and we pass these savings on to you" is a familiar advertising slogan.It implies essentially that the

FIGURE 8- 1 -Refer to Figure 8- 1.For which of the four firms would the family of short- run average total cost curves lie below the LRAC?

Increasing returns to scale for a firm is shown graphically by

FIGURE 8- 4 -Refer to Figure 8- 4.The firm is initially operating at point B.An improvement in technology would be represented by

The slope of an isoquant measures

Economic Issues and Concepts

Economic Theories,data,and Graphs

Demand,supply,and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Short Run

Competitive Markets

Monopoly,cartels,and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

The Gains From International Trade

Trade Policy

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Exam 8: Producers in the Long Run

In the long run,the law of diminishing marginal returns

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 3 and the marginal product of labour is 6,the cost- minimizing firm should

Consider the short- run and long- run cost curves for a firm.If factor prices decrease,

In the long run,a profit- maximizing firm produces any given level of output by choosing the production method that

Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit- maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be

Which of the following factors is most important as a source of sustained growth in material living standards?

FIGURE 8- 2 -Refer to Figure 8- 2.Increasing returns to scale occur over the output range

FIGURE 8- 4 -Refer to Figure 8- 4.The firm is initially operating at point B.If prices of both factors fell by 25% and the firm wished to continue expending the same amount on each resource (while continuing to maintain efficiency)the firm would

Isocost lines are downward sloping straight lines,reflecting

The figure below shows a family of cost curves for a firm.The subscripts 1,2,and 3 for the SRATC curves refer to different plant sizes. FIGURE 8- 3 -Refer to Figure 8- 3.Each of the three SRATC curves shows

When a cost- minimizing firm is faced with an increase in the relative price of labour,it adjusts its factor usage so as to

Consider the short- run and long- run cost curves for a firm.If there is a fall in all factor prices faced by the firm,

Consider the long- run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

"The bigger the volume,the lower the cost,and we pass these savings on to you" is a familiar advertising slogan.It implies essentially that the

FIGURE 8- 1 -Refer to Figure 8- 1.For which of the four firms would the family of short- run average total cost curves lie below the LRAC?

Increasing returns to scale for a firm is shown graphically by

FIGURE 8- 4 -Refer to Figure 8- 4.The firm is initially operating at point B.An improvement in technology would be represented by

The slope of an isoquant measures

Economic Issues and Concepts

Economic Theories,data,and Graphs

Demand,supply,and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Short Run

Competitive Markets

Monopoly,cartels,and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

The Gains From International Trade

Trade Policy

Filters