Question 1

A firm's long- run average cost curve

Accepted Answer

A) is horizontal in most situations. 
B) is the boundary between attainable and unattainable cost levels,with known production technologies and given factor prices. 
C) shows the relationship between marginal cost and output given that the economically most efficient method of production is employed. 
D) is an envelope of short- run average variable cost curves. 
E) shows the minimum cost of producing each possible level of output with a fixed factor. 
A) is horizontal in most situations. 
B) is the boundary between attainable and unattainable cost levels,with known production technologies and given factor prices. 
C) shows the relationship between marginal cost and output given that the economically most efficient method of production is employed. 
D) is an envelope of short- run average variable cost curves. 
E) shows the minimum cost of producing each possible level of output with a fixed factor.

Question 2

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

Accepted Answer

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

Question 3

When there is no other way of producing a given level of output with a smaller total value of inputs,the firm is operating at

Accepted Answer

A) optimal output. 
B) maximum cost. 
C) maximum profit. 
D) maximum output. 
E) minimum cost. 
A) optimal output. 
B) maximum cost. 
C) maximum profit. 
D) maximum output. 
E) minimum cost.

Question 4

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $10 per unit and the price of capital is $5 per unit.The MPL equals 2 and the MPK equals 5.In this situation,

Accepted Answer

A) the firm should decrease the use of both inputs. 
B) the firm is minimizing its costs. 
C) the firm could lower its production costs by increasing labour input and decreasing capital input. 
D) the firm should increase the use of both inputs. 
E) the firm could lower its production costs by decreasing labour input and increasing capital input. 
A) the firm should decrease the use of both inputs. 
B) the firm is minimizing its costs. 
C) the firm could lower its production costs by increasing labour input and decreasing capital input. 
D) the firm should increase the use of both inputs. 
E) the firm could lower its production costs by decreasing labour input and increasing capital input.

Question 5

Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost- minimizing firm should

Accepted Answer

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

Question 6

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing

Accepted Answer

A) diseconomies of scale. 
B) increasing costs. 
C) decreasing returns to scale. 
D) increasing returns to scale. 
E) constant returns to scale. 
A) diseconomies of scale. 
B) increasing costs. 
C) decreasing returns to scale. 
D) increasing returns to scale. 
E) constant returns to scale.

Question 7

What is meant by the term "increasing returns to scale"?

Accepted Answer

A) it has the same meaning as increasing costs of production 
B) output rises proportionately more than inputs,resulting in increasing per unit costs 
C) output rises proportionately less than inputs,increasing per unit cost of production in the short run 
D) it implies that the long- run average cost curve is shifting downward 
E) output rises proportionately more than inputs,resulting in lower per unit costs in the long run 
A) it has the same meaning as increasing costs of production 
B) output rises proportionately more than inputs,resulting in increasing per unit costs 
C) output rises proportionately less than inputs,increasing per unit cost of production in the short run 
D) it implies that the long- run average cost curve is shifting downward 
E) output rises proportionately more than inputs,resulting in lower per unit costs in the long run

Question 8

The figure below shows the isocost lines facing a firm producing golf tees.
   FIGURE 8- 5   $$55$$
-Refer to Figure 8- 5.Given the information provided about the isocost lines,we know that the per unit price of capital is _ and the per unit price of labour is _ .

Accepted Answer

A) $50; $20 
B) $2; $5 
C) $20; $50 
D) $5; $2 
E) not determinable; not determinable 
A) $50; $20 
B) $2; $5 
C) $20; $50 
D) $5; $2 
E) not determinable; not determinable

Question 9

FIGURE 8- 4  
-Refer to Figure 8- 4.The firm is initially minimizing the cost of producing 1000 units of output.Suppose the factor prices then change such that the price of capital (K)falls and the price of labour (L)rises.If the firm decides to leave its output unchanged,it will now move toward the point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) Unknown as there is insufficient information to know 
A) A. 
B) B. 
C) C. 
D) D. 
E) Unknown as there is insufficient information to know

Question 10

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.What is the difference between the SRATC curves and the LRAC curve?

Accepted Answer

A) The LRAC is an envelope curve,joining the minimum points on all SRATC curves. 
B) The SRATC curves show diseconomies of scales,whereas the LRAC curve shows economies of scale. 
C) The SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run,whereas the LRAC curve shows the same in the long run. 
D) For the SRATC curves,one or more of the factors of production is fixed,whereas for the LRAC curve,all factors of production are variable. 
E) The SRATC curves show the optimal plant size when all factors of production are variable,whereas the LRAC shows the lowest cost attainable associated with each LRAC curve. 
A) The LRAC is an envelope curve,joining the minimum points on all SRATC curves. 
B) The SRATC curves show diseconomies of scales,whereas the LRAC curve shows economies of scale. 
C) The SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run,whereas the LRAC curve shows the same in the long run. 
D) For the SRATC curves,one or more of the factors of production is fixed,whereas for the LRAC curve,all factors of production are variable. 
E) The SRATC curves show the optimal plant size when all factors of production are variable,whereas the LRAC shows the lowest cost attainable associated with each LRAC curve.

Question 11

A short- run average total cost curve and a long- run average cost curve are tangent

Accepted Answer

A) when the plant size is at the optimal level for that level of output. 
B) where the short- run cost curve is upward sloping. 
C) where the short- run cost curve is downward sloping. 
D) by coincidence. 
E) where the short- run cost curve is downward sloping and the plant size is optimal. 
A) when the plant size is at the optimal level for that level of output. 
B) where the short- run cost curve is upward sloping. 
C) where the short- run cost curve is downward sloping. 
D) by coincidence. 
E) where the short- run cost curve is downward sloping and the plant size is optimal.

Question 12

Although capital is a variable factor in the long run,once chosen it becomes a fixed factor for a long time.A profit- maximizing firm must therefore select a method of production that is

Accepted Answer

A) adaptable to wide ranges of output over time. 
B) economically efficient at current factor prices. 
C) technologically advanced beyond methods currently used. 
D) economically efficient at current factor prices and sufficiently flexible to adapt to changing factor prices over time. 
E) labour intensive,as labour is always a variable factor. 
A) adaptable to wide ranges of output over time. 
B) economically efficient at current factor prices. 
C) technologically advanced beyond methods currently used. 
D) economically efficient at current factor prices and sufficiently flexible to adapt to changing factor prices over time. 
E) labour intensive,as labour is always a variable factor.

Question 13

The figure below shows the isocost lines facing a firm producing golf tees.
   FIGURE 8- 5
-Refer to Figure 8- 5.If the cost- minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3,we can say that

Accepted Answer

A) the per unit prices of capital and labour have fallen by 50%. 
B) the firm is producing more efficiently. 
C) the per unit prices of capital and labour have each doubled. 
D) the output of golf tees has doubled. 
E) the firm's level of output has increased. 
A) the per unit prices of capital and labour have fallen by 50%. 
B) the firm is producing more efficiently. 
C) the per unit prices of capital and labour have each doubled. 
D) the output of golf tees has doubled. 
E) the firm's level of output has increased.

Question 14

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire

Accepted Answer

A) more input X only if its price decreases. 
B) more input Y and less input X. 
C) more input X and less input Y. 
D) more input X only if its price increases. 
E) more input Y only if its price falls. 
A) more input X only if its price decreases. 
B) more input Y and less input X. 
C) more input X and less input Y. 
D) more input X only if its price increases. 
E) more input Y only if its price falls.

Question 15

Which of the following paired concepts are equivalent to each other?

Accepted Answer

A) increasing returns; decreasing costs 
B) increasing returns; diseconomies of scale 
C) increasing returns; increasing costs 
D) constant costs; economies of scale 
E) increasing costs; economies of scale 
A) increasing returns; decreasing costs 
B) increasing returns; diseconomies of scale 
C) increasing returns; increasing costs 
D) constant costs; economies of scale 
E) increasing costs; economies of scale

Question 16

If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should in order to minimize its costs of producing its output.

Accepted Answer

A) decrease capital and increase labour 
B) not alter its present factor mix 
C) decrease both capital and labour 
D) increase capital and decrease labour 
E) increase both labour and capital 
A) decrease capital and increase labour 
B) not alter its present factor mix 
C) decrease both capital and labour 
D) increase capital and decrease labour 
E) increase both labour and capital

Question 17

A change in the technique for producing an existing product is known as

Accepted Answer

A) process innovation. 
B) an increase in productivity. 
C) product innovation. 
D) investment. 
E) invention. 
A) process innovation. 
B) an increase in productivity. 
C) product innovation. 
D) investment. 
E) invention.

Question 18

Which of the following cost curves demonstrate increasing returns to scale?

Accepted Answer

A) a vertical long- run average cost curve 
B) an upward- sloping long- run average cost curve 
C) returns to scale have nothing to do with the shape of the long- run average cost curve 
D) a horizontal long- run average cost curve 
E) a downward- sloping long- run average cost curve 
A) a vertical long- run average cost curve 
B) an upward- sloping long- run average cost curve 
C) returns to scale have nothing to do with the shape of the long- run average cost curve 
D) a horizontal long- run average cost curve 
E) a downward- sloping long- run average cost curve

Question 19

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.Should this profit- maximizing firm ever consider moving from point E (output level Q3 on SRATC2)to point F (output level Q5 on SRATC3)?

Accepted Answer

A) Yes,because the firm can take advantage of economies of scale. 
B) No,because they are already producing at their lowest possible cost at point E. 
C) Yes,because SRATC3 is the optimal plant size for this firm. 
D) Yes,if the product price rises enough to lead the firm to expand to plant size 3. 
E) No,because producing at point F implies a higher cost per unit of output. 
A) Yes,because the firm can take advantage of economies of scale. 
B) No,because they are already producing at their lowest possible cost at point E. 
C) Yes,because SRATC3 is the optimal plant size for this firm. 
D) Yes,if the product price rises enough to lead the firm to expand to plant size 3. 
E) No,because producing at point F implies a higher cost per unit of output.

Question 20

Which of the following statements most accurately makes the distinction between the long run and the very- long run with respect to the long- run average cost (LRAC)curve?

Accepted Answer

A) In the long run,the firm is moving along the existing LRAC curve,whereas in the very- long run,the LRAC curve is shifting down. 
B) In the long run,the firm is moving along the existing LRAC curve,whereas in the very- long run,the LRAC curve is shifting up. 
C) In the long run,the LRAC curve is shifting up,whereas in the very- long run the firm is moving along the existing LRAC curve. 
D) In the long run,the LRAC curve is shifting down,whereas in the very- long run the firm is moving along the existing LRAC curve. 
E) There is no distinction between the long run and the very- long run with respect to the LRAC curve. 
A) In the long run,the firm is moving along the existing LRAC curve,whereas in the very- long run,the LRAC curve is shifting down. 
B) In the long run,the firm is moving along the existing LRAC curve,whereas in the very- long run,the LRAC curve is shifting up. 
C) In the long run,the LRAC curve is shifting up,whereas in the very- long run the firm is moving along the existing LRAC curve. 
D) In the long run,the LRAC curve is shifting down,whereas in the very- long run the firm is moving along the existing LRAC curve. 
E) There is no distinction between the long run and the very- long run with respect to the LRAC curve.

A firm's long- run average cost curve

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

When there is no other way of producing a given level of output with a smaller total value of inputs,the firm is operating at

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $10 per unit and the price of capital is $5 per unit.The MPL equals 2 and the MPK equals 5.In this situation,

Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost- minimizing firm should

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing

What is meant by the term "increasing returns to scale"?

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 $55$ -Refer to Figure 8- 5.Given the information provided about the isocost lines,we know that the per unit price of capital is _ and the per unit price of labour is _ .

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.What is the difference between the SRATC curves and the LRAC curve?

A short- run average total cost curve and a long- run average cost curve are tangent

Although capital is a variable factor in the long run,once chosen it becomes a fixed factor for a long time.A profit- maximizing firm must therefore select a method of production that is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 -Refer to Figure 8- 5.If the cost- minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3,we can say that

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire

Which of the following paired concepts are equivalent to each other?

If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should in order to minimize its costs of producing its output.

A change in the technique for producing an existing product is known as

Which of the following cost curves demonstrate increasing returns to scale?

Which of the following statements most accurately makes the distinction between the long run and the very- long run with respect to the long- run average cost (LRAC)curve?

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

Exam 8: Producers in the Long Run

A firm's long- run average cost curve

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

When there is no other way of producing a given level of output with a smaller total value of inputs,the firm is operating at

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $10 per unit and the price of capital is $5 per unit.The MPL equals 2 and the MPK equals 5.In this situation,

Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost- minimizing firm should

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing

What is meant by the term "increasing returns to scale"?

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 555555 -Refer to Figure 8- 5.Given the information provided about the isocost lines,we know that the per unit price of capital is _ and the per unit price of labour is _ .

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.What is the difference between the SRATC curves and the LRAC curve?

A short- run average total cost curve and a long- run average cost curve are tangent

Although capital is a variable factor in the long run,once chosen it becomes a fixed factor for a long time.A profit- maximizing firm must therefore select a method of production that is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 -Refer to Figure 8- 5.If the cost- minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3,we can say that

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire

Which of the following paired concepts are equivalent to each other?

If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should in order to minimize its costs of producing its output.

A change in the technique for producing an existing product is known as

Which of the following cost curves demonstrate increasing returns to scale?

Which of the following statements most accurately makes the distinction between the long run and the very- long run with respect to the long- run average cost (LRAC)curve?

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

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 $55$ -Refer to Figure 8- 5.Given the information provided about the isocost lines,we know that the per unit price of capital is _ and the per unit price of labour is _ .