Question 1

Consider a firm in the long run that is trying to maximize its profits.It should

Accepted Answer

A) select the most technically efficient method of production regardless of the level of production. 
B) maximize the marginal product of all factors of production. 
C) charge the highest price. 
D) minimize the cost of producing whatever level of output it chooses. 
E) charge the lowest price possible given the minimum possible cost. 
A) select the most technically efficient method of production regardless of the level of production. 
B) maximize the marginal product of all factors of production. 
C) charge the highest price. 
D) minimize the cost of producing whatever level of output it chooses. 
E) charge the lowest price possible given the minimum possible cost.

Question 2

A short-run average total cost curve will touch the long-run average cost curve at a level of output only

Accepted Answer

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

Question 3

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

Question 4

Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,and produces 120 000 bushels of crop.The next year he hires 8 workers and leases 4 tractors and 30 hectares of farmland,and produces 260 000 bushels of crop.This firm (the farmer)is exhibiting ________ returns to scale.

Accepted Answer

A) decreasing 
B) increasing 
C) constant 
D) marginal 
E) variable 
A) decreasing 
B) increasing 
C) constant 
D) marginal 
E) variable

Question 5

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 12 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.

Question 6

The following table shows the marginal products of capital (K)and labour (L)for various methods for Firm ABC to produce 1000 toys per day.   TABLE 8-2
-Refer to Table 8-2.Suppose capital costs $6 per unit and labour costs $4 per unit and the firm is employing production method A.How should this firm adjust its use of capital and labour to minimize costs?

Accepted Answer

A) employ more capital and less labour 
B) employ less capital and more labour 
C) employ more capital and more labour 
D) employ less capital and less labour 
E) There is insufficient information to know. 
A) employ more capital and less labour 
B) employ less capital and more labour 
C) employ more capital and more labour 
D) employ less capital and less labour 
E) There is insufficient information to know.

Question 7

Consider the short-run and long-run cost curves for a firm.If there is an improvement in the firmʹs technology,

Accepted Answer

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

Question 8

The fact that isoquants are downward sloping indicates

Accepted Answer

A) the diminishing marginal productivity of a variable factor. 
B) the diminishing marginal productivity of a fixed factor. 
C) that each factor input has a negative marginal productivity. 
D) a change in relative factor prices,with output held constant. 
E) that a reduction in the use of one factor requires an increase in the use of the other factor in order to keep output constant. 
A) the diminishing marginal productivity of a variable factor. 
B) the diminishing marginal productivity of a fixed factor. 
C) that each factor input has a negative marginal productivity. 
D) a change in relative factor prices,with output held constant. 
E) that a reduction in the use of one factor requires an increase in the use of the other factor in order to keep output constant.

Question 9

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 25 and the MPK equals 400.In this situation,

Accepted Answer

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

Question 10

Suppose Commercial Footwear Inc.is making a cost-minimizing decision about the level of output to produce with a given technology.Which of the following is a long-run decision?

Accepted Answer

A) Should we build a larger shoe manufacturing facility? 
B) Should we hire additional labour to work in the existing facility? 
C) Should we change to a lower-cost leather supplier? 
D) Should we invest in research for a new,improved technology for shoe production? 
E) Should we hire more accountants to investigate ways to reduce our corporate tax payments? 
A) Should we build a larger shoe manufacturing facility? 
B) Should we hire additional labour to work in the existing facility? 
C) Should we change to a lower-cost leather supplier? 
D) Should we invest in research for a new,improved technology for shoe production? 
E) Should we hire more accountants to investigate ways to reduce our corporate tax payments?

Question 11

The creation of a new product is called

Accepted Answer

A) process innovation. 
B) a rise in productivity. 
C) creative destruction. 
D) investment. 
E) product innovation. 
A) process innovation. 
B) a rise in productivity. 
C) creative destruction. 
D) investment. 
E) product innovation.

Question 12

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

Question 13

The long-run average cost curve is an envelope curve,with each point associated with a short-run average cost curve

Accepted Answer

A) tangent at that point. 
B) crossing that point from above. 
C) lying below it. 
D) intersecting that point. 
E) at its minimum point. 
A) tangent at that point. 
B) crossing that point from above. 
C) lying below it. 
D) intersecting that point. 
E) at its minimum point.

Question 14

A very-long-run consideration that could change a firmʹs production function is

Accepted Answer

A) rising cost of the factors of production. 
B) increasing returns to scale of operation. 
C) an improvement in education that increases the quality of the economyʹs labour force. 
D) diminishing returns. 
E) size of the plant. 
A) rising cost of the factors of production. 
B) increasing returns to scale of operation. 
C) an improvement in education that increases the quality of the economyʹs labour force. 
D) diminishing returns. 
E) size of the plant.

Question 15

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour.Now it doubles both inputs,resulting in output of 30 widgets per hour.This firm is experiencing

Accepted Answer

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

Question 16

What is the definition of productivity?

Accepted Answer

A) output produced per unit of input 
B) output produced by a combination of two or more inputs 
C) the cost of a unit of output 
D) a measure of input used 
E) the efficient use of technology 
A) output produced per unit of input 
B) output produced by a combination of two or more inputs 
C) the cost of a unit of output 
D) a measure of input used 
E) the efficient use of technology

Question 17

In the long run,decreasing returns to scale are likely to be caused by

Accepted Answer

A) diseconomies of scale associated with management problems. 
B) a decrease in factor prices. 
C) increasing specialization of labour. 
D) diminishing returns to the variable factor. 
E) decreasing costs. 
A) diseconomies of scale associated with management problems. 
B) a decrease in factor prices. 
C) increasing specialization of labour. 
D) diminishing returns to the variable factor. 
E) decreasing costs.

Question 18

Consider a firm that uses only labour and capital.At the present use of labour and capital,the MP of labour is twice the MP of capital,and the price of labour is four times the price of capital.In order to minimize its costs,the firm should

Accepted Answer

A) increase capital and decrease labour. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) maintain its present factor mix. 
A) increase capital and decrease labour. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) maintain its present factor mix.

Question 19

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 60 and the MPK equals 1200.In this situation,

Accepted Answer

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

Question 20

The slope of an isoquant measures

Accepted Answer

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

Exam 8: Producers in the Long Run

Consider a firm in the long run that is trying to maximize its profits.It should

A short-run average total cost curve will touch the long-run average cost curve at a level of output only

Suppose 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 $6 per unit and labour costs $3 per unit.If the marginal product of capital is 12 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 there is an improvement in the firmʹs technology,

The fact that isoquants are downward sloping indicates

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 25 and the MPK equals 400.In this situation,

Suppose Commercial Footwear Inc.is making a cost-minimizing decision about the level of output to produce with a given technology.Which of the following is a long-run decision?

The creation of a new product is called

In the long run,the law of diminishing marginal returns

The long-run average cost curve is an envelope curve,with each point associated with a short-run average cost curve

A very-long-run consideration that could change a firmʹs production function is

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour.Now it doubles both inputs,resulting in output of 30 widgets per hour.This firm is experiencing

What is the definition of productivity?

In the long run,decreasing returns to scale are likely to be caused by

Consider a firm that uses only labour and capital.At the present use of labour and capital,the MP of labour is twice the MP of capital,and the price of labour is four times the price of capital.In order to minimize its costs,the firm should

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $50 per unit and the price of capital is $800 per unit.The MPL equals 60 and the MPK equals 1200.In this situation,

The slope of an isoquant measures

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From the Short Run to the Long Run: the Adjustment of Factor Prices

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