Question 1

Movement from one point to another along an isoquant implies a change in

Accepted Answer

A) output levels,holding factor combinations constant. 
B) factor combinations,holding output constant. 
C) product prices. 
D) the level of output,independent of what happens to factor combinations. 
E) money income. 
A) output levels,holding factor combinations constant. 
B) factor combinations,holding output constant. 
C) product prices. 
D) the level of output,independent of what happens to factor combinations. 
E) money income.

Question 2

Movement from one point to another along an isocost line implies a change in

Accepted Answer

A) output levels,holding factor combinations constant. 
B) factor combinations,holding expenditure constant. 
C) factor prices. 
D) the level of output,independent of what happens to factor combinations. 
E) expenditure. 
A) output levels,holding factor combinations constant. 
B) factor combinations,holding expenditure constant. 
C) factor prices. 
D) the level of output,independent of what happens to factor combinations. 
E) expenditure.

Question 3

With respect to innovation,which of the following statements is true?

Accepted Answer

A) Government policy cannot influence the rate of innovation. 
B) Innovation is exogenous to the economic system. 
C) The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
D) The principal incentive for innovation does not appear to be related to profits. 
E) Innovation is often endogenous to the economic system. 
A) Government policy cannot influence the rate of innovation. 
B) Innovation is exogenous to the economic system. 
C) The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
D) The principal incentive for innovation does not appear to be related to profits. 
E) Innovation is often endogenous to the economic system.

Question 4

Suppose a firm is employing labour (L)and capital (K)such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then

Accepted Answer

A) employ more labour and less capital because MPK/MPL > PK/PL. B) employ more capital and less labour because MPK/MPL > PK/PL. C) employ more labour and less capital because MPK/MPL < PK/PL. D) employ more capital and less labour because MPK/MPL < PK/PL. E) do nothing. A) employ more labour and less capital because MPK/MPL > PK/PL. B) employ more capital and less labour because MPK/MPL > PK/PL. C) employ more labour and less capital because MPK/MPL < PK/PL. D) employ more capital and less labour because MPK/MPL < PK/PL. E) do nothing.

Question 5

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month.   TABLE 8-1
-Refer to Table 8-1.Which production technique is obviously technically inefficient?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) All four techniques are inefficient. 
A) A 
B) B 
C) C 
D) D 
E) All four techniques are inefficient.

Question 6

Suppose RioTintoAlcan is considering the construction of a new aluminum smelter in Northern Quebec,the operation of which requires a great deal of electricity.Suppose also that the price of electricity is predicted to rise significantly in the near future.As a result,the firm decides to build a plant using existing technology that is more expensive but uses less electricity per tonne of aluminum produced.This behaviour is an example of

Accepted Answer

A) short-run profit maximization. 
B) short-run cost minimization. 
C) the long-run principle of substitution. 
D) innovation away from changes in factor prices. 
E) long-run economies of scale. 
A) short-run profit maximization. 
B) short-run cost minimization. 
C) the long-run principle of substitution. 
D) innovation away from changes in factor prices. 
E) long-run economies of scale.

Question 7

By expressing the cost-minimizing condition as MPK/MPL = PK/PL,we are able to see

Accepted Answer

A) how the firm determines its profit-maximizing output. 
B) how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market. 
C) that the capital-labour ratio is fixed. 
D) that the ratio of factor prices is constant over time. 
E) that the firm is producing at a lower cost if the left-hand side of the equation is greater than the right-hand side. 
A) how the firm determines its profit-maximizing output. 
B) how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market. 
C) that the capital-labour ratio is fixed. 
D) that the ratio of factor prices is constant over time. 
E) that the firm is producing at a lower cost if the left-hand side of the equation is greater than the right-hand side.

Question 8

Suppose a firm experiences decreasing returns to scale.This is shown graphically by

Accepted Answer

A) a downward-sloping long-run average cost curve. 
B) an upward-sloping long-run average cost curve. 
C) a downward-sloping long-run marginal-cost curve. 
D) a horizontal long-run average cost curve. 
E) an increasing marginal product curve. 
A) a downward-sloping long-run average cost curve. 
B) an upward-sloping long-run average cost curve. 
C) a downward-sloping long-run marginal-cost curve. 
D) a horizontal long-run average cost curve. 
E) an increasing marginal product curve.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

A) the firm will move down along both its long-run and short-run average cost curves. 
B) the firm will move down along 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 down along both its long-run and short-run average cost curves. 
B) the firm will move down along 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 11

Suppose capital costs $2000 per unit and labour costs $50 per unit.For a profit - maximizing firm operating at its optimal factor mix,if the marginal product of labour is 10,the marginal product of capital must be

Accepted Answer

A) 40. 
B) 50. 
C) 100. 
D) 400. 
E) 500. 
A) 40. 
B) 50. 
C) 100. 
D) 400. 
E) 500.

Question 12

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month.   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 13

The slope of a firmʹs isocost line is equal to the ratio of

Accepted Answer

A) the marginal products of its factors. 
B) the marginal rate of substitution between factors. 
C) the factor prices. 
D) total variable cost to total cost. 
E) product prices. 
A) the marginal products of its factors. 
B) the marginal rate of substitution between factors. 
C) the factor prices. 
D) total variable cost to total cost. 
E) product prices.

Question 14

Which of the following is unlikely to be a source of increasing productivity?

Accepted Answer

A) better raw materials even if there are no changes in factor quantities or proportions 
B) better organization of production 
C) substitution toward labour and away from capital (with constant technology) 
D) better-trained labour 
E) increases in technological know-how 
A) better raw materials even if there are no changes in factor quantities or proportions 
B) better organization of production 
C) substitution toward labour and away from capital (with constant technology) 
D) better-trained labour 
E) increases in technological know-how

Question 15

Of the following,which is the least likely to represent a firmʹs long-run decision?

Accepted Answer

A) What should be the size and design of a firmʹs new plant? 
B) Should the firm choose a method of production that uses relatively more capital than labour? 
C) By how much should output be expanded from existing plants? 
D) Should the firm invest resources in the development of better technologies? 
E) What technique (technology)is the best to use under current factor pricing? 
A) What should be the size and design of a firmʹs new plant? 
B) Should the firm choose a method of production that uses relatively more capital than labour? 
C) By how much should output be expanded from existing plants? 
D) Should the firm invest resources in the development of better technologies? 
E) What technique (technology)is the best to use under current factor pricing?

Question 16

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

Accepted Answer

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

Question 17

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour.Now both inputs are doubled,resulting in output rising to 18 units per hour.The firm is experiencing

Accepted Answer

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

Question 18

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 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. 
B) 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. 
C) The LRAC is an envelope curve,joining the minimum points on all SRATC curves. 
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 diseconomies of scales,whereas the LRAC curve shows economies of scale. 
A) 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. 
B) 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. 
C) The LRAC is an envelope curve,joining the minimum points on all SRATC curves. 
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 diseconomies of scales,whereas the LRAC curve shows economies of scale.

Question 19

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

Question 20

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

Accepted Answer

A) substitute capital for labour until their marginal products are equal. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) not alter its present factor mix. 
A) substitute capital for labour until their marginal products are equal. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) not alter its present factor mix.

Exam 8: Producers in the Long Run

Movement from one point to another along an isoquant implies a change in

Movement from one point to another along an isocost line implies a change in

With respect to innovation,which of the following statements is true?

Suppose a firm is employing labour (L)and capital (K)such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. TABLE 8-1 -Refer to Table 8-1.Which production technique is obviously technically inefficient?

By expressing the cost-minimizing condition as MPK/MPL = PK/PL,we are able to see

Suppose a firm experiences decreasing returns to scale.This is shown graphically by

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

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

Suppose capital costs $2000 per unit and labour costs $50 per unit.For a profit - maximizing firm operating at its optimal factor mix,if the marginal product of labour is 10,the marginal product of capital must be

The slope of a firmʹs isocost line is equal to the ratio of

Which of the following is unlikely to be a source of increasing productivity?

Of the following,which is the least likely to represent a firmʹs long-run decision?

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

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour.Now both inputs are doubled,resulting in output rising to 18 units per hour.The firm is experiencing

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?

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

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

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