Question 1

The fact that new methods to extract oil are developed as oil prices increase suggests

Accepted Answer

A)  nothing; changes in technology occur regardless of market prices. 
B)  that invention does respond to economic signals and is endogenous. 
C)  that methods of production do not change in response to factor- price changes. 
D)  that invention is exogenous. 
E)  that oil has many close substitutes. 
A)  nothing; changes in technology occur regardless of market prices. 
B)  that invention does respond to economic signals and is endogenous. 
C)  that methods of production do not change in response to factor- price changes. 
D)  that invention is exogenous. 
E)  that oil has many close substitutes. B

Question 2

An isoquant shows

Accepted Answer

A)  the whole set of technically efficient factor combinations that can produce a single level of output. 
B)  the alternative factor combinations that require the same expenditure. 
C)  various levels of output that can be produced with different factor combinations. 
D)  various levels of output that can be produced with a fixed factor combination. 
E)  the whole set of technically efficient factor combinations that can produce varying levels of output. 
A)  the whole set of technically efficient factor combinations that can produce a single level of output. 
B)  the alternative factor combinations that require the same expenditure. 
C)  various levels of output that can be produced with different factor combinations. 
D)  various levels of output that can be produced with a fixed factor combination. 
E)  the whole set of technically efficient factor combinations that can produce varying levels of output. A

Question 3

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8- 6
-Refer to Figure 8- 6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. In order to maintain its output and minimize costs this firm should

Accepted Answer

A)  not change its use of factors. 
B)  employ more capital and less labour. 
C)  employ more labour and less capital. 
D)  move to an isocost line further from the origin. 
E)  move to an isoquant closer to the origin. 
A)  not change its use of factors. 
B)  employ more capital and less labour. 
C)  employ more labour and less capital. 
D)  move to an isocost line further from the origin. 
E)  move to an isoquant closer to the origin. B

Question 4

In defining a firm's long- run average cost curve,

Accepted Answer

A)  factor prices are held constant and the quantity of factors of production used is varied. 
B)  technology, factor prices, and the quantity of factors of production are all varied. 
C)  the time period must be longer than one year. 
D)  factor prices are held constant and technology is assumed to change. 
E)  factor prices are varied and the quantity of factors of production is held constant. 
A)  factor prices are held constant and the quantity of factors of production used is varied. 
B)  technology, factor prices, and the quantity of factors of production are all varied. 
C)  the time period must be longer than one year. 
D)  factor prices are held constant and technology is assumed to change. 
E)  factor prices are varied and the quantity of factors of production is held constant.

Question 5

If factor prices decrease,

Accepted Answer

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

Question 6

Increasing returns to scale

Accepted Answer

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

Question 7

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

Question 8

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

Accepted Answer

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

Question 9

FIGURE 8- 4
-Refer to Figure 8- 4, with the isoquants and isocost line as shown. A firm that is producing at point C can reduce its costs for producing 1000 units by employing

Accepted Answer

A)  less capital and less labour. 
B)  less capital and more labour. 
C)  more capital and less labour. 
D)  more capital and more labour. 
E)  less labour and the same capital. 
A)  less capital and less labour. 
B)  less capital and more labour. 
C)  more capital and less labour. 
D)  more capital and more labour. 
E)  less labour and the same capital.

Question 10

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

Accepted Answer

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

Question 11

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

Question 12

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) rises and the price of labour
(L) falls. If the firm decides to keep its output unchanged, it will 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 13

The figure below shows the isocost lines facing a firm producing golf tees.   FIGURE 8- 5
-Refer to Figure 8- 5. This firm can be a "cost minimizer" by producing on isocost line

Accepted Answer

A)  -- not determinable from the information provided. 
B)  4 only. 
C)  1 only. 
D)  2 only. 
E)  3 only. 
A)  -- not determinable from the information provided. 
B)  4 only. 
C)  1 only. 
D)  2 only. 
E)  3 only.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

A downward- sloping LRAC curve will shift downward because of

Accepted Answer

A)  factor substitution. 
B)  a decrease in factor prices. 
C)  specialization. 
D)  economies of scale. 
E)  the use of large, specialized machinery as the volume of output increases. 
A)  factor substitution. 
B)  a decrease in factor prices. 
C)  specialization. 
D)  economies of scale. 
E)  the use of large, specialized machinery as the volume of output increases.

Question 17

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firm operating at its optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be _ .

Accepted Answer

A)  30 
B)  10 
C)  120 
D)  90 
E)  20 
A)  30 
B)  10 
C)  120 
D)  90 
E)  20

Question 18

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

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

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

The fact that new methods to extract oil are developed as oil prices increase suggests

An isoquant shows

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8- 6 -Refer to Figure 8- 6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. In order to maintain its output and minimize costs this firm should

In defining a firm's long- run average cost curve,

If factor prices decrease,

Increasing returns to scale

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

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

FIGURE 8- 4 -Refer to Figure 8- 4, with the isoquants and isocost line as shown. A firm that is producing at point C can reduce its costs for producing 1000 units by employing

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

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

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 -Refer to Figure 8- 5. This firm can be a "cost minimizer" by producing on isocost line

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

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

A downward- sloping LRAC curve will shift downward because of

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firm operating at its optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be _ .

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

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

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

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

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

The fact that new methods to extract oil are developed as oil prices increase suggests

An isoquant shows

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8- 6 -Refer to Figure 8- 6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. In order to maintain its output and minimize costs this firm should

In defining a firm's long- run average cost curve,

If factor prices decrease,

Increasing returns to scale

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

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

FIGURE 8- 4 -Refer to Figure 8- 4, with the isoquants and isocost line as shown. A firm that is producing at point C can reduce its costs for producing 1000 units by employing

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

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

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 -Refer to Figure 8- 5. This firm can be a "cost minimizer" by producing on isocost line

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

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

A downward- sloping LRAC curve will shift downward because of

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firm operating at its optimal factor mix, if the marginal product of capital is 60, the marginal product of labour must be _ .

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

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

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

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

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