Exam 8: Producers in the Long Run

Canada has a much lower population density than does Japan. Therefore, the price of land (relative to the price of labour) is lower in Canada than in Japan. Consider a Canadian firm and a Japanese firm, both producing rice, both having access to the same technologies, and both striving to minimize their costs. The Canadian firm will use the two inputs, land and labour, in such a way that its land/labour ratio is

A cost- minimizing firm will increase its use of labour and decrease its use of capital when the

Which of the following conditions indicate cost minimization, assuming two inputs, labour (L) and capital (K)?

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

If there is an improvement in the firm's technology,

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

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. Suppose this firm is producing output level Q3 with plant size 2. Now suppose this firm changes to plant size 3 and is producing output level Q5. We can say that

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. Production Method MPK MPL A 50 4 B 45 8 C 40 12 D 35 16 E 30 20 F 25 24 G 20 28 TABLE 8- 2 -Refer to Table 8- 2. If capital costs $6 per unit and labour costs $4 per unit, which production method minimizes the cost of producing 1000 toys per day?

A very- long- run consideration that could change a firm's production function is

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

The point of tangency between the short- run average total cost (SRATC) curve and the long- run average cost (LRAC) curve occurs

FIGURE 8- 2 -Refer to Figure 8- 2. In the long run, the lowest- cost level of output achievable by this firm is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8- 5 -Refer to Figure 8- 5. The firm that is facing the isocost lines as shown will minimize its cost of production of any given output level if it employs capital and labour such that the ratio of the marginal product of labour to the marginal product of capital (MPL / MPK) is equal to

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 .

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. Production Method MPK MPL A 50 4 B 45 8 C 40 12 D 35 16 E 30 20 F 25 24 G 20 28 TABLE 8- 2 -Refer to Table 8- 2. Suppose capital costs $80 per unit and labour costs $24 per unit. Which production method minimizes the cost of producing 1000 toys per day.

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

Isoquants are usually drawn convex when viewed from the origin, reflecting the standard assumption

Suppose that capital costs $50 per unit and labour costs $20 per unit. If the marginal product of capital is 100 and the marginal product of labour is 30, a cost- minimizing firm should

FIGURE 8- 4 -Refer to Figure 8- 4. A firm that is producing an output of 1000 units will minimize its costs at point

The principle of substitution plays a central role in resource allocation because it demonstrates that