Question 1

A profit- maximizing firm will increase its use of capital and decrease its use of labour when the

Accepted Answer

A)  average product of capital is higher than the average product of labour. 
B)  total product of capital is higher than the total product of labour. 
C)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
D)  marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour. 
E)  marginal product of capital is higher than the marginal product of labour. 
A)  average product of capital is higher than the average product of labour. 
B)  total product of capital is higher than the total product of labour. 
C)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
D)  marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour. 
E)  marginal product of capital is higher than the marginal product of labour.

Question 2

A profit- maximizing firm with variable labour and capital will always produce

Accepted Answer

A)  at a point on the LRAC curve where it is experiencing economies of scale. 
B)  at the minimum point of the LRAC curve. 
C)  at the tangency of the relevant SRATC curve and the LRAC curve. 
D)  anywhere along the LRAC curve. 
E)  at the minimum of the relevant SRATC curve and the LRAC curve. 
A)  at a point on the LRAC curve where it is experiencing economies of scale. 
B)  at the minimum point of the LRAC curve. 
C)  at the tangency of the relevant SRATC curve and the LRAC curve. 
D)  anywhere along the LRAC curve. 
E)  at the minimum of the relevant SRATC curve and the LRAC curve.

Question 3

FIGURE 8- 4
-Refer to Figure 8- 4. A firm that is producing an output of 2000 units will minimize its costs at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  not enough information provided to be sure. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  not enough information provided to be sure.

Question 4

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. The cost- minimizing factor combination for producing 2000 golf tees is

Accepted Answer

A)  6 units of capital and 15 units of labour. 
B)  12 units of capital and 30 units of labour. 
C)  10 units of capital and 25 units of labour. 
D)  4 units of capital and 10 units of labour. 
E)  8 units of capital and 20 units of labour. 
A)  6 units of capital and 15 units of labour. 
B)  12 units of capital and 30 units of labour. 
C)  10 units of capital and 25 units of labour. 
D)  4 units of capital and 10 units of labour. 
E)  8 units of capital and 20 units of labour.

Question 5

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

Question 6

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

Question 7

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

Question 8

A firm's long- run average cost curve

Accepted Answer

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

Question 9

Isocost lines are downward sloping straight lines, reflecting

Accepted Answer

A)  increasing factor prices. 
B)  that each factor price has a negative value. 
C)  constant factor prices. 
D)  a change in relative factor prices. 
E)  decreasing factor prices. 
A)  increasing factor prices. 
B)  that each factor price has a negative value. 
C)  constant factor prices. 
D)  a change in relative factor prices. 
E)  decreasing factor prices.

Question 10

Increasing returns to scale for a firm is shown graphically by

Accepted Answer

A)  a horizontal long- run average cost curve. 
B)  a downward- sloping long- run average cost curve. 
C)  an upward- sloping long- run average cost curve. 
D)  a vertical long- run average cost curve. 
E)  none of the above; returns to scale have nothing to do with the shape of the long- run average cost curve. 
A)  a horizontal long- run average cost curve. 
B)  a downward- sloping long- run average cost curve. 
C)  an upward- sloping long- run average cost curve. 
D)  a vertical long- run average cost curve. 
E)  none of the above; returns to scale have nothing to do with the shape of the long- run average cost curve.

Question 11

Any point representing a cost and output combination that is below the long- run average cost curve

Accepted Answer

A)  is attainable if the firm minimizes its costs according to the "principle of substitution". 
B)  is attainable only when all factors are variable. 
C)  represents unattainable cost levels. 
D)  may represent actual cost and production levels in the short run. 
E)  represents less efficient cost levels than points on the long- run average cost curve. 
A)  is attainable if the firm minimizes its costs according to the "principle of substitution". 
B)  is attainable only when all factors are variable. 
C)  represents unattainable cost levels. 
D)  may represent actual cost and production levels in the short run. 
E)  represents less efficient cost levels than points on the long- run average cost curve.

Question 12

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. $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \begin{array} { l } 
\text { Production } \
\text { Method }
\end{array} & \text { MPK } & \text { MPL } \
\hline \text { A } & 50 & 4 \
\hline \text { B } & 45 & 8 \
\hline \text { C } & 40 & 12 \
\hline \text { D } & 35 & 16 \
\hline \text { E } & 30 & 20 \
\hline \text { F } & 25 & 24 \
\hline \text { G } & 20 & 28 \
\hline
\end{array}\
\text { TABLE 8- } 2
\end{array}$$
-Refer to Table 8- 2. As this firm switches from production method A to production method G, production is

Accepted Answer

A)  remaining at a cost- minimizing level of output. 
B)  becoming more labour intensive and less capital intensive. 
C)  becoming more profitable. 
D)  becoming more capital intensive and less labour intensive. 
E)  moving farther and farther away from cost minimization. 
A)  remaining at a cost- minimizing level of output. 
B)  becoming more labour intensive and less capital intensive. 
C)  becoming more profitable. 
D)  becoming more capital intensive and less labour intensive. 
E)  moving farther and farther away from cost minimization.

Question 13

Productivity is defined as

Accepted Answer

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

Question 14

The slope of a firm's isocost line is equal to the ratio of

Accepted Answer

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

Question 15

The creation of a new product is called

Accepted Answer

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

Question 16

Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling both inputs the result is a doubling of output. This firm is experiencing

Accepted Answer

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

Question 17

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. $$\begin{array}{l}
\begin{array} { | l | l | l | l | l | } 
\hline \text { Technique } & \text { A } & \text { B } & \text { C } & \text { D } \
\hline \text { Labour } & 25 & 35 & 50 & 30 \
\hline \text { Capital } & 50 & 35 & 25 & 60 \
\hline
\end{array}\
\text { TABLE 8- } 1
\end{array}$$
-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 18

FIGURE 8- 4
-Refer to Figure 8- 4. The firm is initially producing 2000 units and minimizing its production cost at point D. Suppose the prices of capital and labour each rise by 10 percent. If the firm wishes to continue producing the same level of output it will

Accepted Answer

A)  move toward point B. 
B)  move to the right of point D. 
C)  remain at point D. 
D)  move toward point A. 
E)  move toward point C. 
A)  move toward point B. 
B)  move to the right of point D. 
C)  remain at point D. 
D)  move toward point A. 
E)  move toward point C.

Question 19

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

Accepted Answer

A)  decrease capital and increase labour. 
B)  substitute capital for labour until their marginal products are equal. 
C)  stay at its present factor mix. 
D)  decrease both capital and labour. 
E)  increase both labour and capital. 
A)  decrease capital and increase labour. 
B)  substitute capital for labour until their marginal products are equal. 
C)  stay at its present factor mix. 
D)  decrease both capital and labour. 
E)  increase both labour and capital.

Question 20

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. The minimum efficient scale is achieved by this firm at output level

Accepted Answer

A)  Q3. 
B)  Q4. 
C)  Q2. 
D)  Q1. 
E)  Q5. 
A)  Q3. 
B)  Q4. 
C)  Q2. 
D)  Q1. 
E)  Q5.

A profit- maximizing firm will increase its use of capital and decrease its use of labour when the

A profit- maximizing firm with variable labour and capital will always produce

FIGURE 8- 4 -Refer to Figure 8- 4. A firm that is producing an output of 2000 units will minimize its costs at point

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. The cost- minimizing factor combination for producing 2000 golf tees is

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

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

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 firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?

A firm's long- run average cost curve

Isocost lines are downward sloping straight lines, reflecting

Increasing returns to scale for a firm is shown graphically by

Any point representing a cost and output combination that is below the long- run average cost curve

Productivity is defined as

The slope of a firm's isocost line is equal to the ratio of

The creation of a new product is called

Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling both inputs the result is a doubling of output. This firm is experiencing

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. Technique A B C D Labour 25 35 50 30 Capital 50 35 25 60 TABLE 8- 1 -Refer to Table 8- 1. Which production technique is obviously technically inefficient?

FIGURE 8- 4 -Refer to Figure 8- 4. The firm is initially producing 2000 units and minimizing its production cost at point D. Suppose the prices of capital and labour each rise by 10 percent. If the firm wishes to continue producing the same level of output it will

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

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. The minimum efficient scale is achieved by this firm at output level

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

Exam 8: Producers in the Long Run

A profit- maximizing firm will increase its use of capital and decrease its use of labour when the

A profit- maximizing firm with variable labour and capital will always produce

FIGURE 8- 4 -Refer to Figure 8- 4. A firm that is producing an output of 2000 units will minimize its costs at point

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. The cost- minimizing factor combination for producing 2000 golf tees is

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

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

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 firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?

A firm's long- run average cost curve

Isocost lines are downward sloping straight lines, reflecting

Increasing returns to scale for a firm is shown graphically by

Any point representing a cost and output combination that is below the long- run average cost curve

Productivity is defined as

The slope of a firm's isocost line is equal to the ratio of

The creation of a new product is called

Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling both inputs the result is a doubling of output. This firm is experiencing

FIGURE 8- 4 -Refer to Figure 8- 4. The firm is initially producing 2000 units and minimizing its production cost at point D. Suppose the prices of capital and labour each rise by 10 percent. If the firm wishes to continue producing the same level of output it will

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

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. The minimum efficient scale is achieved by this firm at output level

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