Question 1

Firms have an incentive to substitute capital for labor as the

Accepted Answer

A)  price of labor decreases. 
B)  price of capital increases. 
C)  price of labor increases. 
D)  marginal product of labor increases. 
A)  price of labor decreases. 
B)  price of capital increases. 
C)  price of labor increases. 
D)  marginal product of labor increases. C

Question 2

Refer to Scenario 7.2 below to answer the question(s) that follow.
SCENARIO 7.2: You are the owner and only employee of a company that sets odds for sporting events. Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a return of $20,000 a year.
-Refer to Scenario 7.2. During the year your economic costs were

Accepted Answer

A)  $70,000. 
B)  $60,000. 
C)  $50,000. 
D)  $20,000. 
A)  $70,000. 
B)  $60,000. 
C)  $50,000. 
D)  $20,000. A

Question 3

You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.

Accepted Answer

A)  12% 
B)  less than 12% 
C)  above 12% 
D)  risk free (the rate on government bonds) 
A)  12% 
B)  less than 12% 
C)  above 12% 
D)  risk free (the rate on government bonds) B

Question 4

Use the information provided in Table 7.1 below to answer the question(s) that follow. 
Inputs Required to Produce a Product Using Alternative Technologies 
$\begin{array} { c c c } 
\hline \text { Technology } & \text { Units of Capital } & \text { Number of Employees } \
\hline \text { A } & 4 & 18 \
\text { B } & 6 & 12 \
\text { C } & 8 & 8 \
\text { D } & 12 & 6 \
\hline
\end{array}$
Table 7.1

-Refer to Table 7.1. Which technology is the most labor intensive?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 5

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. If the price of capital is $25, then along isocost line AB total cost is

Accepted Answer

A)  $1,200. 
B)  $1,500. 
C)  $2,000. 
D)  indeterminate from this information since the price of labor is not given. 
A)  $1,200. 
B)  $1,500. 
C)  $2,000. 
D)  indeterminate from this information since the price of labor is not given.

Question 6

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow.   Figure 7.11
-Refer to Figure 7.11. If the isocost line represents a total cost of $7,200, the firm's cost of capital is ________ per unit and its cost of labor is ________ per unit.

Accepted Answer

A)  $36; $72 
B)  $144; $72 
C)  $72; $36 
D)  $200; $100 
A)  $36; $72 
B)  $144; $72 
C)  $72; $36 
D)  $200; $100

Question 7

At the point where total product is ________, marginal product is zero, but average product is still positive.

Accepted Answer

A)  maximized 
B)  minimized 
C)  zero 
D)  negative 
A)  maximized 
B)  minimized 
C)  zero 
D)  negative

Question 8

When the marginal product of labor ________ the average product of labor, then the average product is maximized.

Accepted Answer

A)  equals 
B)  is greater than 
C)  is less than 
D)  The average product of labor is never maximized. 
A)  equals 
B)  is greater than 
C)  is less than 
D)  The average product of labor is never maximized.

Question 9

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow.   Figure 7.10
-Refer to Figure 7.10. At Point C, the slope of q2 = 200 is

Accepted Answer

A)  -2. 
B)  -1/2. 
C)  -1. 
D)  indeterminate from this information. 
A)  -2. 
B)  -1/2. 
C)  -1. 
D)  indeterminate from this information.

Question 10

Deciding to invest in capital is a short-run decision.

Accepted Answer

A) True 
 B)False

Question 11

The quantitative relationship between inputs and outputs is called

Accepted Answer

A)  consumer technology. 
B)  labor-intensive technology. 
C)  capital-intensive technology. 
D)  production technology. 
A)  consumer technology. 
B)  labor-intensive technology. 
C)  capital-intensive technology. 
D)  production technology.

Question 12

Refer to the information provided in Figure 7.1 below to answer the following question(s).   Figure 7.1
-Refer to Figure 7.1. This corn producer earns a total revenue of $900. Each bushel of corn is sold for $5. This corn producer must be selling ________ bushels of corn.

Accepted Answer

A)  180 
B)  450 
C)  900 
D)  4,500 
A)  180 
B)  450 
C)  900 
D)  4,500

Question 13

Related to the Economics in Practice on page 155: Which of the following would be most likely to make it more efficient for delivery trucks to drive more quickly?

Accepted Answer

A)  an increase in the hourly wage of truck drivers and a decrease in the cost of gasoline 
B)  an increase in the hourly wage of truck drivers and an increase in the cost of gasoline 
C)  a decrease in the hourly wage of truck drivers and a decrease in the cost of gasoline 
D)  a decrease in the hourly wage of truck drivers and an increase in the cost of gasoline 
A)  an increase in the hourly wage of truck drivers and a decrease in the cost of gasoline 
B)  an increase in the hourly wage of truck drivers and an increase in the cost of gasoline 
C)  a decrease in the hourly wage of truck drivers and a decrease in the cost of gasoline 
D)  a decrease in the hourly wage of truck drivers and an increase in the cost of gasoline

Question 14

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow.   Figure 7.10
-Refer to Figure 7.10. If the firm's level of total cost is represented by the given isocost line, the firm's optimal combination of capital and labor is given by

Accepted Answer

A)  point A. 
B)  point B. 
C)  point C. 
D)  50 units of capital and 50 of labor. 
A)  point A. 
B)  point B. 
C)  point C. 
D)  50 units of capital and 50 of labor.

Question 15

The flexibility of a firm's techniques of production is an important determinant of its costs.

Accepted Answer

A) True 
 B)False

Question 16

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow.   Figure 7.10
-Refer to Figure 7.10. If this firm's cost of capital is $10 per unit and its cost of labor is $5 per unit, the isocost line represents a total cost of

Accepted Answer

A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000. 
A)  $1,000. 
B)  $2,000. 
C)  $3,000. 
D)  $4,000.

Question 17

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow.   Figure 7.8
-Refer to Figure 7.8. The slope of isocost AB is

Accepted Answer

A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given. 
A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given.

Question 18

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow.   Figure 7.9
-Refer to Figure 7.9. The slope of isocost AB is

Accepted Answer

A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given. 
A)  greater than the slope of isocost CD. 
B)  less than the slope of isocost CD. 
C)  equal to the slope of isocost CD. 
D)  indeterminate from this information, as the prices of capital and labor are not given.

Question 19

Assume that the price of labor and capital have remained the same, but that the average educational level of workers has increased and therefore the productivity of labor has increased. This would lead a firm to

Accepted Answer

A)  use a more capital-intensive production technology. 
B)  use a more labor-intensive technology. 
C)  not change its production technology, but to produce fewer units of output. 
D)  use only labor to produce the product. 
A)  use a more capital-intensive production technology. 
B)  use a more labor-intensive technology. 
C)  not change its production technology, but to produce fewer units of output. 
D)  use only labor to produce the product.

Question 20

Refer to Scenario 7.6 below to answer the question(s) that follow.
SCENARIO 7.6: Upon graduating with an accounting degree, you open your own accounting firm of which you and your assistant are the only employees. To start the firm you passed on a job offer with a large accounting firm that offered you a salary of $50,000 annually. Last year you earned a total revenue of $120,000. Rent and supplies last year were $50,000. Your assistant's salary is $30,000 annually.
-Refer to Scenario 7.6. Your annual economic costs are

Accepted Answer

A)  $50,000. 
B)  $80,000. 
C)  $100,000. 
D)  $130,000. 
A)  $50,000. 
B)  $80,000. 
C)  $100,000. 
D)  $130,000.

Firms have an incentive to substitute capital for labor as the

You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. If the price of capital is $25, then along isocost line AB total cost is

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow. Figure 7.11 -Refer to Figure 7.11. If the isocost line represents a total cost of $7,200, the firm's cost of capital is per unit and its cost of labor is per unit.

At the point where total product is ________, marginal product is zero, but average product is still positive.

When the marginal product of labor ________ the average product of labor, then the average product is maximized.

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. At Point C, the slope of q² = 200 is

Deciding to invest in capital is a short-run decision.

The quantitative relationship between inputs and outputs is called

Refer to the information provided in Figure 7.1 below to answer the following question(s). Figure 7.1 -Refer to Figure 7.1. This corn producer earns a total revenue of $900. Each bushel of corn is sold for $5. This corn producer must be selling ________ bushels of corn.

Related to the Economics in Practice on page 155: Which of the following would be most likely to make it more efficient for delivery trucks to drive more quickly?

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. If the firm's level of total cost is represented by the given isocost line, the firm's optimal combination of capital and labor is given by

The flexibility of a firm's techniques of production is an important determinant of its costs.

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. If this firm's cost of capital is $10 per unit and its cost of labor is $5 per unit, the isocost line represents a total cost of

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The slope of isocost AB is

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow. Figure 7.9 -Refer to Figure 7.9. The slope of isocost AB is

Assume that the price of labor and capital have remained the same, but that the average educational level of workers has increased and therefore the productivity of labor has increased. This would lead a firm to

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Exam 7: The Production Process: the Behavior of Profit-Maximizing Firms

Firms have an incentive to substitute capital for labor as the

You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. If the price of capital is $25, then along isocost line AB total cost is

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow. Figure 7.11 -Refer to Figure 7.11. If the isocost line represents a total cost of $7,200, the firm's cost of capital is ________ per unit and its cost of labor is ________ per unit.

At the point where total product is ________, marginal product is zero, but average product is still positive.

When the marginal product of labor ________ the average product of labor, then the average product is maximized.

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. At Point C, the slope of q2 = 200 is

Deciding to invest in capital is a short-run decision.

The quantitative relationship between inputs and outputs is called

Refer to the information provided in Figure 7.1 below to answer the following question(s). Figure 7.1 -Refer to Figure 7.1. This corn producer earns a total revenue of $900. Each bushel of corn is sold for $5. This corn producer must be selling ________ bushels of corn.

Related to the Economics in Practice on page 155: Which of the following would be most likely to make it more efficient for delivery trucks to drive more quickly?

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. If the firm's level of total cost is represented by the given isocost line, the firm's optimal combination of capital and labor is given by

The flexibility of a firm's techniques of production is an important determinant of its costs.

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. If this firm's cost of capital is $10 per unit and its cost of labor is $5 per unit, the isocost line represents a total cost of

Refer to the information provided in Figure 7.8 below to answer the question(s) that follow. Figure 7.8 -Refer to Figure 7.8. The slope of isocost AB is

Refer to the information provided in Figure 7.9 below to answer the question(s) that follow. Figure 7.9 -Refer to Figure 7.9. The slope of isocost AB is

Assume that the price of labor and capital have remained the same, but that the average educational level of workers has increased and therefore the productivity of labor has increased. This would lead a firm to

The Scope and Method of Economics

The Economic Problem: Scarcity and Choice

Demand, Supply, and Market Equilibrium

Demand and Supply Applications

Elasticity

Household Behavior and Consumer Choice

Short-Run Costs and Output Decisions

Long-Run Costs and Output Decisions

Input Demand: the Labor and Land Markets

Input Demand: the Capital Market and the Investment Decision

General Equilibrium and the Efficiency of Perfect Competition

Monopoly and Antitrust Policy

Oligopoly

Monopolistic Competition

Externalities, Public Goods, and Common Resources

Uncertainty and Asymmetric Information

Income Distribution and Poverty

Public Finance: the Economics of Taxation

International Trade, Comparative Advantage, and Protectionism

Economic Growth in Developing Economies

Critical Thinking About Research

Filters

Refer to the information provided in Figure 7.11 below to answer the question(s) that follow. Figure 7.11 -Refer to Figure 7.11. If the isocost line represents a total cost of $7,200, the firm's cost of capital is per unit and its cost of labor is per unit.

Refer to the information provided in Figure 7.10 below to answer the question(s) that follow. Figure 7.10 -Refer to Figure 7.10. At Point C, the slope of q² = 200 is