Question 1

Which of the following provides the best explanation for diseconomies of scale?

Accepted Answer

A)  The presence of fixed inputs 
B)  Reduced monitoring costs 
C)  Loss of team spirit 
D)  Indivisible setup costs 
A)  The presence of fixed inputs 
B)  Reduced monitoring costs 
C)  Loss of team spirit 
D)  Indivisible setup costs

Question 2

To manufacture 1,000 pairs of shoes in a week, a firm must use at least 1,500 workers and 5 machines or 100 machines and 150 workers. Which method can be technically efficient?

Accepted Answer

A)  1,500 workers and 5 machines 
B)  150 workers and 100 machines 
C)  Both 
D)  Neither 
A)  1,500 workers and 5 machines 
B)  150 workers and 100 machines 
C)  Both 
D)  Neither

Question 3

Diseconomies of scale are associated with:

Accepted Answer

A)  decreasing per-unit costs. 
B)  improved team spirit. 
C)  the short run. 
D)  monitoring costs. 
A)  decreasing per-unit costs. 
B)  improved team spirit. 
C)  the short run. 
D)  monitoring costs.

Question 4

At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the average total cost of making five fake killer whales would be:

Accepted Answer

A)  $5,000. 
B)  $11,000. 
C)  $7,200. 
D)  $36,000. 
A)  $5,000. 
B)  $11,000. 
C)  $7,200. 
D)  $36,000.

Question 5

When carmakers began to cut costs of producing cars by designing the chassis, engines, and transmissions so that different models could be produced on the same assembly line, production costs fell $240 per car. This change caused car makers' short-run average cost curves to:

Accepted Answer

A)  shift up. 
B)  shift down. 
C)  remain unchanged; only the long-run average cost curve was affected. 
D)  remain unchanged, though there was a movement along the short-run average cost curve. 
A)  shift up. 
B)  shift down. 
C)  remain unchanged; only the long-run average cost curve was affected. 
D)  remain unchanged, though there was a movement along the short-run average cost curve.

Question 6

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate:

Accepted Answer

A)  decreasing marginal productivity. 
B)  constant returns to scale. 
C)  economies of scale. 
D)  diseconomies of scale. 
A)  decreasing marginal productivity. 
B)  constant returns to scale. 
C)  economies of scale. 
D)  diseconomies of scale.

Question 7

Isoquants slope downward because:

Accepted Answer

A)  average total costs decline. 
B)  as less of one input is used, more of another must be used if output is to remain constant. 
C)  as less of one input is used, more of another must be used if costs are to remain constant. 
D)  the marginal rate of substitution increases. 
A)  average total costs decline. 
B)  as less of one input is used, more of another must be used if output is to remain constant. 
C)  as less of one input is used, more of another must be used if costs are to remain constant. 
D)  the marginal rate of substitution increases.

Question 8

Long-run average costs at any output level will:

Accepted Answer

A)  always be less than or equal to short-run average total costs. 
B)  always be greater than or equal to short-run average total costs. 
C)  always be equal to short-run average total costs. 
D)  sometimes be less than and sometimes greater than short-run average total costs. 
A)  always be less than or equal to short-run average total costs. 
B)  always be greater than or equal to short-run average total costs. 
C)  always be equal to short-run average total costs. 
D)  sometimes be less than and sometimes greater than short-run average total costs.

Question 9

A new fertilizer has been discovered that significantly increases the corn crop yield per acre. As a result, the farmers':

Accepted Answer

A)  average total cost curves become downward-sloping. 
B)  long-run average total cost curve becomes flatter. 
C)  average total cost curve shifts downward. 
D)  cost curves do not change their shape or position. 
A)  average total cost curves become downward-sloping. 
B)  long-run average total cost curve becomes flatter. 
C)  average total cost curve shifts downward. 
D)  cost curves do not change their shape or position.

Question 10

An economically efficient method of production produces a given level of output at the lowest possible cost.

Accepted Answer

A) True 
 B)False

Question 11

Refer to the graph shown. If the firm's total cost is $375, capital must cost:

Accepted Answer

A)  $31.25 per unit. 
B)  $37.50 per unit. 
C)  $2.50 per unit. 
D)  $3 per unit. 
A)  $31.25 per unit. 
B)  $37.50 per unit. 
C)  $2.50 per unit. 
D)  $3 per unit.

Question 12

Refer to the graph shown. The least-cost method of producing 1,000 units of output is shown at point:

Accepted Answer

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

Question 13

Which of the following statements is true?

Accepted Answer

A)  Any technically efficient production process is always economically efficient. 
B)  Any economically efficient production process is always technically efficient. 
C)  A production process is either economically efficient or technically efficient but never both. 
D)  A production process must always be both economically efficient and technically efficient. 
A)  Any technically efficient production process is always economically efficient. 
B)  Any economically efficient production process is always technically efficient. 
C)  A production process is either economically efficient or technically efficient but never both. 
D)  A production process must always be both economically efficient and technically efficient.

Question 14

Technological change:

Accepted Answer

A)  reduces average total cost without changing production techniques. 
B)  reduces average total cost by changing production techniques. 
C)  does not reduce average total cost but does change production techniques. 
D)  reduces average total cost by expanding plant size. 
A)  reduces average total cost without changing production techniques. 
B)  reduces average total cost by changing production techniques. 
C)  does not reduce average total cost but does change production techniques. 
D)  reduces average total cost by expanding plant size.

Question 15

Refer to the graph shown. Given the long-run average cost curve, a seller must produce 18 units just to break even if the price the seller expects is roughly:

Accepted Answer

A)  $50. 
B)  $52. 
C)  $54. 
D)  $58. 
A)  $50. 
B)  $52. 
C)  $54. 
D)  $58.

Question 16

Constant returns to scale means that long-run:

Accepted Answer

A)  ATC increases as output increases. 
B)  ATC decreases as output decreases. 
C)  ATC rises and then falls as output increases. 
D)  ATC does not change as output increases. 
A)  ATC increases as output increases. 
B)  ATC decreases as output decreases. 
C)  ATC rises and then falls as output increases. 
D)  ATC does not change as output increases.

Question 17

An entrepreneur is willing to bring a supply of goods to the market if expected:

Accepted Answer

A)  price and expected average total cost are equal. 
B)  price is greater than expected average total cost. 
C)  average total cost is greater than expected price. 
D)  average revenue is equal to expected price. 
A)  price and expected average total cost are equal. 
B)  price is greater than expected average total cost. 
C)  average total cost is greater than expected price. 
D)  average revenue is equal to expected price.

Question 18

Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm:

Accepted Answer

A)  is technically efficient. 
B)  is economically efficient. 
C)  should substitute labor for machines if it wants to increase economic efficiency. 
D)  should substitute machines for labor if it wants to increase economic efficiency. 
A)  is technically efficient. 
B)  is economically efficient. 
C)  should substitute labor for machines if it wants to increase economic efficiency. 
D)  should substitute machines for labor if it wants to increase economic efficiency.

Question 19

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 1,000 units of output is:

Accepted Answer

A)  $100. 
B)  $150. 
C)  $300. 
D)  impossible to determine using the information given. 
A)  $100. 
B)  $150. 
C)  $300. 
D)  impossible to determine using the information given.

Question 20

The level of production that minimizes long-run average total costs is referred to as the:

Accepted Answer

A)  technically efficient level of production. 
B)  economically efficient level of production. 
C)  minimum efficient level of production. 
D)  minimum profitable level of production. 
A)  technically efficient level of production. 
B)  economically efficient level of production. 
C)  minimum efficient level of production. 
D)  minimum profitable level of production.

Exam 12: Production and Cost Analysis II

Which of the following provides the best explanation for diseconomies of scale?

To manufacture 1,000 pairs of shoes in a week, a firm must use at least 1,500 workers and 5 machines or 100 machines and 150 workers. Which method can be technically efficient?

Diseconomies of scale are associated with:

When carmakers began to cut costs of producing cars by designing the chassis, engines, and transmissions so that different models could be produced on the same assembly line, production costs fell $240 per car. This change caused car makers' short-run average cost curves to:

The long-run average cost of producing 19 units of output is $56, and the long-run average cost of producing 20 units is also $56. These numbers illustrate:

Isoquants slope downward because:

Long-run average costs at any output level will:

A new fertilizer has been discovered that significantly increases the corn crop yield per acre. As a result, the farmers':

An economically efficient method of production produces a given level of output at the lowest possible cost.

Refer to the graph shown. If the firm's total cost is $375, capital must cost:

Refer to the graph shown. The least-cost method of producing 1,000 units of output is shown at point:

Which of the following statements is true?

Technological change:

Refer to the graph shown. Given the long-run average cost curve, a seller must produce 18 units just to break even if the price the seller expects is roughly:

Constant returns to scale means that long-run:

An entrepreneur is willing to bring a supply of goods to the market if expected:

Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm:

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 1,000 units of output is:

The level of production that minimizes long-run average total costs is referred to as the:

Economics and Economic Reasoning

The Production Possibility Model, Trade, and Globalization

Economic Institutions

Supply and Demand

Using Supply and Demand

Describing Supply and Demand: Elasticities

Taxation and Government Intervention

Market Failure Versus Government Failure

Comparative Advantage, Exchange Rates, and Globalization

International Trade Policy

Production and Cost Analysis I

Perfect Competition

Monopoly and Monopolistic Competition

Oligopoly and Antitrust Policy

Real-World Competition and Technology

Work and the Labor Market

Who Gets What the Distribution of Income

The Logic of Individual Choice: the Foundation of Supply and Demand

Game Theory, Strategic Decision Making, and Behavioral Economics

Thinking Like a Modern Economist

Behavioral Economics and Modern Economic Policy

Microeconomic Policy, Economic Reasoning, and Beyond

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