Exam 6: Production and Cost Analysis in the Long Run

Over the past 30-40 years, technological change has led to a significant amount of consolidation in the U.S. brewing industry.

Briefly summarize the empirical literature on the long-run costs typically incurred by firms in a variety of industries. In particular, is there reason to believe that firms' long-run cost curves assume the typical U-shape? Why or why not?

What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.

Which of the following is least likely to limit the ability of a firm to minimize production costs?

There is considerable evidence to support the assertion that legislated input combinations have reduced the costs of production in affected industries.

Assume a firm produces 500 units of a good by using two inputs, capital and labor, whose per unit prices are $10 and $4. Assume also that the marginal physical product of the last unit of capital is 30 and the marginal physical product of the last unit of labor is 10. What will change to move the firm to a new cost-minimizing equilibrium?

Assume a firm uses two inputs, capital and labor. All else constant, an increase in the price of labor would create an incentive for the firm to:

Assume a firm is producing 1000 units of a good by using two inputs, capital and labor, whose per unit prices are $50 and $20. Assume also that the marginal physical product of the last unit of capital is 25 and the marginal physical product of the last unit of labor is 15. In order to minimize its costs of production, the firm should adjust its combination of inputs by employing more labor and less capital.

Evidence suggests that as the amount of market power possessed by the firms in an industry increases, the amount of X-inefficiency will decrease.

The list of the major factors that create economies of scale includes all of the following except:

The "minimum efficient scale" of operation in an industry is defined as:

In which of the following market structures would X-inefficiency be most likely to exist?

Isoquants are convex to the origin due to:

Much of the research on the minimum efficient scale suggests that for many firms the LRAC curve is:

An isocost line represents:

In which of the following examples cited in the text is there the least amount of evidence of the potential for input substitution?

Assume that firms A and B have the same minimum efficient scale of operation and, at current production levels, both firms are incurring the same average costs of production. However, firm A's output is 5 times larger than firm B's output. How is this possible?

A labor-intensive method of production is one that:

Regarding the production of health care, more recent studies suggest that:

Explain how "learning by doing" and transportation costs each affect the long-run average cost curve.