Exam 6: Production and Cost Analysis in the Long Run

Studies and experience suggest that labor and capital are highly complementary inputs to the production of pipe organs.

Diseconomies of scale are illustrated graphically by an upward shift of the firm's long-run average cost curve.

X-inefficiency refers to the situation in which firms with market power are operating in the upward-sloping segment of their long-run average cost curve.

In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?

The slope of the isocost line:

All else constant, an increase in the price of labor would cause the total amount of output that can be produced with a fixed amount of spending to . This would result in a movement to a isoquant.

A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.

"Learning by doing" has the effect of causing:

A movement down along a given isoquant causes the marginal rate of technical substitution to:

Which of the following statements concerning the long-run average cost LRAC) curve is correct?

"Learning by doing" results in decreased average costs of production and is illustrated by a downward shift of the firm's long-run average cost curve.

The use of surveys of experts to estimate long-run production costs may be undermined by the fact that:

Which of the following would cause a firm's LRAC curve to shift up?

An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.

For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by:

Assume the LRAC curve for a particular industry hits its minimum point at a relatively low level of output and then increases, and the demand for industry output is quite large. In this case, consideration of the minimum efficient scale of operation suggest that the market should be served by:

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. Is this firm minimizing its costs of producing 500 units of output?

The "minimum efficient scale" of operation in an industry is defined as the scale of operation in an industry that is least efficient.

The fact that a firm is using a capital-intensive method of production means that input substitution is not possible.

Assuming capital and labor are substitutes, an improvement in technology that affects only the productivity of capital would cause a firm to employ more capital but leave the amount of labor employed unchanged.