Question 1

If a firm is using optimal input proportions, it is minimizing its costs.

Accepted Answer

A) True 
 B)False

Question 2

Marginal cost is the

Accepted Answer

A) change in total cost resulting from the purchase of one more unit of the variable input. 
B) change in total cost resulting from the production of one more unit of output. 
C) difference between total fixed cost and total variable cost. 
D) difference between total cost and total expenditure. 
A) change in total cost resulting from the purchase of one more unit of the variable input. 
B) change in total cost resulting from the production of one more unit of output. 
C) difference between total fixed cost and total variable cost. 
D) difference between total cost and total expenditure.

Question 3

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Accepted Answer

A) True 
 B)False

Question 4

The short run is the time period during which

Accepted Answer

A) all of the firm's costs are fixed. 
B) the value of the firm's assets starts to decay. 
C) the firm can adjust all inputs freely. 
D) some of the firm's input decisions are constrained by previous commitments. 
A) all of the firm's costs are fixed. 
B) the value of the firm's assets starts to decay. 
C) the firm can adjust all inputs freely. 
D) some of the firm's input decisions are constrained by previous commitments.

Question 5

USX, a steel company, reduced the number of man-hours required to produce a ton of steel from 10.8 in 1982 to 3.8 in 1990, thereby eliminating 55,000 jobs.Technically, this rise in productivity means the

Accepted Answer

A) marginal product of labor increased. 
B) average product of labor increased. 
C) average product of capital fell. 
D) marginal product of capital fell. 
A) marginal product of labor increased. 
B) average product of labor increased. 
C) average product of capital fell. 
D) marginal product of capital fell.

Question 6

Marginal physical product can tell a producer

Accepted Answer

A) at what point to stop adding inputs to the production process. 
B) how much profit will be made at each level of production. 
C) how much the last input added to the total amount of revenue. 
D) how much the last input added to the total amount of production. 
A) at what point to stop adding inputs to the production process. 
B) how much profit will be made at each level of production. 
C) how much the last input added to the total amount of revenue. 
D) how much the last input added to the total amount of production.

Question 7

A.B.Denson Company had been employing 6 workers and 8 tons of raw materials, using 2,000 square feet of plant space.The firm increased its work force to 12 workers utilizing 16 tons of raw materials in a plant space increased to 4,000 square feet.Total number of units of output increased from 78 to 160.What kind of returns to scale is the firm experiencing? Defend your answer.

Accepted Answer

Increasing returns t

Question 8

If the MPP of labor is 60 and the price of labor per period is $20, the MPP of machinery is 75 and the price of the machinery per period is $25, in order to achieve optimal input proportions the firm should use

Accepted Answer

A) more labor and less machinery. 
B) more machinery and less labor. 
C) more labor with the same amount of machinery. 
D) the current combination. 
A) more labor and less machinery. 
B) more machinery and less labor. 
C) more labor with the same amount of machinery. 
D) the current combination.

Question 9

In which case will the transition from short run to long run involve the shortest chronological time?

Accepted Answer

A) a service that provides temporary secretaries to companies 
B) an automobile factory 
C) a farm 
D) an electric utility 
A) a service that provides temporary secretaries to companies 
B) an automobile factory 
C) a farm 
D) an electric utility

Question 10

Figure 7-5  
-Which of the following is a fixed cost?

Accepted Answer

A) electricity 
B) worker bonuses 
C) mortgage on the building 
D) steel to produce refrigerators 
A) electricity 
B) worker bonuses 
C) mortgage on the building 
D) steel to produce refrigerators

Question 11

Which of the following statements is equivalent to the law of diminishing marginal returns?

Accepted Answer

A) A stitch in time saves nine. 
B) You can't make an omelet without breaking eggs. 
C) Too many cooks spoil the broth. 
D) If you can't stand the heat, get out of the kitchen. 
A) A stitch in time saves nine. 
B) You can't make an omelet without breaking eggs. 
C) Too many cooks spoil the broth. 
D) If you can't stand the heat, get out of the kitchen.

Question 12

If a firm has a U-shaped long-run average cost curve,

Accepted Answer

A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost. 
A) its fixed cost rises as output rises. 
B) it must have increasing returns to scale at low levels of production and decreasing returns to scale at high levels of production. 
C) it must have increasing returns to each input at low levels of production and decreasing returns to each input at high levels of production. 
D) the firm can maximize its output by operating at the point of minimum long-run average cost.

Question 13

The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.

Accepted Answer

A) True 
 B)False

Question 14

Higher production indifference curves correspond to larger amounts of one input in relation to a second input.

Accepted Answer

A) True 
 B)False

Question 15

Explain why the long-run average cost is typically U-shaped.

Accepted Answer

As firms grow, they can take advantage o

Question 16

The average total cost curve of a firm is U-shaped.

Accepted Answer

A) True 
 B)False

Question 17

Input proportions are usually fixed by technological conditions alone.

Accepted Answer

A) True 
 B)False

Question 18

Table 7-4
  
-The production relationship in Table 7-4 indicates a process characterized by

Accepted Answer

A) decreasing returns to scale. 
B) constant returns to scale. 
C) increasing returns to scale. 
D) increasing then decreasing returns to scale. 
A) decreasing returns to scale. 
B) constant returns to scale. 
C) increasing returns to scale. 
D) increasing then decreasing returns to scale.

Question 19

Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.

Accepted Answer

A) True 
 B)False

Question 20

Cost minimization is the process of making optimal use of all of the inputs whose quantities are

Accepted Answer

A) set in the short run. 
B) set in the intermediate run. 
C) set in the long run. 
D) variable in the short and long run. 
A) set in the short run. 
B) set in the intermediate run. 
C) set in the long run. 
D) variable in the short and long run.

Exam 7: Production Inputs and Cost Building Blocks for Supply Analysis

If a firm is using optimal input proportions, it is minimizing its costs.

Marginal cost is the

When marginal revenue product of an input is less than its price, the producers should use less of the input.

The short run is the time period during which

USX, a steel company, reduced the number of man-hours required to produce a ton of steel from 10.8 in 1982 to 3.8 in 1990, thereby eliminating 55,000 jobs.Technically, this rise in productivity means the

Marginal physical product can tell a producer

If the MPP of labor is 60 and the price of labor per period is $20, the MPP of machinery is 75 and the price of the machinery per period is $25, in order to achieve optimal input proportions the firm should use

In which case will the transition from short run to long run involve the shortest chronological time?

Figure 7-5 -Which of the following is a fixed cost?

Which of the following statements is equivalent to the law of diminishing marginal returns?

If a firm has a U-shaped long-run average cost curve,

The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.

Higher production indifference curves correspond to larger amounts of one input in relation to a second input.

Explain why the long-run average cost is typically U-shaped.

The average total cost curve of a firm is U-shaped.

Input proportions are usually fixed by technological conditions alone.

Table 7-4 -The production relationship in Table 7-4 indicates a process characterized by

Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.

Cost minimization is the process of making optimal use of all of the inputs whose quantities are

What Is Economics

The Economy Myth and Reality

The Fundamental Economic Problem Scarcity and Choice

Supply and Demand an Initial Look

Consumer Choice Individual and Market Demand

Demand and Elasticity

Output Price and Profit the Importance of Marginal Analysis

Securities Business Finance and the Economy the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power Regulation and Antitrust

The Case for Free Markets the Price System

The Shortcomings of Free Markets

Externalities the Environment and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship the Human Inputs

Poverty Inequality and Discrimination

Is Us Economic Leadership Threatened

International Trade and Comparative Advantage

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