Question 1

Figure 7-14  
-Of the long-run AC curves in Figure 7-14, which displays increasing returns to scale for all levels of output?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 2

The "law" of diminishing returns is also referred to as

Accepted Answer

A) the "law" of diminishing returns to scale. 
B) the "law" of variable input proportions. 
C) diminishing average physical product. 
D) the "law" of decreasing cost. 
A) the "law" of diminishing returns to scale. 
B) the "law" of variable input proportions. 
C) diminishing average physical product. 
D) the "law" of decreasing cost.

Question 3

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 4

The case of production with a single variable input is analogous to

Accepted Answer

A) changing the use of land, labor, and capital in production by a constant absolute amount. 
B) a controlled laboratory experiment in which the scientist permits one variable to change at a time. 
C) changing the use of land, labor, and capital in production by a constant percentage. 
D) specialization in one particular product by a company. 
A) changing the use of land, labor, and capital in production by a constant absolute amount. 
B) a controlled laboratory experiment in which the scientist permits one variable to change at a time. 
C) changing the use of land, labor, and capital in production by a constant percentage. 
D) specialization in one particular product by a company.

Question 5

The firm can calculate all points on its total cost curve if it knows

Accepted Answer

A) its production function. 
B) the prices of inputs and of output. 
C) its average cost at its optimal output level. 
D) the prices of inputs and its production function. 
A) its production function. 
B) the prices of inputs and of output. 
C) its average cost at its optimal output level. 
D) the prices of inputs and its production function.

Question 6

The marginal revenue product of an hour of labor used in steel production is equal to

Accepted Answer

A) its marginal physical product times the hourly wage rate. 
B) its marginal physical product times the price of steel. 
C) the hourly wage rate. 
D) its marginal physical product divided by the price of steel. 
A) its marginal physical product times the hourly wage rate. 
B) its marginal physical product times the price of steel. 
C) the hourly wage rate. 
D) its marginal physical product divided by the price of steel.

Question 7

If the price of one input changes, the firm will change its use of that input only.

Accepted Answer

A) True 
 B)False

Question 8

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Accepted Answer

A) True 
 B)False

Question 9

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

Accepted Answer

A) True 
 B)False

Question 10

When economies of scale exist,

Accepted Answer

A) production costs per unit increase as output expands. 
B) production costs per unit decline as output expands. 
C) total production costs decrease. 
D) total production costs increase. 
A) production costs per unit increase as output expands. 
B) production costs per unit decline as output expands. 
C) total production costs decrease. 
D) total production costs increase.

Question 11

Figure 7-1  
-Of the graphs in Figure 7-1, which best represents marginal physical product?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 12

A firm's AC will eventually begin to rise because

Accepted Answer

A) managers' salaries rise with output. 
B) bottlenecks may be reached for some inputs. 
C) MFC begins to rise near capacity. 
D) the range of negative returns is reached. 
A) managers' salaries rise with output. 
B) bottlenecks may be reached for some inputs. 
C) MFC begins to rise near capacity. 
D) the range of negative returns is reached.

Question 13

An airline industry study recently reported, "Evidence is abundant that larger firms are not more efficient or less costly simply because they are larger.In fact, other things equal, the largest carriers tend to have a higher level of unit costs, possibly caused by the difficulties of managing an airline of large size." This means that

Accepted Answer

A) there are increasing returns to scale in the airline industry. 
B) the airline industry has constant returns to scale. 
C) the larger airlines are not profitable. 
D) airlines are experiencing decreasing returns to scale. 
A) there are increasing returns to scale in the airline industry. 
B) the airline industry has constant returns to scale. 
C) the larger airlines are not profitable. 
D) airlines are experiencing decreasing returns to scale.

Question 14

Marginal revenue product is the

Accepted Answer

A) additional revenue from one additional dollar increase in price. 
B) change in the revenue product resulting from one additional unit of input. 
C) additional revenue from one additional unit of input. 
D) change in revenue resulting in one additional dollar in price. 
A) additional revenue from one additional dollar increase in price. 
B) change in the revenue product resulting from one additional unit of input. 
C) additional revenue from one additional unit of input. 
D) change in revenue resulting in one additional dollar in price.

Question 15

Figure 7-1  
-In Figure 7-1, which graph best represents total physical product with diminishing returns?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 16

A production indifference curve describes the input combinations that will produce a given output.

Accepted Answer

A) True 
 B)False

Question 17

Figure 7-9  
-Of the graphs in Figure 7-9, which represents average fixed cost?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 18

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

Accepted Answer

A) True 
 B)False

Question 19

In August 1988, the Los Angeles Kings hired Wayne Gretzky for $15 million in cash.The hockey team's decision must have been based on the expectation that

Accepted Answer

A) Gretzky's opportunity cost will exceed $15 million. 
B) Gretzky's marginal revenue product will equal or exceed $15 million. 
C) the team's total revenue will equal $15 million. 
D) Gretzky's marginal revenue product will rise in the long run. 
A) Gretzky's opportunity cost will exceed $15 million. 
B) Gretzky's marginal revenue product will equal or exceed $15 million. 
C) the team's total revenue will equal $15 million. 
D) Gretzky's marginal revenue product will rise in the long run.

Question 20

Which of the following formulas defines average cost?

Accepted Answer

A) AC = TC/Q 
B) AC = MRP = MFC 
C) AC = MPP/Q 
D) AC = TC − Q 
A) AC = TC/Q 
B) AC = MRP = MFC 
C) AC = MPP/Q 
D) AC = TC − Q

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

Figure 7-14 -Of the long-run AC curves in Figure 7-14, which displays increasing returns to scale for all levels of output?

The "law" of diminishing returns is also referred to as

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

The case of production with a single variable input is analogous to

The firm can calculate all points on its total cost curve if it knows

The marginal revenue product of an hour of labor used in steel production is equal to

If the price of one input changes, the firm will change its use of that input only.

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

When economies of scale exist,

Figure 7-1 -Of the graphs in Figure 7-1, which best represents marginal physical product?

A firm's AC will eventually begin to rise because

Marginal revenue product is the

Figure 7-1 -In Figure 7-1, which graph best represents total physical product with diminishing returns?

A production indifference curve describes the input combinations that will produce a given output.

Figure 7-9 -Of the graphs in Figure 7-9, which represents average fixed cost?

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

In August 1988, the Los Angeles Kings hired Wayne Gretzky for $15 million in cash.The hockey team's decision must have been based on the expectation that

Which of the following formulas defines average cost?

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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