Question 1

Suppose that when a firm increases output by 50%, long-run total cost increases by less than 50%. The firm will experience

Accepted Answer

A)  diminishing marginal returns. 
B)  decreasing marginal rate of technical substitution. 
C)  economies of scale 
D)  diseconomies of scale 
A)  diminishing marginal returns. 
B)  decreasing marginal rate of technical substitution. 
C)  economies of scale 
D)  diseconomies of scale

Question 2

Refer to the following:
   The price of capital is $100 per unit.
-How many units of capital should a firm use in order to produce 500 units of output at the least cost?

Accepted Answer

A)  10 units of capital 
B)  12 units of capital 
C)  14 units of capital 
D)  20 units of capital 
E)  none of the above 
A)  10 units of capital 
B)  12 units of capital 
C)  14 units of capital 
D)  20 units of capital 
E)  none of the above

Question 3

Refer to the following:
   
The price of labor is $3 per unit.
-What is the marginal rate of technical substitution at point B?

Accepted Answer

A)  0.6 
B)  0.75 
C)  1 
D)  1.7 
A)  0.6 
B)  0.75 
C)  1 
D)  1.7

Question 4

The expansion path

Accepted Answer

A)  shows how the cost-minimizing input choices change as the firm's output level changes. 
B)  shifts if the input price ratio changes. 
C)  is the collection of all input combinations at which the marginal rate of technical substitution equals the input price ratio. 
D)  both a and c 
E)  all of the above 
A)  shows how the cost-minimizing input choices change as the firm's output level changes. 
B)  shifts if the input price ratio changes. 
C)  is the collection of all input combinations at which the marginal rate of technical substitution equals the input price ratio. 
D)  both a and c 
E)  all of the above

Question 5

Refer to the following figure:
   The price of capital is $50 per unit.
-What is the price per unit of labor?

Accepted Answer

A)  $25 
B)  $20 
C)  $10 
D)  $ 2 
A)  $25 
B)  $20 
C)  $10 
D)  $ 2

Question 6

Refer to the following:
   The price of capital is $500 per unit.
-How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost?

Accepted Answer

A)  300 units of labor 
B)  320 units of labor 
C)  500 units of labor 
D)  800 units of labor 
E)  none of the above 
A)  300 units of labor 
B)  320 units of labor 
C)  500 units of labor 
D)  800 units of labor 
E)  none of the above

Question 7

Refer to the following:
  
-What is the marginal rate of technical substitution at point A?

Accepted Answer

A)  0.3 
B)  1 
C)  1.125 
D)  1.67 
E)  none of the above 
A)  0.3 
B)  1 
C)  1.125 
D)  1.67 
E)  none of the above

Question 8

A dry cleaner currently has 10 workers and 4 machines. The workers' wage rate is $300 per worker and the rental rate for a machine is $500. The last worker added 600 units to total output
And the last machine also added 600 units to total output, and the last machine also added 600 units to total output. If the dry cleaner uses 11 workers and 3 machines instead, then

Accepted Answer

A)  cost will be unchanged and output will increase by 300 units. 
B)  cost will be unchanged and output will decrease by 200 units. 
C)  output will be unchanged and cost will decrease by $500. 
D)  output will be unchanged and cost will decrease by $200. 
E)  none of the above 
A)  cost will be unchanged and output will increase by 300 units. 
B)  cost will be unchanged and output will decrease by 200 units. 
C)  output will be unchanged and cost will decrease by $500. 
D)  output will be unchanged and cost will decrease by $200. 
E)  none of the above

Question 9

Afirm is producing 1,000 units of output with 40 units of labor and 30 units of capital. The marginal product of the last units of labor and capital are, respectively, MPL = 60 and MPK = 120. The prices of labor and capital are, respectively, w = 30 and r = 40.
a. At the combination of inputs the MRTS is __________________ (greater than, less than, equal to) the input price ratio, w/r.
b. The firm can increase ____________ by one unit while reducing ____________ by _________ unit(s), and keep output constant. This will reduce cost by $____________.
c. To minimize the cost of producing 1,000 units of output the firm will increase ____________ and decrease ____________ until _________ equals _________ or, in other words, _________ equals _________.

Accepted Answer

a. less than 
b. cap

Question 10

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

Accepted Answer

A)  total cost decreases as more is produced. 
B)  long-run average cost decreases as more is produced. 
C)  marginal cost decreases as more is produced. 
D)  total fixed cost decreases as more is produced. 
A)  total cost decreases as more is produced. 
B)  long-run average cost decreases as more is produced. 
C)  marginal cost decreases as more is produced. 
D)  total fixed cost decreases as more is produced.

Question 11

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 20 units of output. The firm

Accepted Answer

A)  is using the cost-minimizing combination of capital and labor. 
B)  should use more of both inputs in equal proportions. 
C)  should use less of both inputs in equal proportions. 
D)  could produce the same level of output at a lower cost by using more capital and less labor. 
E)  could produce the same level of output at a lower cost by using less capital and more labor. 
A)  is using the cost-minimizing combination of capital and labor. 
B)  should use more of both inputs in equal proportions. 
C)  should use less of both inputs in equal proportions. 
D)  could produce the same level of output at a lower cost by using more capital and less labor. 
E)  could produce the same level of output at a lower cost by using less capital and more labor.

Question 12

If the price of labor is $5 and the price of capital is $10, what is the marginal rate of technical substitution at the optimal input choice?

Accepted Answer

A)  0.5 
B)  2 
C)  decreasing 
D)  increasing 
E)  none of the above 
A)  0.5 
B)  2 
C)  decreasing 
D)  increasing 
E)  none of the above

Question 13

To answer the  questions, use the following figure that shows a firm's isoquant for producing 3,000 units of output and four isocost curves. Labor and capital each cost $100 per unit.
  
-Answer the following:
a. At point E, the MP per dollar spent on ____________ is less than the MP per dollar spent on ____________. The total cost of producing 3,000 units of output with input combination E is $_________.
b. The movement from E to F reduces the MP per dollar spent on ____________ and increases the MP per dollar spent on ____________. This movement __________________ (increased, decreased) total cost by $____________.
c. At input combination C the MP per dollar spent on labor is __________________ (greater than, less than, equal to) the MP per dollar spent on capital.
d. Input combination D costs $____________. The firm would not use this combination to produce 3,000 units of output because _______________________________________.

Accepted Answer

a. labor; capital; $4,000 
b.

Question 14

Economies of scope in the production of goods G and W exist if

Accepted Answer

A) $L T C ( G , W ) > L T C ( G , 0 ) - L T C ( 0 , W )$ B) $L T C ( G , W ) < L T C ( G , 0 ) + L T C ( 0 , W )$ C) $\operatorname { LTC } ( G , W ) - \operatorname { LTC } ( G , 0 ) < \operatorname { LTC } ( 0 , W )$ D) both a and c E) both b and c A) $L T C ( G , W ) > L T C ( G , 0 ) - L T C ( 0 , W )$ B) $L T C ( G , W ) < L T C ( G , 0 ) + L T C ( 0 , W )$ C) $\operatorname { LTC } ( G , W ) - \operatorname { LTC } ( G , 0 ) < \operatorname { LTC } ( 0 , W )$ D) both a and c E) both b and c

Question 15

Long-run total cost

Accepted Answer

A)  represents the lowest possible cost of producing a given level of output. 
B)  is always equal to or greater than short-run total cost. 
C)  is tangent to short-run total cost when short-run total cost is at its minimum point. 
D)  both a and b 
E)  all of the above 
A)  represents the lowest possible cost of producing a given level of output. 
B)  is always equal to or greater than short-run total cost. 
C)  is tangent to short-run total cost when short-run total cost is at its minimum point. 
D)  both a and b 
E)  all of the above

Question 16

If the price of labor rises relative to the price of capital, the cost-minimizing ratio of capital usage to labor usage (i.e., the ratio K/L) will

Accepted Answer

A)  increase. 
B)  be unchanged. 
C)  decrease. 
D)  cannot determine without more information 
A)  increase. 
B)  be unchanged. 
C)  decrease. 
D)  cannot determine without more information

Question 17

A firm is using 20 units of labor and 30 units of capital to produce 4,000 units of output. At this combination the marginal product of labor is 50 and the marginal product of capital is 40. The price of labor is $30 and the price of capital is $20.
a. The MP per dollar of labor is _________ and the MP per dollar of capital is _________.
b. The firm can increase capital by one unit and decrease labor by _________ units while keeping cost constant. This will ____________ output by _________.
c. To maximize output at the given cost the firm will increase ____________ and decrease ____________ until the MRTS equals _________.

Accepted Answer

a. 1.67; 2 
b. 2/3;

Question 18

Refer to the following:
The price of capital is $12 per unit.
  
-If the price of labor increases to $40 per unit and total cost is unchanged, what is the maximum amount of output the firm can produce?

Accepted Answer

A)  100 units of output 
B)  200 units of output 
C)  300 units of output 
D)  400 units of output 
E)  none of the above 
A)  100 units of output 
B)  200 units of output 
C)  300 units of output 
D)  400 units of output 
E)  none of the above

Question 19

A firm is using 50 units of labor and 100 units of capital to produce 2,000 units of output. The price of labor is $200 per unit and the price of capital is $100 per unit. At these input levels, another unit of labor adds 400 units to output and another unit of capital adds 600 units to output. The firm

Accepted Answer

A)  is minimizing the cost of producing 2,000 units of output. 
B)  could produce 6 more units of output at the same cost by switching $1 from labor to capital. 
C)  could produce 4 more units of output at the same cost by switching $1 from labor to capital. 
D)  could keep output constant and reduce cost by using more capital and less labor. 
E)  both c and d 
A)  is minimizing the cost of producing 2,000 units of output. 
B)  could produce 6 more units of output at the same cost by switching $1 from labor to capital. 
C)  could produce 4 more units of output at the same cost by switching $1 from labor to capital. 
D)  could keep output constant and reduce cost by using more capital and less labor. 
E)  both c and d

Question 20

Refer to the following:
The price of capital is $12 per unit.
  
-How many units of labor should the firm use in order to produce 200 units of output at the least cost?

Accepted Answer

A)  12 units of labor 
B)  18 units of labor 
C)  30 units of labor 
D)  40 units of labor 
E)  22 units of labor 
A)  12 units of labor 
B)  18 units of labor 
C)  30 units of labor 
D)  40 units of labor 
E)  22 units of labor

Suppose that when a firm increases output by 50%, long-run total cost increases by less than 50%. The firm will experience

Refer to the following: The price of capital is $100 per unit. -How many units of capital should a firm use in order to produce 500 units of output at the least cost?

Refer to the following: The price of labor is $3 per unit. -What is the marginal rate of technical substitution at point B?

The expansion path

Refer to the following figure: The price of capital is $50 per unit. -What is the price per unit of labor?

Refer to the following: The price of capital is $500 per unit. -How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost?

Refer to the following: -What is the marginal rate of technical substitution at point A?

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 20 units of output. The firm

If the price of labor is $5 and the price of capital is $10, what is the marginal rate of technical substitution at the optimal input choice?

Economies of scope in the production of goods G and W exist if

Long-run total cost

If the price of labor rises relative to the price of capital, the cost-minimizing ratio of capital usage to labor usage (i.e., the ratio K/L) will

Refer to the following: The price of capital is $12 per unit. -If the price of labor increases to $40 per unit and total cost is unchanged, what is the maximum amount of output the firm can produce?

Refer to the following: The price of capital is $12 per unit. -How many units of labor should the firm use in order to produce 200 units of output at the least cost?

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

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Exam 9: Production and Cost in the Long Run

Suppose that when a firm increases output by 50%, long-run total cost increases by less than 50%. The firm will experience

Refer to the following: The price of capital is $100 per unit. -How many units of capital should a firm use in order to produce 500 units of output at the least cost?

Refer to the following: The price of labor is $3 per unit. -What is the marginal rate of technical substitution at point B?

The expansion path

Refer to the following figure: The price of capital is $50 per unit. -What is the price per unit of labor?

Refer to the following: The price of capital is $500 per unit. -How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost?

Refer to the following: -What is the marginal rate of technical substitution at point A?

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 20 units of output. The firm

If the price of labor is $5 and the price of capital is $10, what is the marginal rate of technical substitution at the optimal input choice?

Economies of scope in the production of goods G and W exist if

Long-run total cost

If the price of labor rises relative to the price of capital, the cost-minimizing ratio of capital usage to labor usage (i.e., the ratio K/L) will

Refer to the following: The price of capital is $12 per unit. -If the price of labor increases to $40 per unit and total cost is unchanged, what is the maximum amount of output the firm can produce?

Refer to the following: The price of capital is $12 per unit. -How many units of labor should the firm use in order to produce 200 units of output at the least cost?

Managers, Profits, and Markets

Demand, Supply, and Market Equilibrium

Marginal Analysis for Optimal Decisions

Basic Estimation Techniques

Theory of Consumer Behavior

Elasticity and Demand

Demand Estimation and Forecasting

Production and Cost in the Short Run

Production and Cost Estimation

Managerial Decisions in Competitive Markets

Managerial Decisions for Firms With Market Power

Strategic Decision Making in Oligopoly Markets

Advanced Pricing Techniques

Decisions Under Risk and Uncertainty

Government Regulation of Business

Filters