Question 1

In the long run, a profit-maximizing firm producing a given level of output chooses the productionmethod that

Accepted Answer

A)  maximizes the marginal product of labour. 
B)  produces that output at the lowest possible cost. 
C)  maximizes the marginal product of all factors. 
D)  leads to a flat total cost curve. 
E)  minimizes labour input. 
A)  maximizes the marginal product of labour. 
B)  produces that output at the lowest possible cost. 
C)  maximizes the marginal product of all factors. 
D)  leads to a flat total cost curve. 
E)  minimizes labour input.

Question 2

Which of the following paired concepts are equivalent to each other?

Accepted Answer

A)  increasing costs; economies of scale 
B)  increasing returns; diseconomies of scale 
C)  increasing returns; decreasing costs 
D)  constant costs; economies of scale 
E)  increasing returns; increasing costs 
A)  increasing costs; economies of scale 
B)  increasing returns; diseconomies of scale 
C)  increasing returns; decreasing costs 
D)  constant costs; economies of scale 
E)  increasing returns; increasing costs

Question 3

The following table shows the marginal products of capital (K) and labour (L) for various methods for Firm ABC to produce 1000 toys per day.   TABLE 8-2
-Refer to Table 8-2. If capital costs $6 per unit and labour costs $4 per unit, which production method minimizes the cost of producing 1000 toys per day?

Accepted Answer

A)  method B 
B)  method C 
C)  method D 
D)  method E 
E)  method F 
A)  method B 
B)  method C 
C)  method D 
D)  method E 
E)  method F

Question 4

A firm's least-cost position for producing a given output level occurs at that point where

Accepted Answer

A)  the isocost line intersects the highest isoquant. 
B)  the isocost and isoquant intersect the vertical axis. 
C)  the isocost and isoquant intersect the horizontal axis. 
D)  the isocost line and the isoquant are tangent to each other. 
E)  the isoquant is closest to the origin. 
A)  the isocost line intersects the highest isoquant. 
B)  the isocost and isoquant intersect the vertical axis. 
C)  the isocost and isoquant intersect the horizontal axis. 
D)  the isocost line and the isoquant are tangent to each other. 
E)  the isoquant is closest to the origin.

Question 5

The following table shows the marginal products of capital (K) and labour (L) for various methods for Firm ABC to produce 1000 toys per day.   TABLE 8-2
-Refer to Table 8-2. Suppose capital costs $80 per unit and labour costs $24 per unit. Which production method minimizes the cost of producing 1000 toys per day.

Accepted Answer

A)  method B 
B)  method C 
C)  method D 
D)  method E 
E)  method F 
A)  method B 
B)  method C 
C)  method D 
D)  method E 
E)  method F

Question 6

A firm's long-run average cost curve

Accepted Answer

A)  shows the relationship between marginal cost and output given that the economically most efficient method of production is employed. 
B)  is an envelope of short-run average variable cost curves. 
C)  shows the minimum cost of producing each possible level of output with a fixed factor. 
D)  is the boundary between attainable and unattainable cost levels, with known production technologies and given factor prices. 
E)  is horizontal in most situations.. 
A)  shows the relationship between marginal cost and output given that the economically most efficient method of production is employed. 
B)  is an envelope of short-run average variable cost curves. 
C)  shows the minimum cost of producing each possible level of output with a fixed factor. 
D)  is the boundary between attainable and unattainable cost levels, with known production technologies and given factor prices. 
E)  is horizontal in most situations..

Question 7

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour. Now it doubles both inputs, resulting in output of 30 widgets per hour. This firm is experiencing

Accepted Answer

A)  constant returns. 
B)  increasing returns. 
C)  decreasing returns. 
D)  diseconomies of scale. 
E)  increasing costs. 
A)  constant returns. 
B)  increasing returns. 
C)  decreasing returns. 
D)  diseconomies of scale. 
E)  increasing costs.

Question 8

Suppose a firm experiences decreasing returns to scale. This is shown graphically by

Accepted Answer

A)  a downward-sloping long-run marginal-cost curve. 
B)  a downward-sloping long-run average cost curve. 
C)  a horizontal long-run average cost curve. 
D)  an upward-sloping long-run average cost curve. 
E)  an increasing marginal product curve. 
A)  a downward-sloping long-run marginal-cost curve. 
B)  a downward-sloping long-run average cost curve. 
C)  a horizontal long-run average cost curve. 
D)  an upward-sloping long-run average cost curve. 
E)  an increasing marginal product curve.

Question 9

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. In this situation,

Accepted Answer

A)  the firm should decrease the use of both inputs. 
B)  the firm should increase the use of both inputs. 
C)  the firm is minimizing its costs. 
D)  the firm could lower its production costs by increasing labour input and decreasing capital input. 
E)  the firm could lower its production costs by decreasing labour input and increasing capital input. 
A)  the firm should decrease the use of both inputs. 
B)  the firm should increase the use of both inputs. 
C)  the firm is minimizing its costs. 
D)  the firm could lower its production costs by increasing labour input and decreasing capital input. 
E)  the firm could lower its production costs by decreasing labour input and increasing capital input.

Question 10

Refer to Figure 8-1. For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

Accepted Answer

A)  Firm A 
B)  Firm B 
C)  Firm C 
D)  Firm D 
E)  none of the four firms. 
A)  Firm A 
B)  Firm B 
C)  Firm C 
D)  Firm D 
E)  none of the four firms.

Question 11

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.   FIGURE 8-3
-Refer to Figure 8-3. Suppose this firm is producing output level Q₃ with plant size 2. Now suppose this firm changes to plant size 3 and is producing output level Q5. We can say that

Accepted Answer

A)  output has increased exactly in proportion to the increase in inputs. 
B)  output has increased less than in proportion to the increase in inputs. 
C)  output has increased more than in proportion to the increase in inputs. 
D)  this firm has experienced economies of scale. 
E)  the firm is then operating with the optimal plant size. 
A)  output has increased exactly in proportion to the increase in inputs. 
B)  output has increased less than in proportion to the increase in inputs. 
C)  output has increased more than in proportion to the increase in inputs. 
D)  this firm has experienced economies of scale. 
E)  the firm is then operating with the optimal plant size.

Question 12

A short-run average total cost curve will touch the long-run average cost curve at a level of outputonly

Accepted Answer

A)  when the quantity of the fixed factor being employed is at the optimal level for that level of output. 
B)  where the short-run cost curve is downward sloping. 
C)  by coincidence. 
D)  where the short-run cost curve is downward-sloping and the quantity of the fixed factor is optimal. 
E)  where the short-run cost curve is upward sloping. 
A)  when the quantity of the fixed factor being employed is at the optimal level for that level of output. 
B)  where the short-run cost curve is downward sloping. 
C)  by coincidence. 
D)  where the short-run cost curve is downward-sloping and the quantity of the fixed factor is optimal. 
E)  where the short-run cost curve is upward sloping.

Question 13

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour. The marginal rate of substitution between capital and labour is

Accepted Answer

A)  100. 
B)  40. 
C)  0.025. 
D)  0.4. 
E)  2.5. 
A)  100. 
B)  40. 
C)  0.025. 
D)  0.4. 
E)  2.5.

Question 14

The figure below shows the isocost lines facing a firm producing golf tees.   FIGURE 8-5
-Refer to Figure 8-5. If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3, we can say that

Accepted Answer

A)  the per unit prices of capital and labour have each doubled. 
B)  the firm is producing more efficiently. 
C)  the output of golf tees has doubled. 
D)  the firm's level of output has increased. 
E)  the per unit prices of capital and labour have fallen by 50 per cent. 
A)  the per unit prices of capital and labour have each doubled. 
B)  the firm is producing more efficiently. 
C)  the output of golf tees has doubled. 
D)  the firm's level of output has increased. 
E)  the per unit prices of capital and labour have fallen by 50 per cent.

Question 15

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. Which of the following is true?

Accepted Answer

A)  MPL/MPK is greater than 5/2. 
B)  MPK/MPL is equal to 5/2. 
C)  MPK/MPL is equal to PK/PL. 
D)  MPK/MPL is equal to 2/5. 
E)  MPK/MPL is greater than 5/2. 
A)  MPL/MPK is greater than 5/2. 
B)  MPK/MPL is equal to 5/2. 
C)  MPK/MPL is equal to PK/PL. 
D)  MPK/MPL is equal to 2/5. 
E)  MPK/MPL is greater than 5/2.

Question 16

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month.   TABLE 8-1
-Which of the following statements concerning long-run and short-run cost curves is correct?

Accepted Answer

A)  A short-run average cost curve can fall below the long-run average cost curve. 
B)  The short-run average cost curve is tangent to the long-run average cost curve for all levels of output of the fixed factor. 
C)  Both the long-run and short-run average cost curves show the lowest cost of producing any output when all factors are variable. 
D)  The long-run average cost curve envelops a whole family of short-run marginal cost curves. 
E)  The minimum point of the long-run average cost curve will correspond to the minimum point on a single short-run average cost curve. 
A)  A short-run average cost curve can fall below the long-run average cost curve. 
B)  The short-run average cost curve is tangent to the long-run average cost curve for all levels of output of the fixed factor. 
C)  Both the long-run and short-run average cost curves show the lowest cost of producing any output when all factors are variable. 
D)  The long-run average cost curve envelops a whole family of short-run marginal cost curves. 
E)  The minimum point of the long-run average cost curve will correspond to the minimum point on a single short-run average cost curve.

Question 17

The fact that new methods to extract oil are developed as oil prices increase suggests

Accepted Answer

A)  nothing; changes in technology occur regardless of market prices. 
B)  that invention does respond to economic signals and is endogenous. 
C)  that methods of production do not change in response to factor-price changes. 
D)  that invention is exogenous. 
E)  that oil has many close substitutes. 
A)  nothing; changes in technology occur regardless of market prices. 
B)  that invention does respond to economic signals and is endogenous. 
C)  that methods of production do not change in response to factor-price changes. 
D)  that invention is exogenous. 
E)  that oil has many close substitutes.

Question 18

A firm trying to maximize its profits in the long run should

Accepted Answer

A)  charge the lowest price possible given the minimum possible cost. 
B)  select the most technically efficient method of production regardless of the level of production. 
C)  maximize the marginal product of all factors of production. 
D)  charge the highest price. 
E)  minimize the cost of producing the level of production it chooses. 
A)  charge the lowest price possible given the minimum possible cost. 
B)  select the most technically efficient method of production regardless of the level of production. 
C)  maximize the marginal product of all factors of production. 
D)  charge the highest price. 
E)  minimize the cost of producing the level of production it chooses.

Question 19

For a firm with only two inputs, capital and labour, the condition MPK/MPL = PK/PL guarantees that the firm is

Accepted Answer

A)  minimizing its costs but is not necessarily maximizing its profits. 
B)  technically efficient but not economically efficient. 
C)  economically efficient but not technically efficient. 
D)  at its profit-maximizing output but is not necessarily minimizing its costs. 
E)  at its profit-maximizing and cost-minimizing level of output. 
A)  minimizing its costs but is not necessarily maximizing its profits. 
B)  technically efficient but not economically efficient. 
C)  economically efficient but not technically efficient. 
D)  at its profit-maximizing output but is not necessarily minimizing its costs. 
E)  at its profit-maximizing and cost-minimizing level of output.

Question 20

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes.   FIGURE 8-3
-Refer to Figure 8-3. The difference between the SRATC curves and the LRAC curve is that

Accepted Answer

A)  the LRAC is an envelope curve, joining the minimum points on all SRATC curves. 
B)  for the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors of production are variable. 
C)  the SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run, whereas the LRAC curve shows the same in the long run. 
D)  the SRATC curves show diseconomies of scales, whereas the LRAC curve shows economies of scale. 
E)  the SRATC curves show the optimal plant size when all factors of production are variable, whereas the LRAC shows the lowest cost attainable associated with each LRAC curve. 
A)  the LRAC is an envelope curve, joining the minimum points on all SRATC curves. 
B)  for the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors of production are variable. 
C)  the SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run, whereas the LRAC curve shows the same in the long run. 
D)  the SRATC curves show diseconomies of scales, whereas the LRAC curve shows economies of scale. 
E)  the SRATC curves show the optimal plant size when all factors of production are variable, whereas the LRAC shows the lowest cost attainable associated with each LRAC curve.

In the long run, a profit-maximizing firm producing a given level of output chooses the productionmethod that

Which of the following paired concepts are equivalent to each other?

A firm's least-cost position for producing a given output level occurs at that point where

A firm's long-run average cost curve

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour. Now it doubles both inputs, resulting in output of 30 widgets per hour. This firm is experiencing

Suppose a firm experiences decreasing returns to scale. This is shown graphically by

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. In this situation,

Refer to Figure 8-1. For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

A short-run average total cost curve will touch the long-run average cost curve at a level of outputonly

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour. The marginal rate of substitution between capital and labour is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8-5 -Refer to Figure 8-5. If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3, we can say that

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. Which of the following is true?

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. TABLE 8-1 -Which of the following statements concerning long-run and short-run cost curves is correct?

The fact that new methods to extract oil are developed as oil prices increase suggests

A firm trying to maximize its profits in the long run should

For a firm with only two inputs, capital and labour, the condition MPK/MPL = PK/PL guarantees that the firm is

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes. FIGURE 8-3 -Refer to Figure 8-3. The difference between the SRATC curves and the LRAC curve is that

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Exam 8: Producers in the Long Run

In the long run, a profit-maximizing firm producing a given level of output chooses the productionmethod that

Which of the following paired concepts are equivalent to each other?

A firm's least-cost position for producing a given output level occurs at that point where

A firm's long-run average cost curve

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour. Now it doubles both inputs, resulting in output of 30 widgets per hour. This firm is experiencing

Suppose a firm experiences decreasing returns to scale. This is shown graphically by

Suppose that a firm is using 100 units of labour and 50 units of capital to produce 200 fax machines per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. In this situation,

Refer to Figure 8-1. For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

A short-run average total cost curve will touch the long-run average cost curve at a level of outputonly

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-6. Suppose this firm is producing 4000 golf tees with 10 units of capital and 25 units of labour. The marginal rate of substitution between capital and labour is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8-5 -Refer to Figure 8-5. If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3, we can say that

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-6. Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map. Which of the following is true?

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. TABLE 8-1 -Which of the following statements concerning long-run and short-run cost curves is correct?

The fact that new methods to extract oil are developed as oil prices increase suggests

A firm trying to maximize its profits in the long run should

For a firm with only two inputs, capital and labour, the condition MPK/MPL = PK/PL guarantees that the firm is

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC curves refer to different plant sizes. FIGURE 8-3 -Refer to Figure 8-3. The difference between the SRATC curves and the LRAC curve is that

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Short Run

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Monopoly, Cartels, and Price Discrimination

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