Question 1

The creation of a new product is called

Accepted Answer

A)  investment. 
B)  a rise in productivity. 
C)  process innovation. 
D)  creative destruction 
E)  product innovation. 
A)  investment. 
B)  a rise in productivity. 
C)  process innovation. 
D)  creative destruction 
E)  product innovation.

Question 2

An isoquant shows

Accepted Answer

A)  the whole set of technically efficient factor combinations that can produce a single level of output. 
B)  the alternative factor combinations that require the same expenditure. 
C)  various levels of output that can be produced with different factor combinations. 
D)  various levels of output that can be produced with a fixed factor combination. 
E)  the whole set of technically efficient factor combinations that can produce varying levels of output. 
A)  the whole set of technically efficient factor combinations that can produce a single level of output. 
B)  the alternative factor combinations that require the same expenditure. 
C)  various levels of output that can be produced with different factor combinations. 
D)  various levels of output that can be produced with a fixed factor combination. 
E)  the whole set of technically efficient factor combinations that can produce varying levels of output.

Question 3

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Although capital is a variable factor in the long run, once chosen it becomes a fixed factor for a long time. A profit-maximizing firm must therefore select a method of production that is

Accepted Answer

A)  currently economically efficient. 
B)  labour intensive, as labour is always a variable factor. 
C)  currently economically efficient and sufficiently flexible to adapt to changing factor prices over time. 
D)  technologically advanced beyond anything currently used. 
E)  adaptable to wide ranges of output over time. 
A)  currently economically efficient. 
B)  labour intensive, as labour is always a variable factor. 
C)  currently economically efficient and sufficiently flexible to adapt to changing factor prices over time. 
D)  technologically advanced beyond anything currently used. 
E)  adaptable to wide ranges of output over time.

Question 4

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Refer to Figure 8-1. Which of the four firms in the figure is displaying constant returns to scale at all output levels?

Accepted Answer

A)  Firm A 
B)  Firm B 
C)  Firm C 
D)  Firm D 
E)  none of the four firms is displaying constant returns to scale. 
A)  Firm A 
B)  Firm B 
C)  Firm C 
D)  Firm D 
E)  none of the four firms is displaying constant returns to scale.

Question 5

With respect to innovation, which of the following statements is true?

Accepted Answer

A)  The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
B)  Innovation is often endogenous to the economic system. 
C)  The principal incentive to innovation does not appear to be related to profits. 
D)  Government policy cannot influence the rate of innovation. 
E)  Innovation is exogenous to the economic system. 
A)  The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
B)  Innovation is often endogenous to the economic system. 
C)  The principal incentive to innovation does not appear to be related to profits. 
D)  Government policy cannot influence the rate of innovation. 
E)  Innovation is exogenous to the economic system.

Question 6

A profit-maximizing firm with variable labour and capital will always produce

Accepted Answer

A)  at a point on the LRAC curve where it is experiencing economies of scale. 
B)  at the minimum point of the LRAC curve. 
C)  at the tangency of the relevant SRATC curve and the LRAC curve. 
D)  anywhere along the LRAC curve. 
E)  at the minimum of the relevant SRATC curve and the LRAC curve. 
A)  at a point on the LRAC curve where it is experiencing economies of scale. 
B)  at the minimum point of the LRAC curve. 
C)  at the tangency of the relevant SRATC curve and the LRAC curve. 
D)  anywhere along the LRAC curve. 
E)  at the minimum of the relevant SRATC curve and the LRAC curve.

Question 7

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
-The slope of a firm's isocost line is equal to the ratio of

Accepted Answer

A)  the factor prices. 
B)  the marginal rate of substitution between factors. 
C)  product prices. 
D)  the marginal products of its factors. 
E)  total variable cost to total cost. 
A)  the factor prices. 
B)  the marginal rate of substitution between factors. 
C)  product prices. 
D)  the marginal products of its factors. 
E)  total variable cost to total cost.

Question 8

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. In order to maintain its output and minimize costs this firm should

Accepted Answer

A)  not change its use of factors. 
B)  employ more capital and less labour. 
C)  employ more labour and less capital. 
D)  move to an isocost line further from the origin. 
E)  move to an isoquant closer to the origin. 
A)  not change its use of factors. 
B)  employ more capital and less labour. 
C)  employ more labour and less capital. 
D)  move to an isocost line further from the origin. 
E)  move to an isoquant closer to the origin.

Question 9

The long-run average cost (LRAC) curve shows

Accepted Answer

A)  the operation of the law of diminishing returns. 
B)  the highest unit costs of producing a given output. 
C)  the same as the short-run average cost curve. 
D)  the lowest unit cost at which the firm can produce a given output. 
E)  what happens to the fixed costs in the long run. 
A)  the operation of the law of diminishing returns. 
B)  the highest unit costs of producing a given output. 
C)  the same as the short-run average cost curve. 
D)  the lowest unit cost at which the firm can produce a given output. 
E)  what happens to the fixed costs in the long run.

Question 10

When a cost-minimizing firm is faced with an increase in the relative price of labour, it adjusts its factor usage so as to

Accepted Answer

A)  increase the marginal product of capital relative to the marginal product of labour. 
B)  use more of both capital and labour per unit of output. 
C)  increase the marginal product of labour relative to the marginal product of capital. 
D)  use more labour per unit of output than before. 
E)  maintain the previous usage of labour. 
A)  increase the marginal product of capital relative to the marginal product of labour. 
B)  use more of both capital and labour per unit of output. 
C)  increase the marginal product of labour relative to the marginal product of capital. 
D)  use more labour per unit of output than before. 
E)  maintain the previous usage of labour.

Question 11

If a firm is using labour and capital such that the MP of labour is two times the MP of capital, andthe price of labour is four times the price of capital, the firm should in order to minimizeits costs of producing its output.

Accepted Answer

A)  decrease both capital and labour 
B)  decrease capital and increase labour 
C)  not alter its present factor mix 
D)  increase both labour and capital 
E)  increase capital and decrease labour 
A)  decrease both capital and labour 
B)  decrease capital and increase labour 
C)  not alter its present factor mix 
D)  increase both labour and capital 
E)  increase capital and decrease labour

Question 12

A cost-minimizing firm will increase its use of labour and decrease its use of capital when the

Accepted Answer

A)  marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour. 
B)  average product of capital is higher than the average product of labour. 
C)  total product of capital is higher than the total product of labour. 
D)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
E)  marginal product of capital is higher than the marginal product of labour. 
A)  marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour. 
B)  average product of capital is higher than the average product of labour. 
C)  total product of capital is higher than the total product of labour. 
D)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
E)  marginal product of capital is higher than the marginal product of labour.

Question 13

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour. Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing

Accepted Answer

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

Question 14

The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs

Accepted Answer

A)  at a point where average total cost is falling but the marginal cost is rising. 
B)  at the point of minimum SRATC. 
C)  at a point where both the average total cost and the marginal cost is rising. 
D)  only when the LRAC curve is at its minimum. 
E)  at an output level for which the quantity of the fixed factor is optimal. 
A)  at a point where average total cost is falling but the marginal cost is rising. 
B)  at the point of minimum SRATC. 
C)  at a point where both the average total cost and the marginal cost is rising. 
D)  only when the LRAC curve is at its minimum. 
E)  at an output level for which the quantity of the fixed factor is optimal.

Question 15

Which of the following cost curves demonstrate increasing returns to scale?

Accepted Answer

A)  returns to scale have nothing to do with the shape of the long-run average cost curve 
B)  a horizontal long-run average cost curve 
C)  a downward-sloping long-run average cost curve 
D)  an upward-sloping long-run average cost curve 
E)  a vertical long-run average cost curve 
A)  returns to scale have nothing to do with the shape of the long-run average cost curve 
B)  a horizontal long-run average cost curve 
C)  a downward-sloping long-run average cost curve 
D)  an upward-sloping long-run average cost curve 
E)  a vertical long-run average cost curve

Question 16

When there is no other way of producing a given level of output with a smaller total value of inputs, the firm is operating at

Accepted Answer

A)  maximum profit. 
B)  optimal output. 
C)  minimum cost. 
D)  maximum output. 
E)  an irrelevant output. 
A)  maximum profit. 
B)  optimal output. 
C)  minimum cost. 
D)  maximum output. 
E)  an irrelevant output.

Question 17

Isocost lines are downward sloping straight lines, reflecting

Accepted Answer

A)  increasing factor prices. 
B)  that each factor price has a negative value. 
C)  constant factor prices. 
D)  a change in relative factor prices. 
E)  decreasing factor prices. 
A)  increasing factor prices. 
B)  that each factor price has a negative value. 
C)  constant factor prices. 
D)  a change in relative factor prices. 
E)  decreasing factor prices.

Question 18

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

Accepted Answer

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

Question 19

Isoquants are usually drawn convex when viewed from the origin,assumption

Accepted Answer

A)  that both factors are subject to the law of diminishing returns. 
B)  that the variable factor is subject to the law of diminishing returns. 
C)  that both factors are subject to increasing returns. 
D)  negative marginal productivity of all factors. 
E)  the positive marginal productivity of all factors. 
A)  that both factors are subject to the law of diminishing returns. 
B)  that the variable factor is subject to the law of diminishing returns. 
C)  that both factors are subject to increasing returns. 
D)  negative marginal productivity of all factors. 
E)  the positive marginal productivity of all factors.

Question 20

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.

Accepted Answer

A)  6 units of capital and 15 units of labour. 
B)  12 units of capital and 30 units of labour. 
C)  10 units of capital and 25 units of labour. 
D)  4 units of capital and 10 units of labour. 
E)  8 units of capital and 20 units of labour. 
A)  6 units of capital and 15 units of labour. 
B)  12 units of capital and 30 units of labour. 
C)  10 units of capital and 25 units of labour. 
D)  4 units of capital and 10 units of labour. 
E)  8 units of capital and 20 units of labour.

The creation of a new product is called

An isoquant shows

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Although capital is a variable factor in the long run, once chosen it becomes a fixed factor for a long time. A profit-maximizing firm must therefore select a method of production that is

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-1. Which of the four firms in the figure is displaying constant returns to scale at all output levels?

With respect to innovation, which of the following statements is true?

A profit-maximizing firm with variable labour and capital will always produce

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 -The slope of a firm's isocost line is equal to the ratio of

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. In order to maintain its output and minimize costs this firm should

The long-run average cost (LRAC) curve shows

When a cost-minimizing firm is faced with an increase in the relative price of labour, it adjusts its factor usage so as to

If a firm is using labour and capital such that the MP of labour is two times the MP of capital, andthe price of labour is four times the price of capital, the firm should in order to minimizeits costs of producing its output.

A cost-minimizing firm will increase its use of labour and decrease its use of capital when the

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour. Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing

The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs

Which of the following cost curves demonstrate increasing returns to scale?

When there is no other way of producing a given level of output with a smaller total value of inputs, the firm is operating at

Isocost lines are downward sloping straight lines, reflecting

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

Isoquants are usually drawn convex when viewed from the origin,assumption

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.

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Short Run

Competitive Markets

Monopoly, Cartels, and Price Discrimination

Imperfect Competition

Economic Efficiency and Public Policy

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Exam 8: Producers in the Long Run

The creation of a new product is called

An isoquant shows

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Although capital is a variable factor in the long run, once chosen it becomes a fixed factor for a long time. A profit-maximizing firm must therefore select a method of production that is

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-1. Which of the four firms in the figure is displaying constant returns to scale at all output levels?

With respect to innovation, which of the following statements is true?

A profit-maximizing firm with variable labour and capital will always produce

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 -The slope of a firm's isocost line is equal to the ratio of

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. In order to maintain its output and minimize costs this firm should

The long-run average cost (LRAC) curve shows

When a cost-minimizing firm is faced with an increase in the relative price of labour, it adjusts its factor usage so as to

If a firm is using labour and capital such that the MP of labour is two times the MP of capital, andthe price of labour is four times the price of capital, the firm should in order to minimizeits costs of producing its output.

A cost-minimizing firm will increase its use of labour and decrease its use of capital when the

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour. Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing

The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs

Which of the following cost curves demonstrate increasing returns to scale?

When there is no other way of producing a given level of output with a smaller total value of inputs, the firm is operating at

Isocost lines are downward sloping straight lines, reflecting

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

Isoquants are usually drawn convex when viewed from the origin,assumption

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.

Economic Issues and Concepts

Economic Theories, Data, and Graphs

Demand, Supply, and Price

Elasticity

Markets in Action

Consumer Behaviour

Producers in the Short Run

Competitive Markets

Monopoly, Cartels, and Price Discrimination

Imperfect Competition

Economic Efficiency and Public Policy

Filters