Question 1

In the long run, decreasing returns to scale are likely to be caused by

Accepted Answer

A)  decreasing costs. 
B)  diminishing returns to the variable factor. 
C)  management diseconomies. 
D)  increasing specialization. 
E)  a decrease in factor prices. 
A)  decreasing costs. 
B)  diminishing returns to the variable factor. 
C)  management diseconomies. 
D)  increasing specialization. 
E)  a decrease in factor prices.

Question 2

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Refer to Figure 8-4. A firm that is producing an output of 1000 units will minimize its costs at point

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  halfway between B and D. 
A)  A. 
B)  B. 
C)  C. 
D)  D. 
E)  halfway between B and D.

Question 3

Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL. If the price of labour rises, the cost-minimizing firm should

Accepted Answer

A)  do nothing. 
B)  employ more capital and less labour because MPK/MPL  PK/PL. 
E)  employ more capital and less labour because MPK/MPL > PK/PL 
A)  do nothing. 
B)  employ more capital and less labour because MPK/MPL  PK/PL. 
E)  employ more capital and less labour because MPK/MPL > PK/PL

Question 4

Movement from one point to another along an isoquant implies a change in

Accepted Answer

A)  factor combinations, holding output constant. 
B)  output levels, holding factor combinations constant. 
C)  the level of output, independent of what happens to factor combinations. 
D)  money income. 
E)  product prices. 
A)  factor combinations, holding output constant. 
B)  output levels, holding factor combinations constant. 
C)  the level of output, independent of what happens to factor combinations. 
D)  money income. 
E)  product prices.

Question 5

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
-Refer to Table 8-1. If the price of both labour and capital is $10, which production techniqueminimizes the costs of producing 1000 units of output?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
E)  Any of the techniques have the same cost. 
A)  A 
B)  B 
C)  C 
D)  D 
E)  Any of the techniques have the same cost.

Question 6

The slope of an isoquant measures

Accepted Answer

A)  the capital/labour ratio. 
B)  the marginal rate of (technical) substitution between factors. 
C)  the marginal cost of a given level of output. 
D)  the ratio of prices of inputs. 
E)  the ratio of prices of goods. 
A)  the capital/labour ratio. 
B)  the marginal rate of (technical) substitution between factors. 
C)  the marginal cost of a given level of output. 
D)  the ratio of prices of inputs. 
E)  the ratio of prices of goods.

Question 7

If there is a fall in all factor prices faced by a firm,

Accepted Answer

A)  there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve. 
B)  there will be no change in the cost curves in the long run. 
C)  the firm will move to a lower point on both its long-run and short-run average cost curves. 
D)  the firm will move to a lower point on its long-run average cost curve only. 
E)  both the long-run and short-run average cost curves will shift downward. 
A)  there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve. 
B)  there will be no change in the cost curves in the long run. 
C)  the firm will move to a lower point on both its long-run and short-run average cost curves. 
D)  the firm will move to a lower point on its long-run average cost curve only. 
E)  both the long-run and short-run average cost curves will shift downward.

Question 8

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the

Accepted Answer

A)  average product of capital is higher than the average product of labour. 
B)  total product of capital is higher than the total product of labour. 
C)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
D)  marginal product of capital, per dollar spent on capital, is greater 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)  average product of capital is higher than the average product of labour. 
B)  total product of capital is higher than the total product of labour. 
C)  marginal product of capital, per dollar spent on capital, is less than the marginal product of labour, per dollar spent on labour. 
D)  marginal product of capital, per dollar spent on capital, is greater 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 9

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firmoperating at its optimal factor mix, if the marginal product of capital is 60, the marginal product oflabour must be _ .

Accepted Answer

A)  30 
B)  10 
C)  120 
D)  90 
E)  20 
A)  30 
B)  10 
C)  120 
D)  90 
E)  20

Question 10

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. As this firm switches from production method A to production method G, production is

Accepted Answer

A)  remaining at a cost-minimizing level of output. 
B)  becoming more labour intensive and less capital intensive. 
C)  becoming more profitable. 
D)  becoming more capital intensive and less labour intensive. 
E)  moving farther and farther away from cost minimization. 
A)  remaining at a cost-minimizing level of output. 
B)  becoming more labour intensive and less capital intensive. 
C)  becoming more profitable. 
D)  becoming more capital intensive and less labour intensive. 
E)  moving farther and farther away from cost minimization.

Question 11

The figure below shows the isocost lines facing a firm producing golf tees.   FIGURE 8-5
-Refer to Figure 8-5.

Accepted Answer

A)  -- not determinable from the information provided. 
B)  4 only. 
C)  1 only. 
D)  2 only. 
E)  3 only. 
A)  -- not determinable from the information provided. 
B)  4 only. 
C)  1 only. 
D)  2 only. 
E)  3 only.

Question 12

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 Figure 8-2. Increasing returns to scale occur over the output range

Accepted Answer

A)  Q₂ to Q₃ only. 
B)  beyond Q₃ only. 
C)  0 to Q₁ only. 
D)  Q₁ to Q₂ only. 
E)  0 to Q₃ only. 
A)  Q₂ to Q₃ only. 
B)  beyond Q₃ only. 
C)  0 to Q₁ only. 
D)  Q₁ to Q₂ only. 
E)  0 to Q₃ only.

Question 13

A downward-sloping LRAC curve will shift downward because of

Accepted Answer

A)  factor substitution. 
B)  a decrease in factor prices. 
C)  specialization. 
D)  economies of scale. 
E)  the use of large, specialized machinery as the volume of output increases. 
A)  factor substitution. 
B)  a decrease in factor prices. 
C)  specialization. 
D)  economies of scale. 
E)  the use of large, specialized machinery as the volume of output increases.

Question 14

A short-run average total cost curve and a long-run average cost curve are tangent

Accepted Answer

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

Question 15

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 minimum efficient scale is achieved by this firm at output level

Accepted Answer

A)  Q₃. 
B)  Q₄. 
C)  Q₂. 
D)  Q₁. 
E)  Q5. 
A)  Q₃. 
B)  Q₄. 
C)  Q₂. 
D)  Q₁. 
E)  Q5.

Question 16

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. Each of the three SRATC curves shows

Accepted Answer

A)  the output that is possible when all factors of production are fixed. 
B)  the lowest cost attainable, given that the plant size is the largest it can possibly be. 
C)  the lowest cost attainable, holding the plant size constant. 
D)  optimal plant sizes in the long run. 
E)  technically inefficient methods of production, given that they lie above the LRAC. 
A)  the output that is possible when all factors of production are fixed. 
B)  the lowest cost attainable, given that the plant size is the largest it can possibly be. 
C)  the lowest cost attainable, holding the plant size constant. 
D)  optimal plant sizes in the long run. 
E)  technically inefficient methods of production, given that they lie above the LRAC.

Question 17

A very-long-run consideration that could change a firm's production function is

Accepted Answer

A)  size of the plant. 
B)  an improvement in education that increases the quality of the economy's labour force. 
C)  increasing returns to scale of operation. 
D)  diminishing returns. 
E)  rising cost of the factors of production. 
A)  size of the plant. 
B)  an improvement in education that increases the quality of the economy's labour force. 
C)  increasing returns to scale of operation. 
D)  diminishing returns. 
E)  rising cost of the factors of production.

Question 18

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
-In defining a firm's long-run average cost curve,

Accepted Answer

A)  factor prices are held constant and the quantity of factors of production used is varied. 
B)  technology, factor prices, and the quantity of factors of production are all varied. 
C)  the time period must be longer than one year. 
D)  factor prices are held constant and technology is assumed to change. 
E)  factor prices are varied and the quantity of factors of production is held constant. 
A)  factor prices are held constant and the quantity of factors of production used is varied. 
B)  technology, factor prices, and the quantity of factors of production are all varied. 
C)  the time period must be longer than one year. 
D)  factor prices are held constant and technology is assumed to change. 
E)  factor prices are varied and the quantity of factors of production is held constant.

Question 19

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

Accepted Answer

A)  employ less capital and labour 
B)  employ less capital and more labour 
C)  employ more capital and less labour 
D)  employ more capital and labour 
E)  not change its current factor use 
A)  employ less capital and labour 
B)  employ less capital and more labour 
C)  employ more capital and less labour 
D)  employ more capital and labour 
E)  not change its current factor use

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. Suppose there is a change in relative factor prices and the cost-minimizing method of producing 2000 golf tees is now at point D. If the total cost of producing 2000 golf tees is still $60, it must be the case that

Accepted Answer

A)  the price of labour rose and the price of capital fell. 
B)  the price of labour fell and the price of capital remained constant. 
C)  the price of labour and capital both fell. 
D)  the price of labour fell and the price of capital rose. 
E)  the price of labour and capital both rose. 
A)  the price of labour rose and the price of capital fell. 
B)  the price of labour fell and the price of capital remained constant. 
C)  the price of labour and capital both fell. 
D)  the price of labour fell and the price of capital rose. 
E)  the price of labour and capital both rose.

In the long run, decreasing returns to scale are likely to be caused by

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-4. A firm that is producing an output of 1000 units will minimize its costs at point

Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL. If the price of labour rises, the cost-minimizing firm should

Movement from one point to another along an isoquant implies a change in

The slope of an isoquant measures

If there is a fall in all factor prices faced by a firm,

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firmoperating at its optimal factor mix, if the marginal product of capital is 60, the marginal product oflabour must be _ .

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. As this firm switches from production method A to production method G, production is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8-5 -Refer to Figure 8-5.

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 Figure 8-2. Increasing returns to scale occur over the output range

A downward-sloping LRAC curve will shift downward because of

A short-run average total cost curve and a long-run average cost curve are tangent

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 minimum efficient scale is achieved by this firm at output level

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. Each of the three SRATC curves shows

A very-long-run consideration that could change a firm's production function is

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 -In defining a firm's long-run average cost curve,

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

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

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Exam 8: Producers in the Long Run

In the long run, decreasing returns to scale are likely to be caused by

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-4. A firm that is producing an output of 1000 units will minimize its costs at point

Suppose a firm is employing labour (L) and capital (K) such that MPK/MPL = PK/PL. If the price of labour rises, the cost-minimizing firm should

Movement from one point to another along an isoquant implies a change in

The slope of an isoquant measures

If there is a fall in all factor prices faced by a firm,

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the

Suppose that capital costs $8 per unit and labour costs $4 per unit. For a profit- maximizing firmoperating at its optimal factor mix, if the marginal product of capital is 60, the marginal product oflabour must be _ .

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. As this firm switches from production method A to production method G, production is

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8-5 -Refer to Figure 8-5.

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 Figure 8-2. Increasing returns to scale occur over the output range

A downward-sloping LRAC curve will shift downward because of

A short-run average total cost curve and a long-run average cost curve are tangent

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 minimum efficient scale is achieved by this firm at output level

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. Each of the three SRATC curves shows

A very-long-run consideration that could change a firm's production function is

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 -In defining a firm's long-run average cost curve,

Suppose that capital costs $10 per unit and labour costs $4 per unit. If the marginal product of capital is 50 and the marginal product of labour is 50, the firm should in order to minimize its costs of producing its output.

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