Question 1

A firm will tend to select the least costly input combination to produce its output.

Accepted Answer

A) True 
 B)False  True

Question 2

Table 7-1
 $\begin{array}{cc}
\underline {\text { Warkers } }&\underline {\text { Tays }}\
1 & 5 \
2 & 12 \
3 & 22 \
4 & 30 \
5 & 35
\end{array}$
-In Table 7-1, the marginal physical product begins to diminish with the addition of the

Accepted Answer

A)  second worker. 
B)  third worker. 
C)  fourth worker. 
D) Marginal returns never diminish in Table 7-1. 
A)  second worker. 
B)  third worker. 
C)  fourth worker. 
D) Marginal returns never diminish in Table 7-1. C

Question 3

Economies of scale are also called increasing returns to scale.

Accepted Answer

A) True 
 B)False  True

Question 4

Figure 7-8
  
-"Overfishing" impairs the ability of fish stock to replenish itself, so the stock of fish declines.Fishermen then attempt to increase output by adding more boats and fishing longer.Which average cost curve in Figure 7-8 depicts the "overfishing" situation?

Accepted Answer

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

Question 5

Figure 7-10
  
-In Figure 7-10, the curve labeled C is

Accepted Answer

A)  average fixed cost. 
B)  average total cost. 
C)  average variable cost. 
D)  marginal cost. 
A)  average fixed cost. 
B)  average total cost. 
C)  average variable cost. 
D)  marginal cost.

Question 6

Input proportions are usually fixed by technological conditions alone.

Accepted Answer

A) True 
 B)False

Question 7

Figure 7-7
  
-In Figure 7-7 at 100 units, AFC equals

Accepted Answer

A)  10. 
B)  100. 
C)  180. 
D)  1,000. 
A)  10. 
B)  100. 
C)  180. 
D)  1,000.

Question 8

Marginal cost is the

Accepted Answer

A)  change in total cost resulting from the purchase of one more unit of the variable input. 
B)  change in total cost resulting from the production of one more unit of output. 
C)  difference between total fixed cost and total variable cost. 
D)  difference between total cost and total expenditure. 
A)  change in total cost resulting from the purchase of one more unit of the variable input. 
B)  change in total cost resulting from the production of one more unit of output. 
C)  difference between total fixed cost and total variable cost. 
D)  difference between total cost and total expenditure.

Question 9

Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale).Label each region.

Accepted Answer

Initially, LRAC declines as ou

Question 10

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 11

The average fixed cost curve increases as output increases.

Accepted Answer

A) True 
 B)False

Question 12

Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients.One day, her landlord tripled her rent.What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?

Accepted Answer

Assuming she continues to operate, the h

Question 13

Differentiate between the short run and the long run.

Accepted Answer

The short run is a period of time during

Question 14

Most firms have very little flexibility in their choice of input proportions.

Accepted Answer

A) True 
 B)False

Question 15

Total fixed cost

Accepted Answer

A)  increases as output increases. 
B)  declines as output increases. 
C)  is always zero. 
D)  remains constant even if the firm shuts down. 
A)  increases as output increases. 
B)  declines as output increases. 
C)  is always zero. 
D)  remains constant even if the firm shuts down.

Question 16

A cost curve drawn with years on the horizontal axis and costs per unit on the vertical axis would be a(n)

Accepted Answer

A)  analytical cost curve. 
B)  long-run cost curve. 
C)  historical cost curve. 
D)  theoretical cost curve. 
A)  analytical cost curve. 
B)  long-run cost curve. 
C)  historical cost curve. 
D)  theoretical cost curve.

Question 17

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 18

Table 7-6
 $ \begin{array}{lrrrrrrrrr}\text { Number of ovens } & 2 & 2 & 2 & 2 & 2 & 2 & 2 & 2 \ \text { Labor hours used } & 1 & 2 & 3 & 4 & 5 & 6 & 7 & 8 \ \text { Loaves of Bread Produced } & 20 & 34 & 55 & 70 & 82 & 91 & 94 & 92\end{array} $
-Table 7-6 shows a baker's daily production relationship for bread.Diminishing returns to labor begin when the baker goes from

Accepted Answer

A)  one hour of labor to two hours of labor. 
B)  three hours of labor to four hours of labor. 
C)  six hours of labor to seven hours of labor. 
D)  seven hours of labor to eight hours of labor. 
A)  one hour of labor to two hours of labor. 
B)  three hours of labor to four hours of labor. 
C)  six hours of labor to seven hours of labor. 
D)  seven hours of labor to eight hours of labor.

Question 19

Total fixed cost

Accepted Answer

A)  varies with the level of output. 
B)  has a downward-sloping curve. 
C)  has an upward-sloping curve. 
D)  is constant at all levels of output. 
A)  varies with the level of output. 
B)  has a downward-sloping curve. 
C)  has an upward-sloping curve. 
D)  is constant at all levels of output.

Question 20

Figure 7-5
  
-Which of the graphs in Figure 7-5 could be a firm's total fixed cost curve?

Accepted Answer

A)  (a) 
B)  (b) 
C)  (c) 
D)  (d) 
A)  (a) 
B)  (b) 
C)  (c) 
D)  (d)

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

A firm will tend to select the least costly input combination to produce its output.

Table 7-1 1 5 2 12 3 22 4 30 5 35 -In Table 7-1, the marginal physical product begins to diminish with the addition of the

Economies of scale are also called increasing returns to scale.

Figure 7-8 -"Overfishing" impairs the ability of fish stock to replenish itself, so the stock of fish declines.Fishermen then attempt to increase output by adding more boats and fishing longer.Which average cost curve in Figure 7-8 depicts the "overfishing" situation?

Figure 7-10 -In Figure 7-10, the curve labeled C is

Input proportions are usually fixed by technological conditions alone.

Figure 7-7 -In Figure 7-7 at 100 units, AFC equals

Marginal cost is the

Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale).Label each region.

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

The average fixed cost curve increases as output increases.

Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients.One day, her landlord tripled her rent.What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?

Differentiate between the short run and the long run.

Most firms have very little flexibility in their choice of input proportions.

Total fixed cost

A cost curve drawn with years on the horizontal axis and costs per unit on the vertical axis would be a(n)

Table 7-6 Number of ovens 2 2 2 2 2 2 2 2 Labor hours used 1 2 3 4 5 6 7 8 Loaves of Bread Produced 20 34 55 70 82 91 94 92 -Table 7-6 shows a baker's daily production relationship for bread.Diminishing returns to labor begin when the baker goes from

Total fixed cost

Figure 7-5 -Which of the graphs in Figure 7-5 could be a firm's total fixed cost curve?

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 I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

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

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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