Question 1

A firm is operating with an optimal combination of inputs.Suddenly the price of one input rises.The firm should

Accepted Answer

A)  buy less of that input and more of the other input. 
B)  change its input mix so that the marginal physical product of the input whose price has risen falls and the marginal physical product of the other input rises. 
C)  buy less of whichever input now has the highest money price and more of the other input. 
D)  reduce its output. 
A)  buy less of that input and more of the other input. 
B)  change its input mix so that the marginal physical product of the input whose price has risen falls and the marginal physical product of the other input rises. 
C)  buy less of whichever input now has the highest money price and more of the other input. 
D)  reduce its output.

Question 2

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

Accepted Answer

A)  1,000. 
B)  1,800. 
C)  800. 
D)  80. 
A)  1,000. 
B)  1,800. 
C)  800. 
D)  80.

Question 3

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Accepted Answer

A) True 
 B)False

Question 4

Table 7-4
 $\begin{array}{c}
\text { CAPITAL }
 \begin{array}{rrrrrrr}
0 & 340 & 490 & 600 & 692 & 773 & 840 \
5 & 316 & 448 & 548 & 632 & 705 & 775 \
4 & 282 & 400 & 480 & 564 & 632 & 692 \
3 & 245 & 346 & 423 & 490 & 548 & 600 \
2 & 200 & 282 & 346 & 400 & 448 & 490 \
1 & 141 & 200 & 245 & 282 & 316 & 346 \
0 & 1 & 2 & 3 & 4 & 5 &6
\end{array}\
\quad\quad\quad\quad\quad\text { LABOR }
\end{array}$

-Table 7-4 shows a production relationship.Assuming the capital stock is fixed at three units and the cost per day of labor is $65, what is the most labor that it is efficient to hire if the product price is $1 per unit?

Accepted Answer

A)  2 
B)  3 
C)  4 
D)  5 
A)  2 
B)  3 
C)  4 
D)  5

Question 5

Figure 7-1
  
-In Figure 7-1, which graph best represents total physical product with diminishing returns?

Accepted Answer

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

Question 6

The typical average cost curve

Accepted Answer

A)  continually declines as output increases. 
B)  is horizontal. 
C)  continually increases as output increases. 
D)  first declines to a minimum and then increases as output increases. 
A)  continually declines as output increases. 
B)  is horizontal. 
C)  continually increases as output increases. 
D)  first declines to a minimum and then increases as output increases.

Question 7

Average cost curves decline because

Accepted Answer

A)  fixed cost is spread out over larger amounts of production. 
B)  it becomes cheaper to produce an infinite amount of goods. 
C)  additional units of production are inferior. 
D)  variable costs increase with each additional amount of production. 
A)  fixed cost is spread out over larger amounts of production. 
B)  it becomes cheaper to produce an infinite amount of goods. 
C)  additional units of production are inferior. 
D)  variable costs increase with each additional amount of production.

Question 8

The different points on a cost curve represent alternative production possibilities in the same time period.

Accepted Answer

A) True 
 B)False

Question 9

In the short run the firm has at least one fixed input.

Accepted Answer

A) True 
 B)False

Question 10

The case of production with a single variable input is analogous to

Accepted Answer

A)  changing the use of land, labor, and capital in production by a constant absolute amount. 
B)  a controlled laboratory experiment in which the scientist permits one variable to change at a time. 
C)  changing the use of land, labor, and capital in production by a constant percentage. 
D)  specialization in one particular product by a company. 
A)  changing the use of land, labor, and capital in production by a constant absolute amount. 
B)  a controlled laboratory experiment in which the scientist permits one variable to change at a time. 
C)  changing the use of land, labor, and capital in production by a constant percentage. 
D)  specialization in one particular product by a company.

Question 11

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Accepted Answer

A) True 
 B)False

Question 12

Figure 7-17
  
-Which of the following statements must be true when a firm makes choices that put it at point A in Figure 7-17?

Accepted Answer

A)  The firm is minimizing its cost of producing 100 units of output. 
B)  The ratio of the marginal physical products of labor and of land equals the ratio of the prices of labor and of land. 
C)  The firm first decided how much output to produce and then decided how to produce it. 
D)  All of the above are true. 
A)  The firm is minimizing its cost of producing 100 units of output. 
B)  The ratio of the marginal physical products of labor and of land equals the ratio of the prices of labor and of land. 
C)  The firm first decided how much output to produce and then decided how to produce it. 
D)  All of the above are true.

Question 13

Peter Piper picks a peck of pickled peppers using 10 units of labor and two pepper-picking machines.The last worker hired picked 100 peppers, and the last machine added 1,000 peppers.If labor can be hired at $5 a pepper picker and machines cost $5,000, what advice do you have for Peter Piper?

Accepted Answer

Optimal use of two variable inputs calls

Question 14

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is a fixed cost to farmer McDonald?

Accepted Answer

A)  gasoline 
B)  fertilizer 
C)  insurance 
D)  seed 
A)  gasoline 
B)  fertilizer 
C)  insurance 
D)  seed

Question 16

Which of the following statements is equivalent to the law of diminishing marginal returns?

Accepted Answer

A)  A stitch in time saves nine. 
B)  You can't make an omelet without breaking eggs. 
C)  Too many cooks spoil the broth. 
D)  If you can't stand the heat, get out of the kitchen. 
A)  A stitch in time saves nine. 
B)  You can't make an omelet without breaking eggs. 
C)  Too many cooks spoil the broth. 
D)  If you can't stand the heat, get out of the kitchen.

Question 17

Economies of scale is another term for

Accepted Answer

A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  increasing marginal physical productivity. 
D)  decreasing returns to scale. 
A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  increasing marginal physical productivity. 
D)  decreasing returns to scale.

Question 18

Production indifference curves show the combination of inputs that produce a given output.

Accepted Answer

A) True 
 B)False

Question 19

A factory produces 1,000 radios a year, AVC = $10 and TFC = $5,000.The factory's TC

Accepted Answer

A)  equals $15. 
B)  equals $5,005. 
C)  equals $15,000. 
D)  cannot be determined from the information given. 
A)  equals $15. 
B)  equals $5,005. 
C)  equals $15,000. 
D)  cannot be determined from the information given.

Question 20

For most industries, average costs decrease indefinitely as output expands.

Accepted Answer

A) True 
 B)False

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

A firm is operating with an optimal combination of inputs.Suddenly the price of one input rises.The firm should

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

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Figure 7-1 -In Figure 7-1, which graph best represents total physical product with diminishing returns?

The typical average cost curve

Average cost curves decline because

The different points on a cost curve represent alternative production possibilities in the same time period.

In the short run the firm has at least one fixed input.

The case of production with a single variable input is analogous to

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Figure 7-17 -Which of the following statements must be true when a firm makes choices that put it at point A in Figure 7-17?

Peter Piper picks a peck of pickled peppers using 10 units of labor and two pepper-picking machines.The last worker hired picked 100 peppers, and the last machine added 1,000 peppers.If labor can be hired at $5 a pepper picker and machines cost $5,000, what advice do you have for Peter Piper?

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Which of the following is a fixed cost to farmer McDonald?

Which of the following statements is equivalent to the law of diminishing marginal returns?

Economies of scale is another term for

Production indifference curves show the combination of inputs that produce a given output.

A factory produces 1,000 radios a year, AVC = $10 and TFC = $5,000.The factory's TC

For most industries, average costs decrease indefinitely as output expands.

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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