Question 1

Figure 7-15
  
-For a firm at equilibrium, at point A in Figure 7-15

Accepted Answer

A)  the price of labor is high relative to the price of machines. 
B)  the MPP of labor is greater than the MPP of machines. 
C)  the MPP of labor is less than at point B. 
D)  output is higher than at point B. 
A)  the price of labor is high relative to the price of machines. 
B)  the MPP of labor is greater than the MPP of machines. 
C)  the MPP of labor is less than at point B. 
D)  output is higher than at point B.

Question 2

If the MPP of labor is 60 and the price of labor per period is $20, the MPP of machinery is 75 and the price of the machinery per period is $25, in order to achieve optimal input proportions the firm should use

Accepted Answer

A)  more labor and less machinery. 
B)  more machinery and less labor. 
C)  more labor with the same amount of machinery. 
D)  the current combination. 
A)  more labor and less machinery. 
B)  more machinery and less labor. 
C)  more labor with the same amount of machinery. 
D)  the current combination.

Question 3

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

Accepted Answer

A) True 
 B)False

Question 4

Everything else equal, the AC curve will shift downward if

Accepted Answer

A)  input prices rise. 
B)  input MPPs rise. 
C)  output rises. 
D)  output falls. 
A)  input prices rise. 
B)  input MPPs rise. 
C)  output rises. 
D)  output falls.

Question 5

Figure 7-13
  
-Figure 7-13 shows the average total cost curves of four firms that produce milk.Some of the dairies are more productive.AR = P is the long-run price of milk.How many of these dairies will remain in the industry in the long run?

Accepted Answer

A)  all of them 
B)  only 2 
C)  only 3 
D)  cannot determine with information given 
A)  all of them 
B)  only 2 
C)  only 3 
D)  cannot determine with information given

Question 6

If a firm is using optimal input proportions, it is minimizing its costs.

Accepted Answer

A) True 
 B)False

Question 7

A firm uses workers and seed to grow lettuce.Its lettuce output rises from 100 tons to 200 tons when the number of workers increases from 25 to 75.Its production process shows

Accepted Answer

A)  decreasing returns to scale. 
B)  diminishing returns to labor. 
C)  increasing long-run average cost. 
D)  decreasing short-run average variable cost. 
A)  decreasing returns to scale. 
B)  diminishing returns to labor. 
C)  increasing long-run average cost. 
D)  decreasing short-run average variable cost.

Question 8

Average physical product measures the increase in total output that results from a one-unit increase in an input.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following indicates an input is being overused relative to the optimal level?

Accepted Answer

A)  MRP = P of input. 
B)  MRP > P of input. 
C)  MRP  P of output. 
A)  MRP = P of input. 
B)  MRP > P of input. 
C)  MRP  P of output.

Question 10

Figure 7-4
  
-Following a rash of airplane bombs, the airlines have been forced to increase security at a cost of $30 million per year.The number of inspectors and machines does not vary with the number of passengers-the airlines must have sufficient staff available to handle the full-capacity load.Which graph in Figure 7-4 best illustrates the impact of the security expenditures?

Accepted Answer

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

Question 11

If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a rational firm should

Accepted Answer

A)  reduce the labor used and increase the machinery used if labor costs half as much as machinery. 
B)  reduce the labor used and increase the machinery used if labor and machinery cost the same amount. 
C)  reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery. 
D)  reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery. 
A)  reduce the labor used and increase the machinery used if labor costs half as much as machinery. 
B)  reduce the labor used and increase the machinery used if labor and machinery cost the same amount. 
C)  reduce the labor used and increase the machinery used only if labor costs more than twice as much as machinery. 
D)  reduce the labor used and increase the machinery used only if labor costs exactly twice as much as machinery.

Question 12

The average cost curve shows the total cost divided by quantity produced for various levels of output.

Accepted Answer

A) True 
 B)False

Question 13

On Naomi's pig farm, Naomi hires all the labor used, grows all the grain fed to the pigs, and owns the barn.The costs used to calculate the total cost curve include

Accepted Answer

A)  only the cost of labor. 
B)  only the cost of labor and the cost of grain, which is completely consumed in the period in which it is grown. 
C)  only the variable cost of growing grain. 
D)  the cost of labor, the cost of growing grain, and the opportunity cost of the barn. 
A)  only the cost of labor. 
B)  only the cost of labor and the cost of grain, which is completely consumed in the period in which it is grown. 
C)  only the variable cost of growing grain. 
D)  the cost of labor, the cost of growing grain, and the opportunity cost of the barn.

Question 14

Table 7-5
$ \begin{array}{lccccccc}\text { Stereos produced } & 0 & 1 & 2 & 3 & 4 & 5 & 6 \ \text { Total cost (in \$) } & 200 & 325 & 410 & 475 & 550 & 660 & 825\end{array} $
-Table 7-5 shows short-run total cost figures for a stereo manufacturer.The short-run average variable cost of producing five stereos is

Accepted Answer

A)  $92. 
B)  $110. 
C)  $132. 
D)  $460. 
A)  $92. 
B)  $110. 
C)  $132. 
D)  $460.

Question 15

Draw a graph using production indifference curves and budget lines showing a firm initially minimizing cost with its inputs of A and B.Then illustrate a new optimal combination of inputs when the prices of the inputs change.

Accepted Answer

The graph should be

Question 16

If a firm has increasing returns to scale at all levels of output, the

Accepted Answer

A)  slope of its long-run total cost curve is always negative. 
B)  slopes of its short-run average cost curves are always negative. 
C)  slope of its long-run average cost curve is always negative. 
D)  slope of its production function is always negative. 
A)  slope of its long-run total cost curve is always negative. 
B)  slopes of its short-run average cost curves are always negative. 
C)  slope of its long-run average cost curve is always negative. 
D)  slope of its production function is always negative.

Question 17

Which of the following formulas defines average cost?

Accepted Answer

A)  AC = TC/Q 
B)  AC = MRP = MFC 
C)  AC = MPP/Q 
D)  AC = TC - Q 
A)  AC = TC/Q 
B)  AC = MRP = MFC 
C)  AC = MPP/Q 
D)  AC = TC - Q

Question 18

A firm's production process shows constant returns to scale.It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of

Accepted Answer

A)  $10,000. 
B)  $5,000. 
C)  $2,000. 
D)  $0.50. 
A)  $10,000. 
B)  $5,000. 
C)  $2,000. 
D)  $0.50.

Question 19

The short run is the time period during which

Accepted Answer

A)  all of the firm's costs are fixed. 
B)  the value of the firm's assets starts to decay. 
C)  the firm can adjust all inputs freely. 
D)  some of the firm's input decisions are constrained by previous commitments. 
A)  all of the firm's costs are fixed. 
B)  the value of the firm's assets starts to decay. 
C)  the firm can adjust all inputs freely. 
D)  some of the firm's input decisions are constrained by previous commitments.

Question 20

What is the shape of average cost curve? Provide the reason for that particular shape.

Accepted Answer

Average cost curve is roughly 'U' shaped

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

Figure 7-15 -For a firm at equilibrium, at point A in Figure 7-15

If the MPP of labor is 60 and the price of labor per period is $20, the MPP of machinery is 75 and the price of the machinery per period is $25, in order to achieve optimal input proportions the firm should use

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

Everything else equal, the AC curve will shift downward if

Figure 7-13 -Figure 7-13 shows the average total cost curves of four firms that produce milk.Some of the dairies are more productive.AR = P is the long-run price of milk.How many of these dairies will remain in the industry in the long run?

If a firm is using optimal input proportions, it is minimizing its costs.

A firm uses workers and seed to grow lettuce.Its lettuce output rises from 100 tons to 200 tons when the number of workers increases from 25 to 75.Its production process shows

Average physical product measures the increase in total output that results from a one-unit increase in an input.

Which of the following indicates an input is being overused relative to the optimal level?

If the marginal physical product of more labor is twice as high as the marginal physical product of more machinery, a rational firm should

The average cost curve shows the total cost divided by quantity produced for various levels of output.

On Naomi's pig farm, Naomi hires all the labor used, grows all the grain fed to the pigs, and owns the barn.The costs used to calculate the total cost curve include

Draw a graph using production indifference curves and budget lines showing a firm initially minimizing cost with its inputs of A and B.Then illustrate a new optimal combination of inputs when the prices of the inputs change.

If a firm has increasing returns to scale at all levels of output, the

Which of the following formulas defines average cost?

A firm's production process shows constant returns to scale.It can produce 5,000 widgets at a total cost of $2,500 and 10,000 widgets at an average cost of

The short run is the time period during which

What is the shape of average cost curve? Provide the reason for that particular shape.

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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