Question 1

If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing

Accepted Answer

A)  increasing returns to scale. 
B)  decreasing returns to scale. 
C)  constant returns to scale. 
D)  increasing costs per unit of output. 
A)  increasing returns to scale. 
B)  decreasing returns to scale. 
C)  constant returns to scale. 
D)  increasing costs per unit of output.

Question 2

John Amaker owns orange groves and hires pickers for a two-week period as shown in Table 7-3.
Table 7-3
 $\begin{array}{cc}
\underline {\text { Pickers } } &\underline {\text { Oranges Picked }} \
1 & 1,000 \
2 & 2,000 \
3 & 3,000 \
4 & 3,900 \
5 & 4,700 \
6 & 5,400 \
7 & 6,000 \
8 & 6,200 \
9 & 6,000
\end{array}$
-In Table 7-3, diminishing returns set in with picker

Accepted Answer

A)  3. 
B)  4. 
C)  5. 
D)  6. 
E)  9. 
A)  3. 
B)  4. 
C)  5. 
D)  6. 
E)  9.

Question 3

Marginal 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 4

Explain why the long-run average cost is typically U-shaped.

Accepted Answer

As firms grow, they can take advantage o

Question 5

A firm practices input substitution when it

Accepted Answer

A)  retrains Joe the welder as a painter and Pat the painter as a welder. 
B)  buys extra machines for its workers to use. 
C)  allows fixed cost to become variable. 
D)  replaces unskilled labor with automated machinery. 
A)  retrains Joe the welder as a painter and Pat the painter as a welder. 
B)  buys extra machines for its workers to use. 
C)  allows fixed cost to become variable. 
D)  replaces unskilled labor with automated machinery.

Question 6

The marginal physical product of an input is the

Accepted Answer

A)  addition to output from using one more unit of an input. 
B)  extra amount of an input needed to produce one additional unit of output. 
C)  change in average physical product, given a change in the quantity of an input. 
D)  slope of the production indifference curve for an output made using the input. 
A)  addition to output from using one more unit of an input. 
B)  extra amount of an input needed to produce one additional unit of output. 
C)  change in average physical product, given a change in the quantity of an input. 
D)  slope of the production indifference curve for an output made using the input.

Question 7

The rule for the optimal use of any input says that

Accepted Answer

A)  when MRP is less than price, it pays to expand resource use. 
B)  when MRP is greater than price, it pays to expand resource use. 
C)  when MRP equals price, resource use should be cut back. 
D)  resources should be used only if MRP exceeds price. 
A)  when MRP is less than price, it pays to expand resource use. 
B)  when MRP is greater than price, it pays to expand resource use. 
C)  when MRP equals price, resource use should be cut back. 
D)  resources should be used only if MRP exceeds price.

Question 8

Figure 7-6
  
-Which of the lines in Figure 7-6 represents a typical average fixed cost curve?

Accepted Answer

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

Question 9

Al's Donuts produces about 600 dozen doughnuts daily.If flour prices increase 20 percent

Accepted Answer

A)  only marginal cost will shift up. 
B)  only marginal cost and average total cost will shift up. 
C)  marginal cost, average variable cost, and average total cost will shift up. 
D)  marginal cost, average total cost, average variable cost, and average fixed cost will shift up. 
A)  only marginal cost will shift up. 
B)  only marginal cost and average total cost will shift up. 
C)  marginal cost, average variable cost, and average total cost will shift up. 
D)  marginal cost, average total cost, average variable cost, and average fixed cost will shift up.

Question 10

AC is lower in the long run than in the short run because

Accepted Answer

A)  prices often fall, allowing savings on purchases. 
B)  inputs can be combined more efficiently in the long run. 
C)  over time the prices of all inputs tend to decrease. 
D)  AFC falls with output over all ranges of output. 
A)  prices often fall, allowing savings on purchases. 
B)  inputs can be combined more efficiently in the long run. 
C)  over time the prices of all inputs tend to decrease. 
D)  AFC falls with output over all ranges of output.

Question 11

The "law" of diminishing returns rests on the "law" of variable input proportions.

Accepted Answer

A) True 
 B)False

Question 12

The average total cost curve of a firm is U-shaped.

Accepted Answer

A) True 
 B)False

Question 13

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Accepted Answer

A) True 
 B)False

Question 14

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.The cost of one day of labor is $65 and the product price is $1 per unit.How much will the labor input increase if the capital stock were increased from 3 to 4?

Accepted Answer

A)  from 3 to 4 
B)  from 4 to 5 
C)  from 4 to 6 
D)  stays the same 
A)  from 3 to 4 
B)  from 4 to 5 
C)  from 4 to 6 
D)  stays the same

Question 15

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

Accepted Answer

TC rises slowly at first and then more q

Question 16

A.B.Denson Company had been employing 6 workers and 8 tons of raw materials, using 2,000 square feet of plant space.The firm increased its work force to 12 workers utilizing 16 tons of raw materials in a plant space increased to 4,000 square feet.Total number of units of output increased from 78 to 160.What kind of returns to scale is the firm experiencing? Defend your answer.

Accepted Answer

Increasing returns t

Question 17

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

Accepted Answer

A) True 
 B)False

Question 18

The principal determinants of total and average cost curves are the firm's technology and the prices of its inputs.

Accepted Answer

A) True 
 B)False

Question 19

The "law" of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input is increased.

Accepted Answer

A) True 
 B)False

Question 20

Figure 7-14
  
-Of the long-run AC curves in Figure 7-14, which displays increasing returns to scale for all levels of output?

Accepted Answer

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

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

If doubling the quantity of inputs more than doubles the quantity of outputs, the firm is experiencing

John Amaker owns orange groves and hires pickers for a two-week period as shown in Table 7-3. Table 7-3 1 1,000 2 2,000 3 3,000 4 3,900 5 4,700 6 5,400 7 6,000 8 6,200 9 6,000 -In Table 7-3, diminishing returns set in with picker

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

Explain why the long-run average cost is typically U-shaped.

A firm practices input substitution when it

The marginal physical product of an input is the

The rule for the optimal use of any input says that

Figure 7-6 -Which of the lines in Figure 7-6 represents a typical average fixed cost curve?

Al's Donuts produces about 600 dozen doughnuts daily.If flour prices increase 20 percent

AC is lower in the long run than in the short run because

The "law" of diminishing returns rests on the "law" of variable input proportions.

The average total cost curve of a firm is U-shaped.

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

The principal determinants of total and average cost curves are the firm's technology and the prices of its inputs.

The "law" of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input is increased.

Figure 7-14 -Of the long-run AC curves in Figure 7-14, which displays increasing returns to scale for all levels of output?

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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