Question 1

The "law" of diminishing returns

Accepted Answer

A) is deduced from the basic biochemical relationship of agricultural theory. 
B) was constructed as the basis of observation during experiments on the impact of fertilizer on output in the 1930s. 
C) is based on regular observations of input-output relationships over the last two centuries. 
D) is borrowed from physical laws related to conversion of matter and energy. 
A) is deduced from the basic biochemical relationship of agricultural theory. 
B) was constructed as the basis of observation during experiments on the impact of fertilizer on output in the 1930s. 
C) is based on regular observations of input-output relationships over the last two centuries. 
D) is borrowed from physical laws related to conversion of matter and energy.

Question 2

In the short run, a firm has fixed costs but never any variable costs.

Accepted Answer

A) True 
 B)False

Question 3

For most firms, average total costs will decrease initially due to decreasing marginal physical product for the inputs used in the production process

Accepted Answer

A) True 
 B)False

Question 4

Where should a producer stop devoting more of his spending on labor if initially the MRP of the additional dollar spent on labor is higher than the MRP of the additional unit spent on tools?

Accepted Answer

A) MRP/$ of additional labor falls below MRP/$ of additional tools. 
B) MRP/$ of additional capital increases above MRP/$ of additional tools. 
C) MRP/$ of additional labor becomes equal to MRP/$ of additional tools. 
D) MRP/$ of the additional labor falls to zero. 
A) MRP/$ of additional labor falls below MRP/$ of additional tools. 
B) MRP/$ of additional capital increases above MRP/$ of additional tools. 
C) MRP/$ of additional labor becomes equal to MRP/$ of additional tools. 
D) MRP/$ of the additional labor falls to zero.

Question 5

If the price of one input changes, the firm will change its use of that input only.

Accepted Answer

A) True 
 B)False

Question 6

The major incentive for cost minimization is the

Accepted Answer

A) power of shareholders in the company. 
B) fear of top management by workers. 
C) discipline imposed by the market system. 
D) impact on U.S.corporations of taxing by the government. 
A) power of shareholders in the company. 
B) fear of top management by workers. 
C) discipline imposed by the market system. 
D) impact on U.S.corporations of taxing by the government.

Question 7

Cost curves in the long run differ from cost curves in the short run.

Accepted Answer

A) True 
 B)False

Question 8

Marginal revenue product is the

Accepted Answer

A) additional revenue from one additional dollar increase in price. 
B) change in the revenue product resulting from one additional unit of input. 
C) additional revenue from one additional unit of input. 
D) change in revenue resulting in one additional dollar in price. 
A) additional revenue from one additional dollar increase in price. 
B) change in the revenue product resulting from one additional unit of input. 
C) additional revenue from one additional unit of input. 
D) change in revenue resulting in one additional dollar in price.

Question 9

Figure 7-4  
-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 10

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 11

Figure 7-12  
-Which of the graphs in Figure 7-12 shows a marginal physical product curve that exhibits first increasing and then diminishing marginal returns to sunlight?

Accepted Answer

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

Question 12

Table 7-1   ​
​
​
-In Table 7-1, the average physical product after five workers are hired is ​

Accepted Answer

A) 5. 
B) 6. 
C) 7. 
D) 8. 
A) 5. 
B) 6. 
C) 7. 
D) 8.

Question 13

Labor is available at a wage of $10.The last worker hired by Cal's Corn Farm added 20 ears of corn, which Cal has priced at four ears for $1.What advice would you give Cal?

Accepted Answer

Don't hire that last worker.Ma

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

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 16

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 17

John Amaker owns orange groves and hires pickers for a two-week period as shown in Table 7-3.
Table 7-3  
-In Table 7-3, negative returns set in with picker

Accepted Answer

A) 6. 
B) 7. 
C) 8. 
D) 9. 
E) There are no negative returns in this table. 
A) 6. 
B) 7. 
C) 8. 
D) 9. 
E) There are no negative returns in this table.

Question 18

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

Question 19

Figure 7-8  
-Of the graphs in Figure 7-8, which diagram is most likely to be the marginal cost?

Accepted Answer

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

Question 20

When a firm's AC eventually starts to rise, it is often because

Accepted Answer

A) executive salaries rise sharply as output rises. 
B) the ability to manage larger and larger levels of output results in much higher administrative costs. 
C) marginal cost increases rapidly at higher output levels. 
D) firm output has started to decline. 
A) executive salaries rise sharply as output rises. 
B) the ability to manage larger and larger levels of output results in much higher administrative costs. 
C) marginal cost increases rapidly at higher output levels. 
D) firm output has started to decline.

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

The "law" of diminishing returns

In the short run, a firm has fixed costs but never any variable costs.

For most firms, average total costs will decrease initially due to decreasing marginal physical product for the inputs used in the production process

Where should a producer stop devoting more of his spending on labor if initially the MRP of the additional dollar spent on labor is higher than the MRP of the additional unit spent on tools?

If the price of one input changes, the firm will change its use of that input only.

The major incentive for cost minimization is the

Cost curves in the long run differ from cost curves in the short run.

Marginal revenue product is the

Figure 7-4 -Total fixed cost

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

Figure 7-12 -Which of the graphs in Figure 7-12 shows a marginal physical product curve that exhibits first increasing and then diminishing marginal returns to sunlight?

Table 7-1 ​ ​ ​ -In Table 7-1, the average physical product after five workers are hired is ​

Labor is available at a wage of $10.The last worker hired by Cal's Corn Farm added 20 ears of corn, which Cal has priced at four ears for $1.What advice would you give Cal?

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

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

The rule for the optimal use of any input says that

John Amaker owns orange groves and hires pickers for a two-week period as shown in Table 7-3. Table 7-3 -In Table 7-3, negative returns set in with picker

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

Figure 7-8 -Of the graphs in Figure 7-8, which diagram is most likely to be the marginal cost?

When a firm's AC eventually starts to rise, it is often because

What Is Economics

The Economony: 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

The Financial Markets and the Economy: the Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

The Case for Free Markets: the Price System

Monopoly

Between Competition and Monopoly

Limiting Market Power: Antitrust and Regulation

The Shortcomings of Free Markets

The Economics of 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

Contemporary Issues in the Useconomy

Filters

Table 7-1 -In Table 7-1, the average physical product after five workers are hired is