Question 1

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 2

If production indifference curves cross, this indicates that there are different ways to produce the same output level.

Accepted Answer

A) True 
 B)False

Question 3

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 4

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

Accepted Answer

As firms grow, they can take advantage o

Question 5

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 6

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

Accepted Answer

Average cost curve is roughly "U" shaped

Question 7

Average cost curves have the same basic shape as

Accepted Answer

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

Question 8

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 9

Differentiate between the short run and the long run.

Accepted Answer

The short run is a period of time during

Question 10

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 11

Where marginal cost is less than average cost,

Accepted Answer

A) opportunity cost must have been excluded from the calculation of marginal cost. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost may be rising, falling, or constant. 
A) opportunity cost must have been excluded from the calculation of marginal cost. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost may be rising, falling, or constant.

Question 12

The long run is a period long enough so that one of the firm's commitments ends.

Accepted Answer

A) True 
 B)False

Question 13

The short run is that period during which there are no fixed commitments.

Accepted Answer

A) True 
 B)False

Question 14

A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.

Accepted Answer

A) True 
 B)False

Question 15

The optimum quantity of an input occurs when

Accepted Answer

A) diminishing returns set in. 
B) marginal revenue product equals input price. 
C) marginal physical product equals input price. 
D) marginal revenue product equals output price. 
A) diminishing returns set in. 
B) marginal revenue product equals input price. 
C) marginal physical product equals input price. 
D) marginal revenue product equals output price.

Question 16

The law of diminishing marginal returns is the same as increasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is most likely to be a fixed cost for farmer McDonald? Fertilizer

Accepted Answer

A) Gasoline 
B) Fertilizer 
C) Insurance 
D) Seed 
A) Gasoline 
B) Fertilizer 
C) Insurance 
D) Seed

Question 18

A firm's budget line shows a given expenditure on production, given the input prices for the production process.

Accepted Answer

A) True 
 B)False

Question 19

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 20

Which of the following observations is true?

Accepted Answer

A) In the long run, more costs become variable. 
B) Fixed costs cannot be completely varied if the time period is sufficiently long. 
C) Fixed costs arise when some types of inputs can be bought only in big batches. 
D) Variable costs arise when inputs have a large productive capacity. 
A) In the long run, more costs become variable. 
B) Fixed costs cannot be completely varied if the time period is sufficiently long. 
C) Fixed costs arise when some types of inputs can be bought only in big batches. 
D) Variable costs arise when inputs have a large productive capacity.

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

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

If production indifference curves cross, this indicates that there are different ways to produce the same output level.

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

The major incentive for cost minimization is the

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

Average cost curves have the same basic shape as

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.

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

Where marginal cost is less than average cost,

The long run is a period long enough so that one of the firm's commitments ends.

The short run is that period during which there are no fixed commitments.

A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.

The optimum quantity of an input occurs when

The law of diminishing marginal returns is the same as increasing returns to scale.

Which of the following is most likely to be a fixed cost for farmer McDonald? Fertilizer

A firm's budget line shows a given expenditure on production, given the input prices for the production process.

Which of the following formulas defines average cost?

Which of the following observations is true?

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

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

Externalities, Externaliteis, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: the Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Contemporary Issues in the Us Economy

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