Question 1

Variable costs increase when output rises.

Accepted Answer

A) True 
 B)False

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

With regard to the characteristics of production indifference curves, which of the following statements is\are NOT true?

Accepted Answer

A) Higher curves correspond to larger outputs. 
B) An indifference curve will generally have a negative slope. 
C) An indifference curve is typically assumed to curve inward toward the origin near its middle. 
D) All of the responses are true for production indifference curves. 
A) Higher curves correspond to larger outputs. 
B) An indifference curve will generally have a negative slope. 
C) An indifference curve is typically assumed to curve inward toward the origin near its middle. 
D) All of the responses are true for production indifference curves.

Question 4

The graph of the average cost curve

Accepted Answer

A) is identical to the AVC curve. 
B) is above the AVC curve 
C) lies everywhere below the AFC curve. 
D) lies below the AFC curve. 
A) is identical to the AVC curve. 
B) is above the AVC curve 
C) lies everywhere below the AFC curve. 
D) lies below the AFC curve.

Question 5

Figure 7-2
 
In Figure 7-2, at an output of 500, marginal cost equals

Accepted Answer

A) 10. 
B) 20. 
C) 30. 
D) 40. 
A) 10. 
B) 20. 
C) 30. 
D) 40.

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

The least costly combination of inputs is influenced by the relative prices of inputs.

Accepted Answer

A) True 
 B)False

Question 9

When economies of scale are present,

Accepted Answer

A) costs per unit decline as output expands. 
B) the government feels responsible for breaking up the firm. 
C) firms always make handsome profits. 
D) costs fall as the size of the product is increased. 
A) costs per unit decline as output expands. 
B) the government feels responsible for breaking up the firm. 
C) firms always make handsome profits. 
D) costs fall as the size of the product is increased.

Question 10

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 11

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 responses 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 responses are true.

Question 12

Total physical product is maximized if marginal physical product is zero.

Accepted Answer

A) True 
 B)False

Question 13

In the short run,

Accepted Answer

A) all of the firm's input quantities, including plant size, become adjustable. 
B) firms are not constrained by past decisions. 
C) firms have relatively little opportunity to change production processes. 
D) all of the firm's current commitments come to an end. 
A) all of the firm's input quantities, including plant size, become adjustable. 
B) firms are not constrained by past decisions. 
C) firms have relatively little opportunity to change production processes. 
D) all of the firm's current commitments come to an end.

Question 14

The marginal cost curve shows the per-unit cost associated with various levels of output.

Accepted Answer

A) True 
 B)False

Question 15

A firm uses two inputs, A and B. At its optimal choice of input proportions,

Accepted Answer

A) MRP of A = MRP of B. 
B) MRP  A  \P  A  = MRP  B  \P  B  . 
C) MPP of A = MPP of B. 
D) All of the responses are correct. 
A) MRP of A = MRP of B. 
B) MRP  A  \P  A  = MRP  B  \P  B  . 
C) MPP of A = MPP of B. 
D) All of the responses are correct.

Question 16

"If it were not for the law of diminishing marginal returns, the world's wheat could be grown in a flower pot."  Explain.

Accepted Answer

The law of diminishing returns states th

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Table 7-6   Table 7-6 shows a baker's daily production relationship for bread. Diminishing returns to labor begin when the baker goes from

Accepted Answer

A) one hour of labor to two hours of labor. 
B) three hours of labor to four hours of labor. 
C) six hours of labor to seven hours of labor. 
D) seven hours of labor to eight hours of labor. 
A) one hour of labor to two hours of labor. 
B) three hours of labor to four hours of labor. 
C) six hours of labor to seven hours of labor. 
D) seven hours of labor to eight hours of labor.

Question 19

For most firms, if the marginal cost curve is plotted on a graph, marginal cost will

Accepted Answer

A) increase then decrease. 
B) decrease then increase. 
C) remain constant. 
D) decrease over the entire range of output. 
A) increase then decrease. 
B) decrease then increase. 
C) remain constant. 
D) decrease over the entire range of output.

Question 20

Total variable costs will initially increase and then begin to decrease as output increases.

Accepted Answer

A) True 
 B)False

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

Variable costs increase when output rises.

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

With regard to the characteristics of production indifference curves, which of the following statements is\are NOT true?

The graph of the average cost curve

Figure 7-2 In Figure 7-2, at an output of 500, marginal cost equals

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

The least costly combination of inputs is influenced by the relative prices of inputs.

When economies of scale are present,

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

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?

Total physical product is maximized if marginal physical product is zero.

In the short run,

The marginal cost curve shows the per-unit cost associated with various levels of output.

A firm uses two inputs, A and B. At its optimal choice of input proportions,

"If it were not for the law of diminishing marginal returns, the world's wheat could be grown in a flower pot." Explain.

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

Table 7-6 Table 7-6 shows a baker's daily production relationship for bread. Diminishing returns to labor begin when the baker goes from

For most firms, if the marginal cost curve is plotted on a graph, marginal cost will

Total variable costs will initially increase and then begin to decrease as output increases.

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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