Question 1

Which of the following is a fixed cost?

Accepted Answer

A) Electricity 
B) Worker bonuses 
C) Mortgage on the building 
D) Steel to produce refrigerators 
A) Electricity 
B) Worker bonuses 
C) Mortgage on the building 
D) Steel to produce refrigerators

Question 2

If MPP  a  \P  a  = MPP  b  \P  b  , then the firm should increase the usage of both input a and input b.

Accepted Answer

A) True 
 B)False

Question 3

If economies of scale exist for a particular production relationship, long-run average costs will

Accepted Answer

A) rise. 
B) fall. 
C) first rise and then fall. 
D) be unaffected since there is no direct relationship between the two. 
A) rise. 
B) fall. 
C) first rise and then fall. 
D) be unaffected since there is no direct relationship between the two.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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 6

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Accepted Answer

A) True 
 B)False

Question 7

Production indifference curves generally have a positive slope.

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 7-12  
 
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 10

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 11

If on a given product indifference curve, a firm is using an insufficient (nonoptimal)amount of one of its inputs,

Accepted Answer

A) output will be below optimal. 
B) the MRP of the input will be below its price. 
C) costs will not be minimal. 
D) relative input prices need to change. 
A) output will be below optimal. 
B) the MRP of the input will be below its price. 
C) costs will not be minimal. 
D) relative input prices need to change.

Question 12

The optimal level of resource use comes when

Accepted Answer

A) MRP exceeds input price. 
B) MRP is less than input price. 
C) MRP equals input price. 
D) use of the resource exhausts the producer's funds. 
A) MRP exceeds input price. 
B) MRP is less than input price. 
C) MRP equals input price. 
D) use of the resource exhausts the producer's funds.

Question 13

Figure 7-15  
 
In Figure 7-15, we would expect a move along the production indifference curve from A to B if

Accepted Answer

A) the price of machines falls. 
B) the price of labor falls. 
C) output falls. 
D) the product price rises. 
A) the price of machines falls. 
B) the price of labor falls. 
C) output falls. 
D) the product price rises.

Question 14

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 15

Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale). Label each region.

Accepted Answer

Initially, LRAC declines as ou

Question 16

The average cost curve

Accepted Answer

A) is the vertical summation of the AFC and the AVC curves. 
B) lies below the AVC curve. 
C) lies below the AFC curve. 
D) is the vertical summation of the MC and AVC curves. 
A) is the vertical summation of the AFC and the AVC curves. 
B) lies below the AVC curve. 
C) lies below the AFC curve. 
D) is the vertical summation of the MC and AVC curves.

Question 17

Figure 7-9  
 
Of the graphs in Figure 7-9, which represents average fixed cost?

Accepted Answer

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

Question 18

Figure 7-8  
 
Of the graphs in Figure 7-8, which represents fixed cost?

Accepted Answer

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

Question 19

Ray's Barbecue produces about 200 slabs of barbecued ribs per day. The price that Ray pays for each slab of ribs rises by 10 and the rent on Ray's restaurant location rises by 5 percent increase.   Marginal cost will increase as a result of

Accepted Answer

A) only the increase in the rent paid by Ray. 
B) only the increase in the price that Ray pays for slabs of ribs. 
C) the increase in the rent paid by Ray and the increase in the price of slabs of ribs. 
D) neither of the increases in the prices. 
A) only the increase in the rent paid by Ray. 
B) only the increase in the price that Ray pays for slabs of ribs. 
C) the increase in the rent paid by Ray and the increase in the price of slabs of ribs. 
D) neither of the increases in the prices.

Question 20

At a given level of wheat output, one more unit of labor would produce 10 extra bushels, and one more unit of seed would produce 30 extra bushels. A unit of labor costs $6, and a unit of seed costs $12. The farmer should

Accepted Answer

A) produce less wheat. 
B) buy only seed. 
C) buy more seed and less labor. 
D) buy less seed and more labor. 
A) produce less wheat. 
B) buy only seed. 
C) buy more seed and less labor. 
D) buy less seed and more labor.

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

Which of the following is a fixed cost?

If MPP a \P a = MPP b \P b , then the firm should increase the usage of both input a and input b.

If economies of scale exist for a particular production relationship, long-run average costs will

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

The "law" of diminishing returns

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Production indifference curves generally have a positive slope.

Marginal revenue product is the

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?

If on a given product indifference curve, a firm is using an insufficient (nonoptimal)amount of one of its inputs,

The optimal level of resource use comes when

Figure 7-15 In Figure 7-15, we would expect a move along the production indifference curve from A to B if

The rule for the optimal use of any input says that

Draw a long-run average cost curve that first exhibits increasing returns to scale (economies of scale), then constant returns to scale, and finally decreasing returns to scale (diseconomies of scale). Label each region.

The average cost curve

Figure 7-9 Of the graphs in Figure 7-9, which represents average fixed cost?

Figure 7-8 Of the graphs in Figure 7-8, which represents fixed cost?

Ray's Barbecue produces about 200 slabs of barbecued ribs per day. The price that Ray pays for each slab of ribs rises by 10 and the rent on Ray's restaurant location rises by 5 percent increase. Marginal cost will increase as a result of

At a given level of wheat output, one more unit of labor would produce 10 extra bushels, and one more unit of seed would produce 30 extra bushels. A unit of labor costs $6, and a unit of seed costs $12. The farmer should

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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If MPP _a \P _a = MPP _b \P _b , then the firm should increase the usage of both input a and input b.