Exam 6: Production and Cost Analysis in the Long Run

Empirical evidence suggests that economies of scale,advertising and image differentiation,and risk spreading all help account for the large-scale production that exists in many sectors of the economy.

The evidence on the potential for input substitution in the service sector suggests that:

Much of the research on the minimum efficient scale suggests that for many firms the LRAC curve is:

Studies and recent experience suggest that there is considerable potential for substitution between doctors and nurses in the production of health care services.

Generally speaking,the inclusion of transportation costs in the total costs of production has the effect of causing the LRAC curve to:

Which of the following statements concerning the long-run average cost (LRAC)curve is correct?

Evidence suggests that as the amount of market power possessed by the firms in an industry increases,the amount of X-inefficiency will decrease.

If the inputs to a production process are perfect complements,the firm can choose from a virtually infinite array of combinations of the two inputs to minimize the costs of producing a given level of output.

X-inefficiency refers to the situation in which:

There is considerable evidence to support the assertion that legislated input combinations have reduced the costs of production in affected industries.

In the case of a short-run production function:

The fact that supermarkets,a land-intensive form of organization,have become the dominant form of grocery store in the United States suggests that there is little or no potential for input substitution in the grocery store business.

The negatively-sloped part of the long-run average total cost curve is due to which of the following?

Explain why X-inefficiency is likely to be more prevalent in an industry in which firms have market power.

Assume that firms A and B have the same minimum efficient scale of operation and,at current production levels,both firms are incurring the same average costs of production.However,firm A's output is 5 times larger than firm B's output.How is this possible?

One of the major motivations for labor resistance to productivity enhancing changes in a production process is the resulting threat to job security.

Assume a firm produces 500 units of a good by using two inputs,capital and labor,whose per unit prices are $10 and $4.Assume also that the marginal physical product of the last unit of capital is 30 and the marginal physical product of the last unit of labor is 10.Is this firm minimizing its costs of producing 500 units of output?

Which of the following statements about production isoquants is correct?

Studies and experience suggest that labor and capital are highly complementary inputs to the production of pipe organs.

The slope of the isocost line: