Question 1

Diseconomies of scale are illustrated by:

Accepted Answer

A) a downward sloping long-run average cost curve. 
B) a flat long-run average cost curve. 
C) an upward-sloping long-run average cost curve. 
D) an upward-sloping short-run average total cost curve. 
A) a downward sloping long-run average cost curve. 
B) a flat long-run average cost curve. 
C) an upward-sloping long-run average cost curve. 
D) an upward-sloping short-run average total cost curve.

Question 2

Assuming capital and labor are substitutes,an improvement in technology that affects only the productivity of capital would cause a firm to employ more capital but leave the amount of labor employed unchanged.

Accepted Answer

A) True 
 B)False

Question 3

Historically,empirical evidence showed that it was more cost effective to have a single generator of electricity serve a particular region's electricity needs than to have several smaller units compete against each other.More recently,technological advances have occurred in the generation of electricity that allow much smaller generating units to produce electricity for the same average cost as much larger units.Explain how this change would be reflected in the firm's long-run average cost curve and minimum efficient scale.

Accepted Answer

Historically,the production of electrici

Question 4

An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.

Accepted Answer

A) True 
 B)False

Question 5

Assume a firm uses two inputs,capital and labor.All else constant,an increase in the price of labor would create an incentive for the firm to:

Accepted Answer

A) substitute labor for capital in its production function. 
B) substitute capital for labor in its production function. 
C) hire more capital and labor. 
D) hire less capital while holding the amount of labor employed constant. 
A) substitute labor for capital in its production function. 
B) substitute capital for labor in its production function. 
C) hire more capital and labor. 
D) hire less capital while holding the amount of labor employed constant.

Question 6

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

Accepted Answer

A) Diseconomies of scale. 
B) Diminishing returns. 
C) The firm being able to take advantage of large-scale production techniques as it expands its output. 
D) The increase in productivity that results from specialization. 
A) Diseconomies of scale. 
B) Diminishing returns. 
C) The firm being able to take advantage of large-scale production techniques as it expands its output. 
D) The increase in productivity that results from specialization.

Question 7

The "minimum efficient scale" of operation in an industry is defined as the scale of operation in an industry that is least efficient.

Accepted Answer

A) True 
 B)False

Question 8

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

Accepted Answer

A) True 
 B)False

Question 9

In the long-run average cost function,only the amount of capital is allowed to vary.

Accepted Answer

A) True 
 B)False

Question 10

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

Accepted Answer

A) When the LRAC curve slopes downward over the relevant range of output. 
B) When the LRAC curve hits its minimum point at a relatively low level of output and then increases and the demand for output is quite large. 
C) When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large. 
D) When the LRAC curve initially increases and then decreases beyond some point. 
A) When the LRAC curve slopes downward over the relevant range of output. 
B) When the LRAC curve hits its minimum point at a relatively low level of output and then increases and the demand for output is quite large. 
C) When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large. 
D) When the LRAC curve initially increases and then decreases beyond some point.

Question 11

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.What will change to move the firm to a new cost-minimizing equilibrium?

Accepted Answer

A) The marginal product of capital will fall and the marginal product of labor will increase. 
B) The marginal product of labor will fall and the marginal product of capital will increase. 
C) The price of labor will rise. 
D) The price of capital will rise. 
A) The marginal product of capital will fall and the marginal product of labor will increase. 
B) The marginal product of labor will fall and the marginal product of capital will increase. 
C) The price of labor will rise. 
D) The price of capital will rise.

Question 12

Assume a firm is producing 1000 units of a good by using two inputs,capital and labor,whose per unit prices are $50 and $20.Assume also that the marginal physical product of the last unit of capital is 25 and the marginal physical product of the last unit of labor is 15.In order to minimize its costs of production,the firm should adjust its combination of inputs by employing more labor and less capital.

Accepted Answer

A) True 
 B)False

Question 13

Assume a firm is currently employing 20 units of capital and 100 units of labor in its production process.Assume also that the marginal product of the 20ᵗʰ unit of capital is 40 units of output,the marginal product of the 100ᵗʰ unit of labor is 10 units of output and the per unit prices of capital and labor are $20 and $10,respectively.In this case,in order to minimize its costs of production the firm should:

Accepted Answer

A) hire more capital and less labor. 
B) hire more labor and less capital. 
C) hire less capital and less labor. 
D) hire more capital and more labor. 
A) hire more capital and less labor. 
B) hire more labor and less capital. 
C) hire less capital and less labor. 
D) hire more capital and more labor.

Question 14

In which of the following examples cited in the text is there the least amount of evidence of the potential for input substitution?

Accepted Answer

A) Automobile production. 
B) Pipe organ production. 
C) French fry production. 
D) Production of health care services. 
A) Automobile production. 
B) Pipe organ production. 
C) French fry production. 
D) Production of health care services.

Question 15

X-inefficiency refers to the situation in which firms with market power are operating in the upward-sloping segment of their long-run average cost curve.

Accepted Answer

A) True 
 B)False

Question 16

Labor resistance can be a major impediment to increased productivity in many firms.

Accepted Answer

A) True 
 B)False

Question 17

In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?

Accepted Answer

A) When the rate of technological innovation is low. 
B) When capital is relatively expensive. 
C) When the firm's output cannot be produced using the assembly line method of production. 
D) When labor supply is limited relative to the available amount of capital. 
A) When the rate of technological innovation is low. 
B) When capital is relatively expensive. 
C) When the firm's output cannot be produced using the assembly line method of production. 
D) When labor supply is limited relative to the available amount of capital.

Question 18

Which of the following statements is correct?

Accepted Answer

A) Evidence strongly suggests that legislatively mandated input combinations have greatly reduced production costs in many industries. 
B) Legislating input combinations in a particular industry can bias the decision making of the firm's managers and lead to higher-than-necessary costs of production. 
C) Legislating input combinations in a particular industry has little or no effect on the decision making of the firm's managers. 
D) Legislating input combinations in a particular industry is preferred to relying on market forces to determine the cost-minimizing combination of inputs to a production process. 
A) Evidence strongly suggests that legislatively mandated input combinations have greatly reduced production costs in many industries. 
B) Legislating input combinations in a particular industry can bias the decision making of the firm's managers and lead to higher-than-necessary costs of production. 
C) Legislating input combinations in a particular industry has little or no effect on the decision making of the firm's managers. 
D) Legislating input combinations in a particular industry is preferred to relying on market forces to determine the cost-minimizing combination of inputs to a production process.

Question 19

A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.

Accepted Answer

A) True 
 B)False

Question 20

Regarding the production of health care,more recent studies suggest that:

Accepted Answer

A) economies of scale exist up to a hospital size of approximately 500 beds. 
B) hospitals of many different sizes can compete effectively with each other on the basis of cost. 
C) the LRAC curve exhibits significant diseconomies of scale beginning with a hospital size of approximately 100 beds. 
D) the LRAC for hospitals exhibits a very distinct U shape. 
A) economies of scale exist up to a hospital size of approximately 500 beds. 
B) hospitals of many different sizes can compete effectively with each other on the basis of cost. 
C) the LRAC curve exhibits significant diseconomies of scale beginning with a hospital size of approximately 100 beds. 
D) the LRAC for hospitals exhibits a very distinct U shape.

Diseconomies of scale are illustrated by:

Assuming capital and labor are substitutes,an improvement in technology that affects only the productivity of capital would cause a firm to employ more capital but leave the amount of labor employed unchanged.

An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.

Assume a firm uses two inputs,capital and labor.All else constant,an increase in the price of labor would create an incentive for the firm to:

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

The "minimum efficient scale" of operation in an industry is defined as the scale of operation in an industry that is least efficient.

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

In the long-run average cost function,only the amount of capital is allowed to vary.

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

In which of the following examples cited in the text is there the least amount of evidence of the potential for input substitution?

X-inefficiency refers to the situation in which firms with market power are operating in the upward-sloping segment of their long-run average cost curve.

Labor resistance can be a major impediment to increased productivity in many firms.

In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?

Which of the following statements is correct?

A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.

Regarding the production of health care,more recent studies suggest that:

Managers and Economics

Demand, supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 6: Production and Cost Analysis in the Long Run

Diseconomies of scale are illustrated by:

Assuming capital and labor are substitutes,an improvement in technology that affects only the productivity of capital would cause a firm to employ more capital but leave the amount of labor employed unchanged.

An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.

Assume a firm uses two inputs,capital and labor.All else constant,an increase in the price of labor would create an incentive for the firm to:

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

The "minimum efficient scale" of operation in an industry is defined as the scale of operation in an industry that is least efficient.

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

In the long-run average cost function,only the amount of capital is allowed to vary.

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

In which of the following examples cited in the text is there the least amount of evidence of the potential for input substitution?

X-inefficiency refers to the situation in which firms with market power are operating in the upward-sloping segment of their long-run average cost curve.

Labor resistance can be a major impediment to increased productivity in many firms.

In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?

Which of the following statements is correct?

A firm is more likely to use a labor-intensive method of production when the relative amount of available labor is greater than the available amount of capital.

Regarding the production of health care,more recent studies suggest that:

Managers and Economics

Demand, supply, and Equilibrium Prices

Demand Elasticities

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

Filters