Exam 6: Production and Cost Analysis in the Long Run

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.To minimize costs this firm should employ:

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?

"Learning by doing" has the effect of causing:

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

Consideration of the minimum efficient scale of operation would suggest that, to minimize production costs, the market should be served by a large number of small firms when the LRAC curve slopes downward over the relevant range of output.

In which of the following market structures would X-inefficiency be most likely to exist?

A change in technology or the relative prices of the inputs used in a production process would cause a manager's choice of inputs to use in the production process to change as well.

Explain how "learning by doing" and transportation costs each affect the long-run average cost curve.

Failure to account for the increased transportation costs that would result from building fewer and more centrally located production facilities could result in firm managers selecting a scale of operation that is larger than the optimum.

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

An improvement in technology would cause each of the isoquants in a firm's isoquant map to shift out away from the origin.

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:

The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:

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

An increase in the number of people in the United States with health insurance could cause the cost of providing health care services to increase as the incentive for health care providers to minimize costs decreases.

Isoquants are convex to the origin due to:

If the inputs to a production process are perfect substitutes and the marginal rate of technical substitution is equal to the ratio of the prices of the two inputs, 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.

In which of the following situations would the minimum efficient scale of operation provide little or no guidance regarding how many firms should serve the market to minimize production costs?

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

All else constant, a decrease in the per unit price of labor would create an incentive for a firm manager to substitute labor for capital in the firm's production process.