Exam 6: Production and Cost Analysis in the Long Run

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

All else constant, an improvement in technology at each scale of operation would cause:

The use of surveys of experts to estimate long-run production costs may be undermined by the fact that:

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.

Long-run average cost is defined as:

Briefly summarize the empirical literature on the long-run costs typically incurred by firms in a variety of industries.In particular, is there reason to believe that firms' long-run cost curves assume the typical U-shape? Why or why not?

Which of the following statements about production isoquants is correct?

In the case of a short-run production function:

Graphically, all else constant, a decrease in the price of labor would be illustrated by:

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

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.

All else constant, an increase in the price of labor would cause the total amount of output that can be produced with a fixed amount of spending to ________.This would result in a movement to a ________ isoquant.

All else constant, as the price of petroleum increases relative to the prices of other inputs to the production process, in their effort to minimize their total costs of production, we can expect to see firms employ:

All else constant, an increase in the level of competition among firms would be expected to reduce the amount of X-inefficiency that exists in a particular industry.

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:

"Learning by doing" results in decreased average costs of production and is illustrated by a downward shift of the firm's long-run average cost curve.

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

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

A production method that relies on large quantities of machines and equipment and smaller quantities of labor is referred to as a:

Diseconomies of scale are illustrated graphically by an upward shift of the firm's long-run average cost curve.