Question 1

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

Accepted Answer

A) Economies of scale. 
B) Advertising and image differentiation. 
C) The minimum efficient scale of operation in many industries is quite high relative to market demand. 
D) Risk spreading. 
A) Economies of scale. 
B) Advertising and image differentiation. 
C) The minimum efficient scale of operation in many industries is quite high relative to market demand. 
D) Risk spreading.

Question 2

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 3

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged.In this case, we would say that the firm is experiencing diseconomies of scale.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

A) No, because the marginal products of the two inputs are not equal. 
B) No, because the MRTS and the price ratio for the two inputs are not equal. 
C) No, because the prices of the two inputs are not equal. 
D) The answer cannot be determined without more information. 
A) No, because the marginal products of the two inputs are not equal. 
B) No, because the MRTS and the price ratio for the two inputs are not equal. 
C) No, because the prices of the two inputs are not equal. 
D) The answer cannot be determined without more information.

Question 5

Which of the following is most likely to create diseconomies of scale?

Accepted Answer

A) concentration of production in a small number of very large plants. 
B) the use of automation devices. 
C) technological advance. 
D) division of labor. 
A) concentration of production in a small number of very large plants. 
B) the use of automation devices. 
C) technological advance. 
D) division of labor.

Question 6

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 7

Which of the following would cause a firm's LRAC curve to shift up?

Accepted Answer

A) An increase in the amount of "learning by doing." 
B) An increase in the price of labor, all else constant. 
C) An increase in the amount of output produced by the firm. 
D) A decrease in the amount of capital employed by the firm. 
A) An increase in the amount of "learning by doing." 
B) An increase in the price of labor, all else constant. 
C) An increase in the amount of output produced by the firm. 
D) A decrease in the amount of capital employed by the firm.

Question 8

The marginal rate of technical substitution (MRTS)along an isoquant:

Accepted Answer

A) is equal to the price ratio at all points along an isoquant. 
B) is equal to the ratio of the marginal utilities of the two goods. 
C) is equal to the ratio of the marginal products of the two inputs. 
D) remains constant as we alter the combinations of the two inputs. 
A) is equal to the price ratio at all points along an isoquant. 
B) is equal to the ratio of the marginal utilities of the two goods. 
C) is equal to the ratio of the marginal products of the two inputs. 
D) remains constant as we alter the combinations of the two inputs.

Question 9

What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.

Accepted Answer

The two primary factors are the technolo

Question 10

Why are isoquants negatively sloped?

Accepted Answer

A) Along a single isoquant, the firm can substitute the use of one input for another while holding the total level of output constant. 
B) Due to the effects of diseconomies of scale. 
C) Because the farther the isoquant is from the origin, the higher the level of output. 
D) Because price and quantity demanded are inversely related. 
A) Along a single isoquant, the firm can substitute the use of one input for another while holding the total level of output constant. 
B) Due to the effects of diseconomies of scale. 
C) Because the farther the isoquant is from the origin, the higher the level of output. 
D) Because price and quantity demanded are inversely related.

Question 11

X-inefficiency refers to the situation in which:

Accepted Answer

A) highly competitive firms have less incentive to minimize their costs of production than other firms because the highly competitive firms have almost no chance to earn above-average profits. 
B) firms are unable to minimize their costs of production because there is no potential for input substitution. 
C) firms that use labor-intensive production methods tend to be less efficient than firms that use capital-intensive production methods. 
D) firms with market power have less incentive to minimize their costs of production than more competitive firms. 
A) highly competitive firms have less incentive to minimize their costs of production than other firms because the highly competitive firms have almost no chance to earn above-average profits. 
B) firms are unable to minimize their costs of production because there is no potential for input substitution. 
C) firms that use labor-intensive production methods tend to be less efficient than firms that use capital-intensive production methods. 
D) firms with market power have less incentive to minimize their costs of production than more competitive firms.

Question 12

A movement down along a given isoquant causes the marginal rate of technical substitution to:

Accepted Answer

A) increase. 
B) stay the same. 
C) decrease. 
D) cannot be determined without additional information. 
A) increase. 
B) stay the same. 
C) decrease. 
D) cannot be determined without additional information.

Question 13

For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by:

Accepted Answer

A) a vertical line. 
B) a horizontal line 
C) a downward sloping straight line. 
D) a line that forms a right angle. 
A) a vertical line. 
B) a horizontal line 
C) a downward sloping straight line. 
D) a line that forms a right angle.

Question 14

The fact that a firm is using a capital-intensive method of production means that input substitution is not possible.

Accepted Answer

A) True 
 B)False

Question 15

The list of the major factors that create economies of scale includes all of the following except:

Accepted Answer

A) specialization and division of labor. 
B) quantity discounts. 
C) an increase in demand for the firm's output. 
D) the use of automation devices. 
A) specialization and division of labor. 
B) quantity discounts. 
C) an increase in demand for the firm's output. 
D) the use of automation devices.

Question 16

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 17

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 18

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 19

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions.Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Accepted Answer

In the short run, at least one of the in

Question 20

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

Accepted Answer

A) relatively modest. 
B) nonexistent. 
C) substantial. 
D) heavily dependent on the minimum efficient scale of the firm's production process. 
A) relatively modest. 
B) nonexistent. 
C) substantial. 
D) heavily dependent on the minimum efficient scale of the firm's production process.

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

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

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged.In this case, we would say that the firm is experiencing diseconomies of scale.

Which of the following is most likely to create diseconomies of scale?

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.

Which of the following would cause a firm's LRAC curve to shift up?

The marginal rate of technical substitution (MRTS)along an isoquant:

What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.

Why are isoquants negatively sloped?

X-inefficiency refers to the situation in which:

A movement down along a given isoquant causes the marginal rate of technical substitution to:

For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by:

The fact that a firm is using a capital-intensive method of production means that input substitution is not possible.

The list of the major factors that create economies of scale includes all of the following except:

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.

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.

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions.Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

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

Which of the following is not cited as one of the factors that accounts for the large-scale production that exists in many sectors of the economy?

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

Assume that as a firm expands its scale of operation, the minimum point of its short-run average total cost curve is unchanged.In this case, we would say that the firm is experiencing diseconomies of scale.

Which of the following is most likely to create diseconomies of scale?

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.

Which of the following would cause a firm's LRAC curve to shift up?

The marginal rate of technical substitution (MRTS)along an isoquant:

What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice.

Why are isoquants negatively sloped?

X-inefficiency refers to the situation in which:

A movement down along a given isoquant causes the marginal rate of technical substitution to:

For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by:

The fact that a firm is using a capital-intensive method of production means that input substitution is not possible.

The list of the major factors that create economies of scale includes all of the following except:

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.

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.

Economists describe short-run decisions as "constrained" decisions, while long-run decisions are described as "planning" decisions.Referring to a firm's short-run average cost function and long-run average cost function, explain this distinction.

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

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