Exam 6: Production and Cost Analysis in the Long Run

Economies of scale are illustrated by:

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 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.

Which of the following statements about the beer industry is correct?

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.

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

Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production.What do the two have in common in this regard?

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?

Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?

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

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?

As the price of labor increases relative to the price of capital, the firm will move to a more labor-intensive production method to minimize costs.

The text considers three methods that can be used to obtain empirical estimates of long-run costs in different industries.Of those three, surveys of expert opinion are considered to be most reliable because they are less subject to bias than the other two methods.

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

According to the text there appear to be very limited opportunities for input substitution in the production of pipe organs.Which of the following is the most plausible explanation for this observation?

Use the firm's long-run cost-minimizing decision rule to explain the differences in the relative use of capital and labor in agriculture in the United States and the Peoples Republic of China.

If an industry is characterized by substantial diseconomies of scale, as a particular firm in the industry expands its production capacity we will observe:

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 slope of the isocost line:

When a firm is experiencing economies of scale, the minimum point of the firm's short-run average total cost curve shifts down as it expands its scale of production.