Question 1

Long run marginal cost curves are increasing for decreasing returns to scale production technologies.

Accepted Answer

A) True 
 B)False  True

Question 2

If the cross-price demand curve for capital (relative to the wage) is vertical, the short run response by a firm to an increase in the wage is the same as its long run response.

Accepted Answer

A) True 
 B)False  True

Question 3

After a firm makes both short and long run adjustments in its production plan following a reduction in the wage,

Accepted Answer

A) the marginal product of labor will be higher. 
B) the marginal product of labor will be lower. 
C) the marginal product of capital will be unchanged. 
D) the marginal product of capital may be higher or lower depending on the degree of substitutability between capital and labor. 
E) (a) and C
F)(a) and (d)
G)(b) and (c)
H)(b) and (d) 
A) the marginal product of labor will be higher. 
B) the marginal product of labor will be lower. 
C) the marginal product of capital will be unchanged. 
D) the marginal product of capital may be higher or lower depending on the degree of substitutability between capital and labor. 
E) (a) and C
F)(a) and (d)
G)(b) and (c)
H)(b) and (d) G

Question 4

(Long run) average cost curves are U-shaped when the production technology has increasing returns to scale and the firm faces recurring fixed costs.

Accepted Answer

A) True 
 B)False

Question 5

After a firm makes both short and long run adjustments to its production plan following an increase in the output price,

Accepted Answer

A) the marginal product of capital will be higher. 
B) the marginal product of labor will be lower. 
C) the technical rate of substitution will be unchanged. 
D) (a) and (c) 
E) (b) and C
F)(a) and (b)
G)All of the above.h.We cannot tell for sure -- so none of the above. 
A) the marginal product of capital will be higher. 
B) the marginal product of labor will be lower. 
C) the technical rate of substitution will be unchanged. 
D) (a) and (c) 
E) (b) and C
F)(a) and (b)
G)All of the above.h.We cannot tell for sure -- so none of the above.

Question 6

When output price rises, the long run increase in labor input will be larger than the short run increase in labor input.

Accepted Answer

A) True 
 B)False

Question 7

Suppose GE produces 1 million light bulbs per month While labor is variable both in the short run and the long run, capital is fixed in the short run.Labor is sold at a rate w and capital is rented at a rate r.
a.On a graph with labor on the horizontal axis, illustrate the current isocost and isoquant for GE.Carefully label the slope of the isocost.
b.For the rest of the problem, suppose a new tax on capital is implemented but GE intends to continue to produce 1 million light bulbs per year.What will GE do differently in the short run and the long run? Explain using your graph from part (a).
c.Using your answer to part (b), explain what happens to the short run cost curve in the short run.What happens to this short run curve in the long run? Do costs rise more or less in the long run than they do in the short run?
d.Do total costs rise more or less in the long run than total expenditures do in the short run? Explain.

Accepted Answer

a. @#IMG-DLM& b. Short run -- no change; long run

Question 8

Short run economic costs must be lower than long run economic costs because long run economic costs include the cost of inputs that are fixed in the short run (and thus are not part of short run cost).

Accepted Answer

A) True 
 B)False

Question 9

Except for the output level for which short-run fixed capital is long run cost-minimizing, short-run average expenses incurred by the firm are higher than long run average costs.

Accepted Answer

A) True 
 B)False

Question 10

The production function   can have increasing returns to scale or decreasing returns to scale -- but it cannot have initially increasing and eventually decreasing returns to scale.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following are true in a graph of isoquants (with capital on the vertical and labor on the horizontal) assuming a given wage and rental rate.

Accepted Answer

A) All long-run cost minimizing input bundles lie on a ray from the origin. 
B) (a) is true only if the production technology is homothetic. 
C) All short-run cost minimizing input bundles lie on a horizontal line. 
D) (c) is true only if the production technology is homothetic. 
E) (a) and (c) are true.
F)(b) and (c) are true.
G)(a) and (d) are true.
H)None of the above. 
A) All long-run cost minimizing input bundles lie on a ray from the origin. 
B) (a) is true only if the production technology is homothetic. 
C) All short-run cost minimizing input bundles lie on a horizontal line. 
D) (c) is true only if the production technology is homothetic. 
E) (a) and (c) are true.
F)(b) and (c) are true.
G)(a) and (d) are true.
H)None of the above.

Question 12

Long run average cost curves are downward sloping for increasing returns to scale production technologies.

Accepted Answer

A) True 
 B)False

Question 13

Short run average expenditure curves are tangent at their lowest point to the long run average cost curve.

Accepted Answer

A) True 
 B)False

Question 14

After a firm makes short-run adjustments in its production plan following a wage increase,

Accepted Answer

A) the marginal product of labor will be higher. 
B) the marginal product of labor will be lower. 
C) the marginal product of capital will be higher. 
D) the marginal product of capital will be lower. 
E) (a) and C
F)(a) and (d)
G)(b) and (c)
H)(b) and (d) 
A) the marginal product of labor will be higher. 
B) the marginal product of labor will be lower. 
C) the marginal product of capital will be higher. 
D) the marginal product of capital will be lower. 
E) (a) and C
F)(a) and (d)
G)(b) and (c)
H)(b) and (d)

Question 15

If labor and capital are perfect complements in production, short run supply curves are vertical.

Accepted Answer

A) True 
 B)False

Question 16

Conditional input demand curves always slope down, but unconditional input demand curves can slope up.

Accepted Answer

A) True 
 B)False

Question 17

Output supply is more responsive to price in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 18

If the rental rate increases, we know for sure that the firm will produce less and will (in the long run) use less capital.

Accepted Answer

A) True 
 B)False

Question 19

If a firm's labor input response to a decrease in the wage differs between the short and the long run, we know that more workers will be hired after the initial short run adjustment.

Accepted Answer

A) True 
 B)False

Question 20

If the production technology has increasing returns to scale, short run marginal cost curves must be downward sloping.

Accepted Answer

A) True 
 B)False

Exam 13: Production Decisions in the Short and Long Run

Long run marginal cost curves are increasing for decreasing returns to scale production technologies.

If the cross-price demand curve for capital (relative to the wage) is vertical, the short run response by a firm to an increase in the wage is the same as its long run response.

After a firm makes both short and long run adjustments in its production plan following a reduction in the wage,

(Long run) average cost curves are U-shaped when the production technology has increasing returns to scale and the firm faces recurring fixed costs.

After a firm makes both short and long run adjustments to its production plan following an increase in the output price,

When output price rises, the long run increase in labor input will be larger than the short run increase in labor input.

Short run economic costs must be lower than long run economic costs because long run economic costs include the cost of inputs that are fixed in the short run (and thus are not part of short run cost).

Except for the output level for which short-run fixed capital is long run cost-minimizing, short-run average expenses incurred by the firm are higher than long run average costs.

The production function can have increasing returns to scale or decreasing returns to scale -- but it cannot have initially increasing and eventually decreasing returns to scale.

Which of the following are true in a graph of isoquants (with capital on the vertical and labor on the horizontal) assuming a given wage and rental rate.

Long run average cost curves are downward sloping for increasing returns to scale production technologies.

Short run average expenditure curves are tangent at their lowest point to the long run average cost curve.

After a firm makes short-run adjustments in its production plan following a wage increase,

If labor and capital are perfect complements in production, short run supply curves are vertical.

Conditional input demand curves always slope down, but unconditional input demand curves can slope up.

Output supply is more responsive to price in the short run than in the long run.

If the rental rate increases, we know for sure that the firm will produce less and will (in the long run) use less capital.

If a firm's labor input response to a decrease in the wage differs between the short and the long run, we know that more workers will be hired after the initial short run adjustment.

If the production technology has increasing returns to scale, short run marginal cost curves must be downward sloping.

Introduction

A Consumers Economic Circumstances

Economic Circumstances in Labor and Financial Markets

Tastes and Indifference Curves

Different Types of Tastes

Doing the Best We Can

Income and Substitution Effects in Consumer Goods Markets

Wealth and Substitution Effects in Labor and Capital Markets

Demand for Goods and Supply of Labor and Capital

Consumer Surplus and Deadweight Loss

One Input and One Output: a Short-Run Producer Model

Production With Multiple Inputs

Competitive Market Equilibrium

The Invisible Hand and the First Welfare Theorem

General Equilibrium

Choice and Markets in the Presence of Risk

Elasticities, Price-Distorting Policies, and Non-Price Rationing

Distortionary Taxes and Subsidies

Prices and Distortions Across Markets

Externalities in Competitive Markets

Asymmetric Information in Competitive Markets

Monopoly

Strategic Thinking and Game Theory

Oligopoly

Product Differentiation and Innovation in Markets

Public Goods

Governments and Politics

What Is Good Challenges From Psychology and Philosophy

Filters