Question 1

FIGURE 8-1
-Refer to Figure 8-1.For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

Accepted Answer

A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) none of the four firms 
A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) none of the four firms E

Question 2

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $40 per unit and the price of capital is $1000 per unit.The MPL equals 24 and the MPK equals 600.In this situation,

Accepted Answer

A) the firm is minimizing its costs. 
B) the firm should increase the use of both inputs. 
C) the firm could lower its production costs by decreasing labour input and increasing capital input. 
D) the firm could lower its production costs by increasing labour input and decreasing capital input. 
E) the firm should decrease the use of both inputs. 
A) the firm is minimizing its costs. 
B) the firm should increase the use of both inputs. 
C) the firm could lower its production costs by decreasing labour input and increasing capital input. 
D) the firm could lower its production costs by increasing labour input and decreasing capital input. 
E) the firm should decrease the use of both inputs. A

Question 3

In the long run,decreasing returns to scale are likely to be caused by

Accepted Answer

A) diseconomies of scale associated with management problems. 
B) a decrease in factor prices. 
C) increasing specialization of labour. 
D) diminishing returns to the variable factor. 
E) decreasing costs. 
A) diseconomies of scale associated with management problems. 
B) a decrease in factor prices. 
C) increasing specialization of labour. 
D) diminishing returns to the variable factor. 
E) decreasing costs. A

Question 4

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees.   FIGURE 8-6
-Refer to Figure 8-6.This firm will minimize its costs of producing 2000 golf tees at point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) E. 
A) A. 
B) B. 
C) C. 
D) D. 
E) E.

Question 5

Refer to Figure 8-6.Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map.In order to maintain its output and minimize costs this firm should

Accepted Answer

A) not change its use of factors. 
B) move to an isoquant closer to the origin. 
C) move to an isocost line further from the origin. 
D) employ more labour and less capital. 
E) employ more capital and less labour. 
A) not change its use of factors. 
B) move to an isoquant closer to the origin. 
C) move to an isocost line further from the origin. 
D) employ more labour and less capital. 
E) employ more capital and less labour.

Question 6

FIGURE 8-4
-Refer to Figure 8-4.The firm is initially producing 1000 units and minimizing its production cost at point B.Suppose the prices of capital and labour each fall by 20%.If the firm wishes to continue producing the same level of output it will

Accepted Answer

A) move toward point A. 
B) remain at point B. 
C) move toward point C. 
D) move toward point D. 
E) move to the left of point B. 
A) move toward point A. 
B) remain at point B. 
C) move toward point C. 
D) move toward point D. 
E) move to the left of point B.

Question 7

For a firm with only two inputs,capital and labour,the condition MPK/MPL = PK/PL guarantees that the firm is

Accepted Answer

A) at its profit-maximizing output but is not necessarily minimizing its costs. 
B) minimizing its costs but is not necessarily maximizing its profits. 
C) technically efficient but not economically efficient. 
D) economically efficient but not technically efficient. 
E) at its profit-maximizing and cost-minimizing level of output. 
A) at its profit-maximizing output but is not necessarily minimizing its costs. 
B) minimizing its costs but is not necessarily maximizing its profits. 
C) technically efficient but not economically efficient. 
D) economically efficient but not technically efficient. 
E) at its profit-maximizing and cost-minimizing level of output.

Question 8

Consider the long-run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

Accepted Answer

A) may represent actual cost and production levels in the short run. 
B) represents less efficient cost levels than points on the long-run average cost curve. 
C) is attainable only when all factors are variable. 
D) represents unattainable cost levels,given current technologies. 
E) is attainable if the firm minimizes its costs according to the "principle of substitution." 
A) may represent actual cost and production levels in the short run. 
B) represents less efficient cost levels than points on the long-run average cost curve. 
C) is attainable only when all factors are variable. 
D) represents unattainable cost levels,given current technologies. 
E) is attainable if the firm minimizes its costs according to the "principle of substitution."

Question 9

Consider a firm that uses only labour and capital as inputs.At the present use of labour and capital,the MP of labour is four times the MP of capital,and the price of labour is twice the price of capital.In order to minimize its costs,the firm should

Accepted Answer

A) substitute capital for labour until their marginal products are equal. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) stay at its present factor mix. 
A) substitute capital for labour until their marginal products are equal. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) stay at its present factor mix.

Question 10

TABLE 8-1
  
-Refer to Table 8-1.If the price of labour is $5 and the price of capital is $10,which production technique minimizes the costs of producing 1000 units of output?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost. 
A) A 
B) B 
C) C 
D) D 
E) Any of the techniques have the same cost.

Question 11

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing

Accepted Answer

A) decreasing returns to scale. 
B) increasing returns to scale. 
C) constant returns to scale. 
D) diseconomies of scale. 
E) increasing costs. 
A) decreasing returns to scale. 
B) increasing returns to scale. 
C) constant returns to scale. 
D) diseconomies of scale. 
E) increasing costs.

Question 12

Which of the following factors is most important as a source of sustained growth in material living standards?

Accepted Answer

A) population increase 
B) changing relative factor prices 
C) decrease in cost of capital 
D) technological improvement 
E) capital-labour substitution 
A) population increase 
B) changing relative factor prices 
C) decrease in cost of capital 
D) technological improvement 
E) capital-labour substitution

Question 13

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour.Now it doubles both inputs,resulting in output of 30 widgets per hour.This firm is experiencing

Accepted Answer

A) decreasing returns to scale. 
B) increasing returns to scale. 
C) constant returns to scale. 
D) diseconomies of scale. 
E) increasing costs. 
A) decreasing returns to scale. 
B) increasing returns to scale. 
C) constant returns to scale. 
D) diseconomies of scale. 
E) increasing costs.

Question 14

Suppose that capital costs $10 per unit and labour costs $4 per unit.If the marginal product of capital is 50 and the marginal product of labour is 50,the firm should ________ in order to minimize its costs of producing its output.

Accepted Answer

A) employ more capital and labour 
B) employ less capital and labour 
C) employ more capital and less labour 
D) employ less capital and more labour 
E) not change its current factor use 
A) employ more capital and labour 
B) employ less capital and labour 
C) employ more capital and less labour 
D) employ less capital and more labour 
E) not change its current factor use

Question 15

Refer to Figure 8-6.As this firm is increasing its production of golf tees,it is experiencing ________ returns to scale.

Accepted Answer

A) constant 
B) decreasing 
C) increasing 
D) diminishing 
E) Not determinable from the information provided. 
A) constant 
B) decreasing 
C) increasing 
D) diminishing 
E) Not determinable from the information provided.

Question 16

When there is no other way of producing a given level of output with a smaller total value of inputs,the firm is operating at

Accepted Answer

A) minimum cost. 
B) maximum output. 
C) maximum profit. 
D) optimal output. 
E) maximum cost. 
A) minimum cost. 
B) maximum output. 
C) maximum profit. 
D) optimal output. 
E) maximum cost.

Question 17

TABLE 8-1
  
-Refer to Table 8-1.Which production technique is obviously technically inefficient?

Accepted Answer

A) A 
B) B 
C) C 
D) D 
E) All four techniques are inefficient. 
A) A 
B) B 
C) C 
D) D 
E) All four techniques are inefficient.

Question 18

FIGURE 8-4
-Refer to Figure 8-4.A firm that is producing an output of 2000 units will minimize its costs at point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) There is not enough information provided to be sure. 
A) A. 
B) B. 
C) C. 
D) D. 
E) There is not enough information provided to be sure.

Question 19

What is the definition of productivity?

Accepted Answer

A) output produced per unit of input 
B) output produced by a combination of two or more inputs 
C) the cost of a unit of output 
D) a measure of input used 
E) the efficient use of technology 
A) output produced per unit of input 
B) output produced by a combination of two or more inputs 
C) the cost of a unit of output 
D) a measure of input used 
E) the efficient use of technology

Question 20

FIGURE 8-4
-Refer to Figure 8-4.The firm is initially minimizing the cost of producing 1000 units of output.Suppose the factor prices then change such that the price of capital (K)falls and the price of labour (L)rises.If the firm decides to leave its output unchanged,it will now move toward the point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) Unknown as there is insufficient information to know 
A) A. 
B) B. 
C) C. 
D) D. 
E) Unknown as there is insufficient information to know

Exam 8: Producers in the Long Run

FIGURE 8-1 -Refer to Figure 8-1.For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $40 per unit and the price of capital is $1000 per unit.The MPL equals 24 and the MPK equals 600.In this situation,

In the long run,decreasing returns to scale are likely to be caused by

The figure below shows the isocost lines and the isoquant map for a firm producing golf tees. FIGURE 8-6 -Refer to Figure 8-6.This firm will minimize its costs of producing 2000 golf tees at point

Refer to Figure 8-6.Suppose this firm is producing 3000 golf tees and is at point F on the isoquant map.In order to maintain its output and minimize costs this firm should

FIGURE 8-4 -Refer to Figure 8-4.The firm is initially producing 1000 units and minimizing its production cost at point B.Suppose the prices of capital and labour each fall by 20%.If the firm wishes to continue producing the same level of output it will

For a firm with only two inputs,capital and labour,the condition MPK/MPL = PK/PL guarantees that the firm is

Consider the long-run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

Consider a firm that uses only labour and capital as inputs.At the present use of labour and capital,the MP of labour is four times the MP of capital,and the price of labour is twice the price of capital.In order to minimize its costs,the firm should

TABLE 8-1 -Refer to Table 8-1.If the price of labour is $5 and the price of capital is $10,which production technique minimizes the costs of producing 1000 units of output?

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets.Now it doubles both inputs resulting in a new total of 16 baskets being produced.This firm is experiencing

Which of the following factors is most important as a source of sustained growth in material living standards?

Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour.Now it doubles both inputs,resulting in output of 30 widgets per hour.This firm is experiencing

Suppose that capital costs $10 per unit and labour costs $4 per unit.If the marginal product of capital is 50 and the marginal product of labour is 50,the firm should ________ in order to minimize its costs of producing its output.

Refer to Figure 8-6.As this firm is increasing its production of golf tees,it is experiencing ________ returns to scale.

When there is no other way of producing a given level of output with a smaller total value of inputs,the firm is operating at

TABLE 8-1 -Refer to Table 8-1.Which production technique is obviously technically inefficient?

FIGURE 8-4 -Refer to Figure 8-4.A firm that is producing an output of 2000 units will minimize its costs at point

What is the definition of productivity?

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Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore.The price of labour is $40 per unit and the price of capital is $1000 per unit.The MP_L equals 24 and the MP_K equals 600.In this situation,

For a firm with only two inputs,capital and labour,the condition MP_K/MP_L = P_K/P_Lguarantees that the firm is