Question 1

A short-run average total cost curve will touch the long-run average cost curve at a level of output only

Accepted Answer

A) where the short-run cost curve is downward sloping. 
B) where the short-run cost curve is upward sloping. 
C) when the quantity of the fixed factor being employed is at the optimal level for that level of output. 
D) where the short-run cost curve is downward-sloping and the quantity of the fixed factor is optimal. 
E) by coincidence. 
A) where the short-run cost curve is downward sloping. 
B) where the short-run cost curve is upward sloping. 
C) when the quantity of the fixed factor being employed is at the optimal level for that level of output. 
D) where the short-run cost curve is downward-sloping and the quantity of the fixed factor is optimal. 
E) by coincidence.

Question 2

Movement from one point to another along an isoquant implies a change in

Accepted Answer

A) output levels,holding factor combinations constant. 
B) factor combinations,holding output constant. 
C) product prices. 
D) the level of output,independent of what happens to factor combinations. 
E) money income. 
A) output levels,holding factor combinations constant. 
B) factor combinations,holding output constant. 
C) product prices. 
D) the level of output,independent of what happens to factor combinations. 
E) money income.

Question 3

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire

Accepted Answer

A) more input Y and less input X. 
B) more input X and less input Y. 
C) more input Y only if its price falls. 
D) more input X only if its price increases. 
E) more input X only if its price decreases. 
A) more input Y and less input X. 
B) more input X and less input Y. 
C) more input Y only if its price falls. 
D) more input X only if its price increases. 
E) more input X only if its price decreases.

Question 4

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 $50 per unit and the price of capital is $800 per unit.The MPL equals 25 and the MPK equals 400.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.

Question 5

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 12 and the marginal product of labour is 6,the cost-minimizing firm should

Accepted Answer

A) employ more of both capital and labour. 
B) employ less of both 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 of both capital and labour. 
B) employ less of both 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 6

FIGURE 8-2
-Refer to Figure 8-2.Decreasing returns to scale occur over the output range

Accepted Answer

A) 0 to Q1 only. 
B) Q1 to Q2 only. 
C) Q2 to Q3 only. 
D) 0 to Q3 only. 
E) beyond Q3 only. 
A) 0 to Q1 only. 
B) Q1 to Q2 only. 
C) Q2 to Q3 only. 
D) 0 to Q3 only. 
E) beyond Q3 only.

Question 7

What information is displayed by an isoquant?

Accepted Answer

A) the whole set of technically efficient factor combinations that can produce varying levels of output 
B) various levels of output that can be produced with different factor combinations 
C) various levels of output that can be produced with a fixed factor combination 
D) the whole set of technically efficient factor combinations that can produce a single level of output 
E) the alternative factor combinations that require the same expenditure 
A) the whole set of technically efficient factor combinations that can produce varying levels of output 
B) various levels of output that can be produced with different factor combinations 
C) various levels of output that can be produced with a fixed factor combination 
D) the whole set of technically efficient factor combinations that can produce a single level of output 
E) the alternative factor combinations that require the same expenditure

Question 8

A firm operates at its least-cost position for a given level of output by equating

Accepted Answer

A) the marginal product of each factor. 
B) the marginal product per dollar spent for each factor. 
C) the price of each input. 
D) the total expenditure on each input. 
E) the average product for each factor. 
A) the marginal product of each factor. 
B) the marginal product per dollar spent for each factor. 
C) the price of each input. 
D) the total expenditure on each input. 
E) the average product for each factor.

Question 9

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

Accepted Answer

A) increase capital and decrease labour. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) maintain its present factor mix. 
A) increase capital and decrease labour. 
B) decrease both capital and labour. 
C) decrease capital and increase labour. 
D) increase both labour and capital. 
E) maintain its present factor mix.

Question 10

The figure below shows a family of cost curves for a firm.The subscripts 1,2,and 3 for the SRATC curves refer to different plant sizes.   FIGURE 8-3
-Refer to Figure 8-3.Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2)to point F (output level Q5 on SRATC3)?

Accepted Answer

A) No,because they are already producing at their lowest possible cost at point E. 
B) Yes,because the firm can take advantage of economies of scale. 
C) Yes,because SRATC3 is the optimal plant size for this firm. 
D) No,because producing at point F implies a higher cost per unit of output. 
E) Yes,if the product price rises enough to lead the firm to expand to plant size 3. 
A) No,because they are already producing at their lowest possible cost at point E. 
B) Yes,because the firm can take advantage of economies of scale. 
C) Yes,because SRATC3 is the optimal plant size for this firm. 
D) No,because producing at point F implies a higher cost per unit of output. 
E) Yes,if the product price rises enough to lead the firm to expand to plant size 3.

Question 11

Movement from one point to another along an isocost line implies a change in

Accepted Answer

A) output levels,holding factor combinations constant. 
B) factor combinations,holding expenditure constant. 
C) factor prices. 
D) the level of output,independent of what happens to factor combinations. 
E) expenditure. 
A) output levels,holding factor combinations constant. 
B) factor combinations,holding expenditure constant. 
C) factor prices. 
D) the level of output,independent of what happens to factor combinations. 
E) expenditure.

Question 12

The long-run average cost (LRAC)curve shows

Accepted Answer

A) the lowest unit cost at which the firm can produce a given output. 
B) the highest unit costs of producing a given output. 
C) the operation of the law of diminishing returns. 
D) what happens to the fixed costs in the long run. 
E) the same as the short-run average cost curve. 
A) the lowest unit cost at which the firm can produce a given output. 
B) the highest unit costs of producing a given output. 
C) the operation of the law of diminishing returns. 
D) what happens to the fixed costs in the long run. 
E) the same as the short-run average cost curve.

Question 13

Suppose a firm employs two kinds of inputs,capital at $100 per unit,and labour at $25 per unit.If the marginal product of capital is 50,then the firm should ________ in order to minimize its production costs.

Accepted Answer

A) employ more capital and less labour 
B) employ more labour and less capital 
C) employ more labour and more capital 
D) not change its current factor use 
E) There is insufficient information to make a recommendation. 
A) employ more capital and less labour 
B) employ more labour and less capital 
C) employ more labour and more capital 
D) not change its current factor use 
E) There is insufficient information to make a recommendation.

Question 14

The following table shows the marginal products of capital (K)and labour (L)for various methods for Firm ABC to produce 1000 toys per day.
   TABLE 8-2
-Refer to Table 8-2.Suppose capital costs $6 per unit and labour costs $4 per unit and the firm is employing production method A.How should this firm adjust its use of capital and labour to minimize costs?

Accepted Answer

A) employ more capital and less labour 
B) employ less capital and more labour 
C) employ more capital and more labour 
D) employ less capital and less labour 
E) There is insufficient information to know. 
A) employ more capital and less labour 
B) employ less capital and more labour 
C) employ more capital and more labour 
D) employ less capital and less labour 
E) There is insufficient information to know.

Question 15

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 $50 per unit and the price of capital is $800 per unit.The MPL equals 60 and the MPK equals 1200.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.

Question 16

Suppose Commercial Footwear Inc.is making a cost-minimizing decision about the level of output to produce with a given technology.Which of the following is a long-run decision?

Accepted Answer

A) Should we build a larger shoe manufacturing facility? 
B) Should we hire additional labour to work in the existing facility? 
C) Should we change to a lower-cost leather supplier? 
D) Should we invest in research for a new,improved technology for shoe production? 
E) Should we hire more accountants to investigate ways to reduce our corporate tax payments? 
A) Should we build a larger shoe manufacturing facility? 
B) Should we hire additional labour to work in the existing facility? 
C) Should we change to a lower-cost leather supplier? 
D) Should we invest in research for a new,improved technology for shoe production? 
E) Should we hire more accountants to investigate ways to reduce our corporate tax payments?

Question 17

TABLE 8-1
  
-Refer to Table 8-1.If the price of labour is $10 and the price of capital is $5,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 18

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 $20 per unit and the price of capital is $1000 per unit.The MPL equals 25 and the MPK equals 750.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.

Question 19

Suppose Farmer Smith hires 4 workers and leases 2 tractors and 15 hectares of farmland for one growing season,and produces 120 000 bushels of crop.The next year he hires 8 workers and leases 4 tractors and 30 hectares of farmland,and produces 210 000 bushels of crop.This firm (the farmer)is exhibiting ________ returns to scale.

Accepted Answer

A) decreasing 
B) increasing 
C) constant 
D) marginal 
E) variable 
A) decreasing 
B) increasing 
C) constant 
D) marginal 
E) variable

Question 20

A cost-minimizing firm will increase its use of labour and decrease its use of capital when the

Accepted Answer

A) marginal product of capital is higher than the marginal product of labour. 
B) marginal product of capital,per dollar spent on capital,is greater than the marginal product of labour,per dollar spent on labour. 
C) average product of capital is higher than the average product of labour. 
D) total product of capital is higher than the total product of labour. 
E) marginal product of capital,per dollar spent on capital,is less than the marginal product of labour,per dollar spent on labour. 
A) marginal product of capital is higher than the marginal product of labour. 
B) marginal product of capital,per dollar spent on capital,is greater than the marginal product of labour,per dollar spent on labour. 
C) average product of capital is higher than the average product of labour. 
D) total product of capital is higher than the total product of labour. 
E) marginal product of capital,per dollar spent on capital,is less than the marginal product of labour,per dollar spent on labour.

Exam 8: Producers in the Long Run

A short-run average total cost curve will touch the long-run average cost curve at a level of output only

Movement from one point to another along an isoquant implies a change in

Suppose a firm employs two inputs,X and Y,and that at their current levels of use MPX/PX > MPY/PY.To minimize the cost of production,the firm should hire

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 $50 per unit and the price of capital is $800 per unit.The MPL equals 25 and the MPK equals 400.In this situation,

Suppose that capital costs $6 per unit and labour costs $3 per unit.If the marginal product of capital is 12 and the marginal product of labour is 6,the cost-minimizing firm should

FIGURE 8-2 -Refer to Figure 8-2.Decreasing returns to scale occur over the output range

What information is displayed by an isoquant?

A firm operates at its least-cost position for a given level of output by equating

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

Movement from one point to another along an isocost line implies a change in

The long-run average cost (LRAC)curve shows

Suppose a firm employs two kinds of inputs,capital at $100 per unit,and labour at $25 per unit.If the marginal product of capital is 50,then the firm should ________ in order to minimize its production costs.

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 $50 per unit and the price of capital is $800 per unit.The MPL equals 60 and the MPK equals 1200.In this situation,

Suppose Commercial Footwear Inc.is making a cost-minimizing decision about the level of output to produce with a given technology.Which of the following is a long-run decision?

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

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 $20 per unit and the price of capital is $1000 per unit.The MPL equals 25 and the MPK equals 750.In this situation,

A cost-minimizing firm will increase its use of labour and decrease its use of capital when the

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Suppose a firm employs two inputs,X and Y,and that at their current levels of use MP_X/P_X > MP_Y/P_Y.To minimize the cost of production,the firm should hire

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 $50 per unit and the price of capital is $800 per unit.The MP_L equals 25 and the MP_K equals 400.In this situation,

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 $50 per unit and the price of capital is $800 per unit.The MP_L equals 60 and the MP_K equals 1200.In this situation,

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 $20 per unit and the price of capital is $1000 per unit.The MP_L equals 25 and the MP_K equals 750.In this situation,