Question 1

In the long run,a profit-maximizing firm producing a given level of output chooses the production method that

Accepted Answer

A) produces that output at the lowest possible cost. 
B) maximizes the marginal product of all factors. 
C) maximizes the marginal product of labour. 
D) leads to a flat total cost curve. 
E) MINIMIZES LABOUR INPUT. 
A) produces that output at the lowest possible cost. 
B) maximizes the marginal product of all factors. 
C) maximizes the marginal product of labour. 
D) leads to a flat total cost curve. 
E) MINIMIZES LABOUR INPUT.

Question 2

FIGURE 8-4
-Refer to Figure 8-4.The firm is initially operating at point B.If prices of both factors fell by 25% and the firm wished to continue expending the same amount on each resource (while continuing to maintain efficiency)the firm would

Accepted Answer

A) move towards point D. 
B) move toward point A. 
C) shift towards the origin. 
D) move toward point C. 
E) stay at point B. 
A) move towards point D. 
B) move toward point A. 
C) shift towards the origin. 
D) move toward point C. 
E) stay at point B.

Question 3

The fact that isoquants are downward sloping indicates

Accepted Answer

A) the diminishing marginal productivity of a variable factor. 
B) the diminishing marginal productivity of a fixed factor. 
C) that each factor input has a negative marginal productivity. 
D) a change in relative factor prices,with output held constant. 
E) that a reduction in the use of one factor requires an increase in the use of the other factor in order to keep output constant. 
A) the diminishing marginal productivity of a variable factor. 
B) the diminishing marginal productivity of a fixed factor. 
C) that each factor input has a negative marginal productivity. 
D) a change in relative factor prices,with output held constant. 
E) that a reduction in the use of one factor requires an increase in the use of the other factor in order to keep output constant.

Question 4

Refer to Figure 8-6.The cost-minimizing factor combination for producing 2000 golf tees is

Accepted Answer

A) 10 units of capital and 25 units of labour. 
B) 12 units of capital and 30 units of labour. 
C) 6 units of capital and 15 units of labour. 
D) 8 units of capital and 20 units of labour. 
E) 4 units of capital and 10 units of labour. 
A) 10 units of capital and 25 units of labour. 
B) 12 units of capital and 30 units of labour. 
C) 6 units of capital and 15 units of labour. 
D) 8 units of capital and 20 units of labour. 
E) 4 units of capital and 10 units of labour.

Question 5

In the long run,the law of diminishing marginal returns

Accepted Answer

A) is not relevant because there are no fixed factors of production. 
B) sometimes holds,depending on the production process. 
C) does hold,regardless of production process. 
D) is exactly the same as in the short run. 
E) does not hold because technology is a variable. 
A) is not relevant because there are no fixed factors of production. 
B) sometimes holds,depending on the production process. 
C) does hold,regardless of production process. 
D) is exactly the same as in the short run. 
E) does not hold because technology is a variable.

Question 6

In the 1890s nearly 50 percent of the Canadian population worked on a farm.Today,that number is less than 2 percent.One important explanation for this change is

Accepted Answer

A) the response to a rising price of labour and a falling relative price of capital. 
B) the response to a rising price of capital and a falling relative price of labour. 
C) that over long periods of time,labour is always replaced by capital. 
D) that over long periods of time,capital is always replaced by labour. 
E) that the marginal product of labour was falling over time while the marginal product of capital was rising. 
A) the response to a rising price of labour and a falling relative price of capital. 
B) the response to a rising price of capital and a falling relative price of labour. 
C) that over long periods of time,labour is always replaced by capital. 
D) that over long periods of time,capital is always replaced by labour. 
E) that the marginal product of labour was falling over time while the marginal product of capital was rising.

Question 7

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.If capital costs $6 per unit and labour costs $4 per unit,which production method minimizes the cost of producing 1000 toys per day?

Accepted Answer

A) method B 
B) method C 
C) method D 
D) method E 
E) method F 
A) method B 
B) method C 
C) method D 
D) method E 
E) method F

Question 8

Which of the following conditions indicate cost minimization,assuming two inputs,labour (L)and capital (K)?

Accepted Answer

A) PK ∙ MPK = PL ∙ MPL 
B) MPL = MPK 
C) MPK/PK = MPL/PL 
D) MPK/PL = MPL/PK 
E) PK = PL 
A) PK ∙ MPK = PL ∙ MPL 
B) MPL = MPK 
C) MPK/PK = MPL/PL 
D) MPK/PL = MPL/PK 
E) PK = PL

Question 9

Refer to Figure 8-6.Suppose the firm is currently producing at point E and the prices of capital and labour each increase by 30%.If the firm wants to minimize the cost of producing the same level of output,the firm's chosen factor combination would be at point

Accepted Answer

A) A. 
B) C. 
C) E. 
D) G. 
E) not determinable from the information provided. 
A) A. 
B) C. 
C) E. 
D) G. 
E) not determinable from the information provided.

Question 10

With respect to innovation,which of the following statements is true?

Accepted Answer

A) Government policy cannot influence the rate of innovation. 
B) Innovation is exogenous to the economic system. 
C) The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
D) The principal incentive for innovation does not appear to be related to profits. 
E) Innovation is often endogenous to the economic system. 
A) Government policy cannot influence the rate of innovation. 
B) Innovation is exogenous to the economic system. 
C) The utilization rate of existing plant and equipment and its durability are independent of the pace of innovation. 
D) The principal incentive for innovation does not appear to be related to profits. 
E) Innovation is often endogenous to the economic system.

Question 11

Which of the following paired concepts are equivalent to each other?

Accepted Answer

A) constant costs; economies of scale 
B) increasing returns; decreasing costs 
C) increasing returns; increasing costs 
D) increasing costs; economies of scale 
E) increasing returns; diseconomies of scale 
A) constant costs; economies of scale 
B) increasing returns; decreasing costs 
C) increasing returns; increasing costs 
D) increasing costs; economies of scale 
E) increasing returns; diseconomies of scale

Question 12

Of the following,which is the least likely to represent a firm's long-run decision?

Accepted Answer

A) What should be the size and design of a firm's new plant? 
B) Should the firm choose a method of production that uses relatively more capital than labour? 
C) By how much should output be expanded from existing plants? 
D) Should the firm invest resources in the development of better technologies? 
E) What technique (technology)is the best to use under current factor pricing? 
A) What should be the size and design of a firm's new plant? 
B) Should the firm choose a method of production that uses relatively more capital than labour? 
C) By how much should output be expanded from existing plants? 
D) Should the firm invest resources in the development of better technologies? 
E) What technique (technology)is the best to use under current factor pricing?

Question 13

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.Suppose this firm is producing output level Q3 with plant size 2.Now suppose this firm changes to plant size 3 and is producing output level Q5.We can say that

Accepted Answer

A) the firm is then operating with the optimal plant size. 
B) this firm has experienced economies of scale. 
C) output has increased more than in proportion to the increase in inputs. 
D) output has increased exactly in proportion to the increase in inputs. 
E) output has increased less than in proportion to the increase in inputs. 
A) the firm is then operating with the optimal plant size. 
B) this firm has experienced economies of scale. 
C) output has increased more than in proportion to the increase in inputs. 
D) output has increased exactly in proportion to the increase in inputs. 
E) output has increased less than in proportion to the increase in inputs.

Question 14

Refer to Figure 8-6.Suppose there is a change in relative factor prices and the cost-minimizing method of producing 2000 golf tees is now at point D.If the total cost of producing 2000 golf tees is still $60,it must be the case that

Accepted Answer

A) the price of labour fell and the price of capital remained constant. 
B) the price of labour and capital both fell. 
C) the price of labour rose and the price of capital fell. 
D) the price of labour fell and the price of capital rose. 
E) the price of labour and capital both rose. 
A) the price of labour fell and the price of capital remained constant. 
B) the price of labour and capital both fell. 
C) the price of labour rose and the price of capital fell. 
D) the price of labour fell and the price of capital rose. 
E) the price of labour and capital both rose.

Question 15

A firm's least-cost position for producing a given output level occurs at that point where

Accepted Answer

A) the isocost line intersects the highest isoquant. 
B) the isocost and isoquant intersect the horizontal axis. 
C) the isoquant is closest to the origin. 
D) the isocost line and the isoquant are tangent to each other. 
E) the isocost and isoquant intersect the vertical axis. 
A) the isocost line intersects the highest isoquant. 
B) the isocost and isoquant intersect the horizontal axis. 
C) the isoquant is closest to the origin. 
D) the isocost line and the isoquant are tangent to each other. 
E) the isocost and isoquant intersect the vertical axis.

Question 16

In recent years,garbage collection has changed dramatically.Twenty-five years ago a crew of up to 4 or 5 workers and 1 truck collected residential garbage.Now collection is often done by one driver and 1 more fully automated truck.What is an explanation for this change?

Accepted Answer

A) Over long periods of time,labour is always replaced by capital. 
B) Over long periods of time,capital is always replaced by labour. 
C) Firms and municipalities substituted away from an increasingly expensive factor (labour)and toward an increasingly inexpensive factor (capital). 
D) Firms and municipalities substituted away from a factor whose price was falling (labour)and toward a factor whose price was rising(capital). 
E) The marginal product of labour was falling over time while the marginal product of capital was rising. 
A) Over long periods of time,labour is always replaced by capital. 
B) Over long periods of time,capital is always replaced by labour. 
C) Firms and municipalities substituted away from an increasingly expensive factor (labour)and toward an increasingly inexpensive factor (capital). 
D) Firms and municipalities substituted away from a factor whose price was falling (labour)and toward a factor whose price was rising(capital). 
E) The marginal product of labour was falling over time while the marginal product of capital was rising.

Question 17

Suppose a firm moves from one isoquant to an isoquant further from the origin on an isoquant map.This movement indicates that

Accepted Answer

A) factor prices for all inputs have increased. 
B) the price of capital has decreased. 
C) the firm has increased its plant size. 
D) the firm has hired more labour. 
E) the firm has increased its level of output. 
A) factor prices for all inputs have increased. 
B) the price of capital has decreased. 
C) the firm has increased its plant size. 
D) the firm has hired more labour. 
E) the firm has increased its level of output.

Question 18

Which of the following statements concerning long-run and short-run cost curves is correct?

Accepted Answer

A) A short-run average cost curve can fall below the long-run average cost curve. 
B) The short-run average cost curve is tangent to the long-run average cost curve for all levels of output of the fixed factor. 
C) The long-run average cost curve envelops a whole family of short-run marginal cost curves. 
D) The minimum point of the long-run average cost curve will correspond to the minimum point on a single short-run average cost curve. 
E) Both the long-run and short-run average cost curves show the lowest cost of producing any output when all factors are variable. 
A) A short-run average cost curve can fall below the long-run average cost curve. 
B) The short-run average cost curve is tangent to the long-run average cost curve for all levels of output of the fixed factor. 
C) The long-run average cost curve envelops a whole family of short-run marginal cost curves. 
D) The minimum point of the long-run average cost curve will correspond to the minimum point on a single short-run average cost curve. 
E) Both the long-run and short-run average cost curves show the lowest cost of producing any output when all factors are variable.

Question 19

FIGURE 8-1
-Refer to Figure 8-1.Which of the four firms in the figure is displaying decreasing returns to scale at all output levels?

Accepted Answer

A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) all firms are displaying increasing returns to scale 
A) Firm A 
B) Firm B 
C) Firm C 
D) Firm D 
E) all firms are displaying increasing returns to scale

Question 20

Which of the following is unlikely to be a source of increasing productivity?

Accepted Answer

A) better raw materials even if there are no changes in factor quantities or proportions 
B) better organization of production 
C) substitution toward labour and away from capital (with constant technology) 
D) better-trained labour 
E) increases in technological know-how 
A) better raw materials even if there are no changes in factor quantities or proportions 
B) better organization of production 
C) substitution toward labour and away from capital (with constant technology) 
D) better-trained labour 
E) increases in technological know-how

Exam 8: Producers in the Long Run

In the long run,a profit-maximizing firm producing a given level of output chooses the production method that

FIGURE 8-4 -Refer to Figure 8-4.The firm is initially operating at point B.If prices of both factors fell by 25% and the firm wished to continue expending the same amount on each resource (while continuing to maintain efficiency)the firm would

The fact that isoquants are downward sloping indicates

Refer to Figure 8-6.The cost-minimizing factor combination for producing 2000 golf tees is

In the long run,the law of diminishing marginal returns

In the 1890s nearly 50 percent of the Canadian population worked on a farm.Today,that number is less than 2 percent.One important explanation for this change is

Which of the following conditions indicate cost minimization,assuming two inputs,labour (L)and capital (K)?

Refer to Figure 8-6.Suppose the firm is currently producing at point E and the prices of capital and labour each increase by 30%.If the firm wants to minimize the cost of producing the same level of output,the firm's chosen factor combination would be at point

With respect to innovation,which of the following statements is true?

Which of the following paired concepts are equivalent to each other?

Of the following,which is the least likely to represent a firm's long-run decision?

Refer to Figure 8-6.Suppose there is a change in relative factor prices and the cost-minimizing method of producing 2000 golf tees is now at point D.If the total cost of producing 2000 golf tees is still $60,it must be the case that

A firm's least-cost position for producing a given output level occurs at that point where

In recent years,garbage collection has changed dramatically.Twenty-five years ago a crew of up to 4 or 5 workers and 1 truck collected residential garbage.Now collection is often done by one driver and 1 more fully automated truck.What is an explanation for this change?

Suppose a firm moves from one isoquant to an isoquant further from the origin on an isoquant map.This movement indicates that

Which of the following statements concerning long-run and short-run cost curves is correct?

FIGURE 8-1 -Refer to Figure 8-1.Which of the four firms in the figure is displaying decreasing returns to scale at all output levels?

Which of the following is unlikely to be a source of increasing productivity?

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