Question 1

The long-run average cost curve is an envelope curve,with each point associated with a short-run average cost curve

Accepted Answer

A) tangent at that point. 
B) crossing that point from above. 
C) lying below it. 
D) intersecting that point. 
E) at its minimum point. 
A) tangent at that point. 
B) crossing that point from above. 
C) lying below it. 
D) intersecting that point. 
E) at its minimum point.

Question 2

FIGURE 8-2
-Refer to Figure 8-2.Increasing 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 3

FIGURE 8-2
-Refer to Figure 8-2.In the long run,the lowest-cost level of output achievable by this firm is

Accepted Answer

A) Q1. 
B) Q2. 
C) Q3. 
D) not shown in the diagram 
A) Q1. 
B) Q2. 
C) Q3. 
D) not shown in the diagram

Question 4

In defining a firm's long-run average cost curve,

Accepted Answer

A) factor prices are held constant and technology is assumed to change. 
B) factor prices are held constant and the quantity of factors of production used is varied. 
C) factor prices are varied and the quantity of factors of production is held constant. 
D) technology,factor prices,and the quantity of factors of production are all varied. 
E) the time period must be longer than one year. 
A) factor prices are held constant and technology is assumed to change. 
B) factor prices are held constant and the quantity of factors of production used is varied. 
C) factor prices are varied and the quantity of factors of production is held constant. 
D) technology,factor prices,and the quantity of factors of production are all varied. 
E) the time period must be longer than one year.

Question 5

TABLE 8-1
  
-Refer to Table 8-1.If the price of both labour and 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 6

FIGURE 8-4
-Refer to Figure 8-4.The firm is initially producing 2000 units and minimizing its production cost at point D.Suppose the prices of capital and labour each rise by 10%.If the firm wishes to continue producing the same level of output it will

Accepted Answer

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

Question 7

A profit-maximizing firm will increase its use of capital and decrease its use of labour 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.

Question 8

Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit-maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be

Accepted Answer

A) 10. 
B) 20. 
C) 25. 
D) 50. 
E) 100. 
A) 10. 
B) 20. 
C) 25. 
D) 50. 
E) 100.

Question 9

Which of the following cost curves demonstrate increasing returns to scale?

Accepted Answer

A) a downward-sloping long-run average cost curve 
B) an upward-sloping long-run average cost curve 
C) a horizontal long-run average cost curve 
D) a vertical long-run average cost curve 
E) returns to scale have nothing to do with the shape of the long-run average cost curve 
A) a downward-sloping long-run average cost curve 
B) an upward-sloping long-run average cost curve 
C) a horizontal long-run average cost curve 
D) a vertical long-run average cost curve 
E) returns to scale have nothing to do with the shape of the long-run average cost curve

Question 10

The fact that new methods to extract oil are developed as oil prices increase suggests

Accepted Answer

A) that methods of production do not change in response to factor-price changes. 
B) that invention is exogenous. 
C) that invention does respond to economic signals and is endogenous. 
D) that oil has many close substitutes. 
E) nothing; changes in technology occur regardless of market prices. 
A) that methods of production do not change in response to factor-price changes. 
B) that invention is exogenous. 
C) that invention does respond to economic signals and is endogenous. 
D) that oil has many close substitutes. 
E) nothing; changes in technology occur regardless of market prices.

Question 11

"The bigger the volume,the lower the cost,and we pass these savings on to you" is a familiar advertising slogan.It implies essentially that the

Accepted Answer

A) total cost of the firm will remain constant as output expands. 
B) firm expects to experience increasing returns over the relevant range of output. 
C) average fixed cost will decline or remain constant over the long run. 
D) consumer is able to pay less today because the total cost of the firm is expected to decline tomorrow. 
E) firm is altruistic. 
A) total cost of the firm will remain constant as output expands. 
B) firm expects to experience increasing returns over the relevant range of output. 
C) average fixed cost will decline or remain constant over the long run. 
D) consumer is able to pay less today because the total cost of the firm is expected to decline tomorrow. 
E) firm is altruistic.

Question 12

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 260 000 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 13

The figure below shows the isocost lines facing a firm producing golf tees.   FIGURE 8-5
-Refer to Figure 8-5.The firm that is facing the isocost lines as shown will minimize its cost of production of any given output level if it employs capital and labour such that the ratio of the marginal product of labour to the marginal product of capital (MPL/MPK)is equal to

Accepted Answer

A) 5/2. 
B) 5. 
C) 2. 
D) 2/5. 
E) Not able to determine from the information provided. 
A) 5/2. 
B) 5. 
C) 2. 
D) 2/5. 
E) Not able to determine from the information provided.

Question 14

The figure below shows the isocost lines facing a firm producing golf tees.   FIGURE 8-5
-Refer to Figure 8-5.If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3,we can say that

Accepted Answer

A) the per unit prices of capital and labour have each doubled. 
B) the output of golf tees has doubled. 
C) the per unit prices of capital and labour have fallen by 50%. 
D) the firm's level of output has increased. 
E) the firm is producing more efficiently. 
A) the per unit prices of capital and labour have each doubled. 
B) the output of golf tees has doubled. 
C) the per unit prices of capital and labour have fallen by 50%. 
D) the firm's level of output has increased. 
E) the firm is producing more efficiently.

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 $40 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 16

FIGURE 8-4
-Refer to Figure 8-4.A firm that is producing an output of 1000 units will minimize its costs at point

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D. 
E) halfway between B and D. 
A) A. 
B) B. 
C) C. 
D) D. 
E) halfway between B and D.

Question 17

Increasing returns to scale for a firm is shown graphically by

Accepted Answer

A) a downward-sloping long-run average cost curve. 
B) an upward-sloping long-run average cost curve. 
C) a horizontal long-run average cost curve. 
D) a vertical long-run average cost curve. 
E) None of the above; returns to scale have nothing to do with the shape of the long-run average cost curve. 
A) a downward-sloping long-run average cost curve. 
B) an upward-sloping long-run average cost curve. 
C) a horizontal long-run average cost curve. 
D) a vertical long-run average cost curve. 
E) None of the above; returns to scale have nothing to do with the shape of the long-run average cost curve.

Question 18

In the long run,a profit-maximizing firm produces any given level of output by choosing the production method that

Accepted Answer

A) maximizes the marginal product of all factors. 
B) equates the marginal product of all factors. 
C) equates the average cost per unit of all factors. 
D) is associated with a flat total cost curve. 
E) produces that output at the lowest possible cost. 
A) maximizes the marginal product of all factors. 
B) equates the marginal product of all factors. 
C) equates the average cost per unit of all factors. 
D) is associated with a flat total cost curve. 
E) produces that output at the lowest possible cost.

Question 19

Which of the following statements most accurately makes the distinction between the long run and the very-long run with respect to the long-run average cost (LRAC)curve?

Accepted Answer

A) In the long run,the LRAC curve is shifting down,whereas in the very-long run the firm is moving along the existing LRAC curve. 
B) In the long run,the firm is moving along the existing LRAC curve,whereas in the very-long run,the LRAC curve is shifting down. 
C) In the long run,the LRAC curve is shifting up,whereas in the very-long run the firm is moving along the existing LRAC curve. 
D) In the long run,the firm is moving along the existing LRAC curve,whereas in the very-long run,the LRAC curve is shifting up. 
E) There is no distinction between the long run and the very-long run with respect to the LRAC curve. 
A) In the long run,the LRAC curve is shifting down,whereas in the very-long run the firm is moving along the existing LRAC curve. 
B) In the long run,the firm is moving along the existing LRAC curve,whereas in the very-long run,the LRAC curve is shifting down. 
C) In the long run,the LRAC curve is shifting up,whereas in the very-long run the firm is moving along the existing LRAC curve. 
D) In the long run,the firm is moving along the existing LRAC curve,whereas in the very-long run,the LRAC curve is shifting up. 
E) There is no distinction between the long run and the very-long run with respect to the LRAC curve.

Question 20

One hundred years ago,in North America and Europe it was commonplace for middle class households to employ housemaids.As you know,this is quite rare today.Most such households now have dishwashers,washing machines and dryers.What is an explanation of 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) Households substituted away from a factor whose price was falling (labour)and toward a factor whose price was rising (capital). 
D) Households substituted away from an increasingly expensive factor (labour)and toward an increasingly inexpensive factor (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) Households substituted away from a factor whose price was falling (labour)and toward a factor whose price was rising (capital). 
D) Households substituted away from an increasingly expensive factor (labour)and toward an increasingly inexpensive factor (capital). 
E) The marginal product of labour was falling over time while the marginal product of capital was rising.

Exam 8: Producers in the Long Run

The long-run average cost curve is an envelope curve,with each point associated with a short-run average cost curve

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

FIGURE 8-2 -Refer to Figure 8-2.In the long run,the lowest-cost level of output achievable by this firm is

In defining a firm's long-run average cost curve,

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

FIGURE 8-4 -Refer to Figure 8-4.The firm is initially producing 2000 units and minimizing its production cost at point D.Suppose the prices of capital and labour each rise by 10%.If the firm wishes to continue producing the same level of output it will

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the

Suppose that capital costs $10 per unit and labour costs $5 per unit.For a profit-maximizing firm operating at its optimal factor mix,if the marginal product of capital is 50,the marginal product of labour must be

Which of the following cost curves demonstrate increasing returns to scale?

The fact that new methods to extract oil are developed as oil prices increase suggests

"The bigger the volume,the lower the cost,and we pass these savings on to you" is a familiar advertising slogan.It implies essentially that the

The figure below shows the isocost lines facing a firm producing golf tees. FIGURE 8-5 -Refer to Figure 8-5.If the cost-minimizing firm is initially producing at a point on isocost line 1 and then moves to a point on isocost line 3,we can say that

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 25 and the MPK equals 750.In this situation,

FIGURE 8-4 -Refer to Figure 8-4.A firm that is producing an output of 1000 units will minimize its costs at point

Increasing returns to scale for a firm is shown graphically by

In the long run,a profit-maximizing firm produces any given level of output by choosing the production method that

Which of the following statements most accurately makes the distinction between the long run and the very-long run with respect to the long-run average cost (LRAC)curve?

One hundred years ago,in North America and Europe it was commonplace for middle class households to employ housemaids.As you know,this is quite rare today.Most such households now have dishwashers,washing machines and dryers.What is an explanation of this change?

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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 25 and the MP_K equals 750.In this situation,