Deck 6: Production and Costs

Question 1

Cost minimization requires that the marginal product of labor equal the marginal product of capital.

Answer 1

False

Question 2

When labor is the only variable input in the short run,average variable cost equals the wage rate times the average product of labor.

Answer 2

False

Question 3

All baskets of labor and capital capable of producing a given level of output are technologically efficient.

Answer 3

False

Question 4

In the long run there is no distinction between average cost and average variable cost.

Question 5

If marginal cost rises when output is increased,then the average cost of production is also rising.

Question 6

Average Variable Cost can always be expressed as the ratio of the price of labor to the Average Product of Labor.

Question 7

The Marginal Rate of Technical Substitution can be expressed as the ratio of the Marginal Productivities of Labor and Capital.

Question 8

Marginal and average products can be plotted in the same graph as total product costs.

Question 9

Moving down and to the right on an isoquant tells us how much quantity increases as inputs increase.

Question 10

Like a family,a firm faces a fixed level of expenditure and therefore must choose one point along a particular isocost line.

Question 11

A point on the firm's expansion path both minimizes the cost of producing a given output level and maximizes the output obtained for a given expenditure level.

Question 12

In deriving the marginal product of labor,we consider the increase in output of an additional worker using additional capital.

Question 13

The short run is any period of time less than one year,while the long run refers to a period of time one year or more in length.

Question 14

A firm seeks to product at a point where an isocost is tangent to a isoquant.

Question 15

The marginal cost curve crosses average variable cost at the bottom of the average cost U.

Question 16

Output is held fixed along an isocost.

Question 17

Inputs owned by the firm are included when calculating its costs.

Question 18

The production function describes how much output a firm can generate for various cost levels.

Question 19

All points on the expansion path have the same marginal rate of technical substitution.

Question 20

In order to compute the total cost of production when labor is the only variable,we need only need to know the quantities of labor and the current wage rate.

Question 21

Diminishing marginal returns is basically the same concept as decreasing returns to scale..

Question 22

Variable Cost of Production

The following questions refer to the following table which shows a firm's variable costs of production.



-Refer to Variable Cost of Production.If the firm actually has $20 in fixed costs,the average cost of the second unit of output is

A) $20 per unit.
B) $25 per unit.
C) $30 per unit.
D) $35 per unit.

Question 23

If all inputs are variable in the long run,then there cannot be decreasing returns to scale.But if some inputs remain fixed in the long run,then decreasing returns to scale can occur.

Question 24

Which of the following is not classified as a capital input?

A) A John Deere factory.
B) A Hewlett-Packard laser printer.
C) A cement mixer.
D) 500 shares of General Motors stock.

Question 25

The shapes of the total product and marginal product curves are related because

A) an increase in total product pulls marginal product up.
B) marginal product gives the slope of total product.
C) marginal product increases as total product increases.
D) the marginal product curve lies above the total product curve.

Question 26

Variable Cost of Production

The following questions refer to the following table which shows a firm's variable costs of production.



-Refer to Variable Cost of Production.If the total cost of producing the sixth unit of output is $190,fixed costs must be

A) $8.
B) $22.
C) $30.
D) $40.

Question 27

If the average cost curve is downward sloping,then

A) marginal cost is smaller than average cost.
B) the marginal cost curve is also downward sloping.
C) there are increasing marginal returns to labor.
D) wages and other input prices are falling.

Question 28

Which of the following is most likely to be a variable cost in the short run?

A) A fee paid to obtain a license.
B) The cost of owning machinery.
C) The energy costs of running a factory.
D) Rent payments for office space.

Question 29

If information about the total cost is not given for every possible 1 unit change in quantity,marginal cost can still be computed as

A) the price of labor divided by the quantity of labor.
B) the price of labor divided by the marginal product of labor.
C) fixed cost divided by the marginal product of labor.
D) variable cost divided by the marginal product of labor.

Question 30

Variable Cost of Production

The following questions refer to the following table which shows a firm's variable costs of production.



-Refer to Variable Cost of Production.The marginal cost of the fourth unit of output is

A) $20 per unit.
B) $30 per unit.
C) $50 per unit.
D) $80 per unit.

Question 31

If the wage and rental rates are $10 and $50 per hour respectively and an additional worker could produce 100 units of output in an hour,then an extra unit of capital could produce 500 units of output in an hour.

Question 32

If a firm can adjust its employment of all inputs,then it is

A) experiencing economies of scale.
B) in the long run.
C) off its expansion path.
D) limited only by the capacity of its fixed capital.

Question 33

The marginal product of labor is defined to be

A) the additional output attributable to the last unit of labor employed.
B) the amount of output obtained,on average,from each unit of labor employed.
C) the percentage increase in output caused by a 1% rise in labor usage.
D) the amount of capital that the firm can use to replace one unit of labor.

Question 34

If the marginal product of labor is currently 40 units per hour and the marginal product of capital is currently 20 units per hour,then workers must be getting paid twice as much as capital per hour.

Question 35

Diminishing marginal returns to labor imply that

A) fixed costs will remain constant as the firm's output increases.
B) the firm's short-run marginal cost curve will be upward sloping.
C) the firm enjoys increasing returns to scale in the long run.
D) the firm will be unable to earn short-run economic profit.

Question 36

The marginal cost curve crosses

A) only the average variable cost curve at its bottom.
B) both the average cost curve and the average variable cost curve at their bottoms.
C) only the average cost curve at its bottom.
D) the marginal product curve at its maximum.

Question 37

The association of each quantity of a variable input,like labor,to its total product is the

A) short-run production function.
B) average product of labor.
C) stage of production.
D) expansion path.

Question 38

Variable Cost of Production

The following questions refer to the following table which shows a firm's variable costs of production.



-Refer to Variable Cost of Production.For what levels of output does the firm experience diminishing marginal returns?

A) For all levels of output.
B) For the first,second,and third units of output.
C) Beyond the third unit of output.
D) For the fifth and all subsequent units of output.

Question 39

The unit isoquant represents all possible ways of producing one unit.

Question 40

In the short run,a firm's marginal cost tends to rise as more is produced because of

A) diminishing marginal returns.
B) the implicit costs of production.
C) diseconomies of scale.
D) rising input costs.

Question 41

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.The short-run average cost of producing 50 units of output per week is

A) $3 per unit.
B) $3.60 per unit.
C) $5 per unit.
D) $2.77 per unit.

Question 42

All points on the firm's expansion path

A) give the firm the maximum possible profit.
B) minimize the firm's cost of producing some level of output.
C) have the same long-run average cost.
D) make the marginal product of labor equal to the marginal product of capital.

Question 43

Marginal cost can be expressed as the ration of the price of labor and the Marginal Product of Labor

A) only when labor is held constant.
B) only when labor is the only variable input.
C) wether labor is held constant or not.
D) never.

Question 44

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.The long-run total cost of producing 60 units of output per week is

A) $180.
B) $270.
C) $300.
D) $900.

Question 45

The marginal rate of technical substitution of labor for capital (MRTS_LK)measures

A) the amount of capital that can replace a unit of labor without affecting the firm's output.
B) the additional output attributable to a 1% increase in labor and capital usage.
C) the rate at which the firm can exchange labor for capital in the input markets.
D) the slope of the firm's expansion path.

Question 46

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.In order to produce 50 units of output per week,the firm must spend at least

A) $60.
B) $120.
C) $180
D) an amount that can not be determined given the available information.

Question 47

An isoquant shows the various combinations of labor and capital that

A) the firm will choose to employ in the long run.
B) yield the same total cost.
C) can produce some fixed level of output.
D) minimize the firm's average cost of production.

Question 48

The marginal rate of technical substitution of labor for capital (MRTS_LK)tends to be higher

A) the larger the quantity of capital already employed.
B) the lower the quantity of capital already employed.
C) when a firm is choosing baskets that are technologically inefficient.
D) in the short-run compared to the long-run.

Question 49

How are a firm's short-run and long-run average cost curves related?

A) SRAC is greater than LRAC,which forces the LRAC curve to be upward sloping.
B) SRAC and LRAC slope up or down together,but SRAC is always the steeper of the two curves.
C) The SRAC curve is tangent to and lies above the LRAC curve.
D) The LRAC curve just touches the SRAC curve at its minimum point.

Question 50

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.The short-run average cost of producing 60 units of output per week is

A) $3 per unit.
B) $4.50 per unit.
C) $5 per unit.
D) $9 per unit.

Question 51

If the wage rate is $10 per hour and the rental rate is $5 per hour,then the vertical intercept of the isocost line

A) is $2.
B) is 50 cents.
C) is $5.
D) can not be determined without more information.

Question 52

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.The short-run total cost of producing 50 units of output per week is $180,but the long-run total cost is

A) $180.
B) $270.
C) $300.
D) $900.

Question 53

The set of tangencies between isoquants and isocosts is the firm's

A) production function.
B) returns to scale.
C) output maximization curve.
D) expansion path.

Question 54

When input prices are fixed,decreasing returns to scale implies that the long-run average cost curve is

A) downward sloping.
B) horizontal.
C) upward sloping.
D) U-shaped.

Question 55

A firm is currently producing 200 units of output using 60 hours of labor and 80 hours of capital.The marginal product of labor is 12 units of output per hour,and the marginal product of capital is 15 units of output per hour.If the wage rate is $6 per hour and the rental rate is $3 per hour,then

A) the firm's use of labor and capital is cost-efficient.
B) the firm should use more labor and less capital.
C) the firm should use more capital and less labor.
D) we cannot determine if the firm's use of inputs is efficient without more information.

Question 56

Cost of Production

The following questions refer to the diagram below. The wage rate is assumed to be $12 per hour, the rental rate is assumed to be $6 per hour, and capital is assumed to be fixed in the short run at 10 hours.




-Refer to Cost of Production.By comparing the two points on the expansion path,we can conclude that this technology exhibits

A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) zero returns to scale.

Question 57

The MRTS is currently -2.The wage rate is $15 per hour and the rental rate is $30 per hour.It follows that

A) the marginal product of capital is twice that of labor.
B) the marginal product of labor is twice that of capital.
C) the marginal product of capital is equal to that of labor.
D) no statement about marginal productivity can be made without more information.

Question 58

If the marginal rate of technical substitution of labor for capital (MRTS_LK)exceeds the relative price of labor in terms of capital (P_L/P_K),then

A) the firm's long-run average cost curve is rising.
B) the firm is producing its output at the least possible cost,but the firm should reduce its output level to increase its profits.
C) the firm has increased its output level beyond the point of diminishing marginal returns.
D) the firm needs to use less capital and more labor to reach its expansion path.

Question 59

Suppose a firm doubles its employment of all inputs in the long run.If this action more than doubles the amount of output produced,then this firm is experiencing

A) increasing returns to scale.
B) diminishing marginal returns.
C) technological progress.
D) positive marginal revenue.

Question 60

The set of all baskets of inputs that can be employed at a given cost defines a(n)

A) isoquant curve.
B) isocost curve.
C) expansion path.
D) production function exhibiting constant returns to scale.

Question 61

How is the marginal product of labor calculated? As the firm increases its output,what pattern will we observe in the marginal product of labor and why does it occur?

Question 62

The manager of a firm receives an engineering report claiming that an additional hour of capital would add twice as much output as would an additional hour of labor.According to the firm's accountants,an hour of capital costs 3 times more than an hour of labor.

Question 63

Consider the following:

Question 64

Explain why a firm's long-run total cost is no greater than its short-run total cost.Under what circumstances will the two be equal?

Question 65

Consider the following:

Question 66

A firm has the production function q = .The MSTS_LK = K/L.The wage rate is $10 per unit of labor and the rental rate is $5 per unit of capital and the firm is going to spend $1000 on production.

Question 67

Suppose labor is a variable input and capital is a fixed input,and consider a firm's short-run average,average variable,and marginal cost curves.