Deck 8: Producers in the Long Run

Question 1

By expressing the cost-minimizing condition as MPK/MPL = PK/PL,we are able to see

A)how the firm determines its profit-maximizing output.
B)how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market.
C)that the capital-labour ratio is fixed.
D)that the ratio of factor prices is constant over time.
E)that the firm is producing at a lower cost if the left-hand side of the equation is greater than the right-hand side.

Answer 1

how the firm can adjust the marginal products of the factors of production to the prices of the factors given by the market.

Question 2

When a firm seeks to minimize costs of producing a given level of output,it does NOT need to know

A)the available alternative methods of production.
B)the level of output that maximizes its profits.
C)the cost of the factors of production it uses.
D)its production function.
E)how its costs change as its production methods change.

Answer 2

the level of output that maximizes its profits.

Question 3

When a cost-minimizing firm is faced with an increase in the relative price of labour,it adjusts its factor usage so as to

A)increase the marginal product of capital relative to the marginal product of labour.
B)increase the marginal product of labour relative to the marginal product of capital.
C)use more labour per unit of output than before.
D)use more of both capital and labour per unit of output.
E)maintain the previous usage of labour.

Answer 3

increase the marginal product of labour relative to the marginal product of capital.

Question 4

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

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 5

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

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

Question 6

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. 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?

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

Question 7

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. TABLE 8-1
Refer to Table 8-1.Which production technique is obviously technically inefficient?

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

Question 8

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

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 9

Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $10 per unit and the price of capital is $5 per unit.The MPL equals 2 and the MPK equals 5.In this situation,

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 10

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

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 11

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

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 12

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. 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?

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

Question 13

The table below shows the number of units of labour and capital used in 4 alternative production techniques for producing 1000 widgets per month. 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?

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

Question 14

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

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

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 $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)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

The principle of substitution plays a central role in resource allocation because it demonstrates that

A)firms will find it profitable to make abundant use of relatively scarce factors.
B)methods of producing the same commodity will not differ from one country to another.
C)firms can use all factors of production interchangeably with no impact on their costs.
D)prices will be relatively low for those factors for which demand is high relative to supply.
E)relative factor prices reflect relative scarcities of factors in the economy and so firms will find it profitable to make abundant use of relatively abundant factors.

Question 17

Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day.The price of labour is $5 per unit and the price of capital is $2 per unit.The MPL equals 5 and the MPK equals 2.In this situation,the firm

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

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 $40 per unit and the price of capital is $1000 per unit.The MPL equals 25 and the MPK equals 750.In this situation,

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 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

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 20

Suppose a firm is employing labour (L)and capital (K)such that MPK/MPL = PK/PL.If the price of labour rises,the cost-minimizing firm should then

A)employ more labour and less capital because MPK/MPL > PK/PL.
B)employ more capital and less labour because MPK/MPL > PK/PL.
C)employ more labour and less capital because MPK/MPL < PK/PL.
D)employ more capital and less labour because MPK/MPL < PK/PL.
E)do nothing.

Question 21

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?

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 22

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.As this firm switches from production method A to production method G,production is

A)moving farther and farther away from cost minimization.
B)becoming more capital intensive and less labour intensive.
C)becoming more profitable.
D)becoming more labour intensive and less capital intensive.
E)remaining at a cost-minimizing level of output.

Question 23

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.

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 24

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

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 25

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,

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 26

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

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 27

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,

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 28

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

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)not alter its present factor mix.

Question 29

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

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

Question 30

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 the firm is employing production method G.How should this firm adjust its use of capital and labour in order to minimize costs?

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

Question 31

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,

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 32

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

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 33

Suppose that capital costs $50 per unit and labour costs $20 per unit.If the marginal product of capital is 100 and the marginal product of labour is 30,a cost-minimizing firm should

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 34

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?

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

Question 35

Suppose that capital costs $8 per unit and labour costs $4 per unit.For a profit - maximizing firm operating at its optimal factor mix,if the marginal product of capital is 60,the marginal product of labour must be

A)10.
B)20.
C)30.
D)90.
E)120.

Question 36

If a firm is using labour and capital such that the MP of labour is two times the MP of capital,and the price of labour is four times the price of capital,the firm should ________ in order to minimize its costs of producing its output.

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)not alter its present factor mix

Question 37

Suppose that capital costs $100 per unit and labour costs $40 per unit.If the marginal product of capital is 200 and the marginal product of labour is 60,a cost-minimizing firm should

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

Question 38

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.

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 39

Suppose capital costs $2000 per unit and labour costs $50 per unit.For a profit - maximizing firm operating at its optimal factor mix,if the marginal product of labour is 10,the marginal product of capital must be

A)40.
B)50.
C)100.
D)400.
E)500.

Question 40

Suppose capital costs $280 per unit and labour costs $16 per unit.For a profit - maximizing firm operating at its optimal factor mix,if the marginal product of capital is 70,the marginal product of labour must be

A)4.
B)6.
C)8.
D)12.
E)16.

Question 41

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

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 42

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

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 43

Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour.By doubling both inputs the result is a doubling of output.This firm is experiencing

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

Question 44

A firmʹs long-run average cost curve

A)shows the minimum cost of producing each possible level of output with a fixed factor.
B)shows the relationship between marginal cost and output given that the economically most efficient method of production is employed.
C)is the boundary between attainable and unattainable cost levels,with known production technologies and given factor prices.
D)is horizontal in most situations.
E)is an envelope of short-run average variable cost curves.

Question 45

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?

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.

Question 46

Canada has a much lower population density than does Japan.Therefore,the price of land (relative to the price of labour)is lower in Canada than in Japan.Consider a Canadian firm and a Japanese firm,both producing rice,both having access to the same technologies,and both striving to minimize costs.Now suppose that the relative price of land rises in Canada but remains the same in Japan.The effect on the use of inputs will be to

A)increase the land/labour ratio for both the Canadian and the Japanese firms.
B)decrease the land/labour ratio for both the Canadian and the Japanese firms.
C)increase the land/labour ratio for the Canadian firm.
D)decrease the land/labour ratio for the Canadian firm.
E)not change the land/labour ratio for either firm.

Question 47

Suppose a firm experiences decreasing returns to scale.This is shown graphically by

A)a downward-sloping long-run average cost curve.
B)an upward-sloping long-run average cost curve.
C)a downward-sloping long-run marginal-cost curve.
D)a horizontal long-run average cost curve.
E)an increasing marginal product curve.

Question 48

Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour.Now both inputs are doubled,resulting in output rising to 18 units per hour.The firm is experiencing

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

Question 49

In defining a firmʹs long-run average cost curve,

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 50

What is meant by the term ʺincreasing returns to scaleʺ?

A)output rises proportionately less than inputs,increasing per unit cost of production in the short run
B)output rises proportionately more than inputs,resulting in increasing per unit costs
C)output rises proportionately more than inputs,resulting in lower per unit costs in the long run
D)it has the same meaning as increasing costs of production
E)it implies that the long-run average cost curve is shifting downward

Question 51

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 $80 per unit and labour costs $24 per unit.Which production method minimizes the cost of producing 1000 toys per day.

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

Question 52

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

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

Question 53

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?

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 54

Consider a firm in the long run that is trying to maximize its profits.It should

A)select the most technically efficient method of production regardless of the level of production.
B)maximize the marginal product of all factors of production.
C)charge the highest price.
D)minimize the cost of producing whatever level of output it chooses.
E)charge the lowest price possible given the minimum possible cost.

Question 55

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

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

Question 56

The long-run average cost (LRAC)curve shows

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 57

Increasing returns to scale for a firm is shown graphically by

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 58

In the long run,the law of diminishing marginal returns

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 59

Canada has a much lower population density than does Japan.Therefore,the price of land (relative to the price of labour)is lower in Canada than in Japan.Consider a Canadian firm and a Japanese firm,both producing rice,both having access to the same technologies,and both striving to minimize their costs.The Canadian firm will use the two inputs,land and labour,in such a way that its land/labour ratio is

A)equal to that of the Japanese firm.
B)lower than that of the Japanese firm.
C)higher than that of the Japanese firm.
D)equal to one.
E)indeterminate as there is insufficient information to know.

Question 60

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

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

Question 61

Suppose a shipping company employs 2000 workers,operates 400 delivery trucks and makes 1.5 million domestic shipments in one year.The next year they increase their workforce to 3000 workers,operate 600 trucks and make 2.8 million domestic shipments in one year.This firm is exhibiting returns to scale.

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

Question 62

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

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 63

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

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 64

For many firms the LRAC curve is U-shaped.The downward-sloping portion of the LRAC curve can be explained by

A)economies of scale.
B)the spreading of overhead.
C)both A and B.
D)declining prices of the fixed factor.
E)decreasing short-run marginal cost.

Question 65

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.What is the difference between the SRATC curves and the LRAC curve?

A)The SRATC curves show the optimal plant size when all factors of production are variable,whereas the LRAC shows the lowest cost attainable associated with each LRAC curve.
B)The SRATC curves show the lowest attainable cost of production at each level of output when all factors are variable in the short run,whereas the LRAC curve shows the same in the long run.
C)The LRAC is an envelope curve,joining the minimum points on all SRATC curves.
D)For the SRATC curves,one or more of the factors of production is fixed,whereas for the LRAC curve,all factors of production are variable.
E)The SRATC curves show diseconomies of scales,whereas the LRAC curve shows economies of scale.

Question 66

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.

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

Question 67

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

A)What should be the size and design of a firmʹs 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 68

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 240 000 bushels of crop.This firm (the farmer)is exhibiting ________ returns to scale.

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

Question 69

A short-run average total cost curve and a long-run average cost curve are tangent

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

Question 70

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

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.

Question 71

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

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 72

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

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 73

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

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 74

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.Each of the three SRATC curves shows

A)technically inefficient methods of production,given that they lie above the LRAC.
B)the lowest cost attainable,given that the plant size is the largest it can possibly be.
C)the output that is possible when all factors of production are fixed.
D)the lowest cost attainable,holding the plant size constant.
E)optimal plant sizes in the long run.

Question 75

The point of tangency between the short-run average total cost (SRATC)curve and the long-run average cost (LRAC)curve occurs

A)at the point of minimum SRATC.
B)at a point where average total cost is falling but the marginal cost is rising.
C)at a point where both the average total cost and the marginal cost are rising.
D)at an output level for which the quantity of the fixed factor is optimal.
E)only when the LRAC curve is at its minimum.

Question 76

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.

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

Question 77

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

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 78

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

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

Question 79

Consider the short-run and long-run cost curves for a firm.If factor prices decrease,

A)the firm will move down along both its long-run and short-run average cost curves.
B)the firm will move down along its long-run average cost curve only.
C)both the long-run and short-run average cost curves will shift downward.
D)there will be a downward shift in the long-run average cost curve but not in the short-run average cost curve.
E)there will be no change in the cost curves in the long run.

Question 80

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.The minimum efficient scale is achieved by this firm at output level

A)Q1.
B)Q2.
C)Q3.
D)Q4.
E)Q5.