Deck 8: Producers in the Long Run

Question 1

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,

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.

Answer 1

the firm could lower its production costs by decreasing labour input and increasing capital input.

Question 2

By expressing the cost-minimizing condition as MP_K/MP_L = P_K/P_L,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 2

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

Question 3

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 MP_L equals 5 and the MP_K 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.

Answer 3

is minimizing its costs.

Question 4

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 5

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,

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 6

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 7

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 8

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 9

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

A)P_K ∙ MP_K = P_L ∙ MP_L
B)MP_L = MP_K
C)MP_K/P_K = MP_L/P_L
D)MP_K/P_L = MP_L/P_K
E)P_K = P_L

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

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 12

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.

Question 13

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 14

For a firm with only two inputs,capital and labour,the condition MP_K/MP_L = P_K/P_L 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 15

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

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 16

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.

Question 17

Suppose a firm is employing labour (L)and capital (K)such that MP_K/MP_L = P_K/P_L.If the price of labour rises,the cost-minimizing firm should then

A)employ more labour and less capital because MP_K/MP_L > P_K/P_L.
B)employ more capital and less labour because MP_K/MP_L > P_K/P_L.
C)employ more labour and less capital because MP_K/MP_L < P_K/P_L.
D)employ more capital and less labour because MP_K/MP_L < P_K/P_L.
E)do nothing.

Question 18

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 MP_L equals 2 and the MP_K 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 19

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 20

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 21

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 24 and the MP_K 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 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 $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 25

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 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 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 28

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 29

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 30

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 31

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 32

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,

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 33

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 34

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,

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 35

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 36

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 37

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 38

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 39

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 40

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 41

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 42

In defining a firm's 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 43

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 44

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 45

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 46

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 47

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 48

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 49

A firm's 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 50

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 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

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 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

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 55

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 56

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 57

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 58

What is meant by the term "increasing returns to scale"?

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 59

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 60

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 61

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

A)0 to Q₁ only.
B)Q₁ to Q₂ only.
C)Q₂ to Q₃ only.
D)0 to Q_{3 only}.
E)beyond Q_{3 only}.

Question 62

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 63

Consider the long-run average cost curve for a firm.Any point representing a cost and output combination that is below the LRAC curve

A)may represent actual cost and production levels in the short run.
B)represents less efficient cost levels than points on the long-run average cost curve.
C)is attainable only when all factors are variable.
D)represents unattainable cost levels,given current technologies.
E)is attainable if the firm minimizes its costs according to the "principle of substitution."

Question 64

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

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 65

FIGURE 8-1
Refer to Figure 8-1.For which of the four firms would the family of short-run average total cost curves lie below the LRAC?

A)Firm A
B)Firm B
C)Firm C
D)Firm D
E)none of the four firms

Question 66

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 67

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 68

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

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 69

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

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

Question 70

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 71

FIGURE 8-1
Refer to Figure 8-1.For which of the four firms is output increasing less than in proportion to inputs for all output levels?

A)Firm A
B)Firm B
C)Firm C
D)Firm D
E)none of the four firms

Question 72

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 73

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

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 74

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 75

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

A)Firm A
B)Firm B
C)Firm C
D)Firm D
E)none of the four firms is displaying constant returns to scale

Question 76

"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

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 77

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 78

FIGURE 8-1
Refer to Figure 8-1.For which of the four firms in the figure is output increasing more than in proportion to inputs for all output levels?

A)Firm A
B)Firm B
C)Firm C
D)Firm D
E)none of the four firms

Question 79

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 80

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?

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