Deck 19: Producer Theory With Isoquants

Question 1

Exhibit 8A-1
Refer to Exhibit 8A-1. At point C, output is

A) higher than at point A but lower than at point B.
B) lower than at point A but higher than at point B.
C) the same as at points A and B, but the cost is lower than at point A.
D) the same as at points A and B, but the cost is higher than at point A.
E) the same as at points A and B, and the costs for the three points are the same as well.

Answer 1

the same as at points A and B, but the cost is lower than at point A.

Question 2

An isoquant is a line that

A) illustrates firm demand for an input.
B) shows different combinations of two goods that yield the same utility.
C) shows different combinations of two inputs that yield the same output.
D) shows a firm's preferences.
E) shows different combinations of two inputs that cost the same.

Answer 2

shows different combinations of two inputs that yield the same output.

Question 3

A line that illustrates all the different combinations of two inputs that result in the same total cost is called a(n)

A) average total cost curve.
B) isocost line.
C) total cost line.
D) budget line.
E) isoquant.

Answer 3

isocost line.

Question 4

A firm can minimize the total costs of producing a given output level at the point of tangency between an isoquant and the isocost line.

Question 5

If a profit-maximizing firm is producing at the tangency between an isoquant and an isocost line, then a movement along the current isocost line

A) decreases total cost.
B) increases total cost.
C) decreases output.
D) increases output.
E) keeps output constant.

Question 6

The slope of an isoquant depends on the ratio of

A) the output prices.
B) the input prices.
C) the marginal products of inputs.
D) an input price over an output price.
E) total profits over total costs.

Question 7

Suppose the wage rate is $20 and the price of capital is $100. Graph the isocost line for a firm with a total cost of $400. What happens to the isocost line if the price of capital goes up to $200? Graph this isocost line, assuming that the firm maintains a total cost of $400. What happens to production in this case?

Question 8

Exhibit 8A-1
Refer to Exhibit 8A-1. A cost-minimizing firm would prefer producing at point C to producing at

A) point D because point C represents a lower cost.
B) point A because point C represents the same output at a lower cost.
C) point B because point C represents the same output at a higher cost.
D) point B because point C represents higher output at the same cost.
E) point B because point C represents higher output with a lower cost.

Question 9

The slope of an isoquant is called the

A) rate of change.
B) input price ratio.
C) rate of technical substitution.
D) substitution ratio.
E) price-cost margin.

Question 10

Sketch a typical isocost line and isoquant where a firm is minimizing total cost for a given quantity of output. Suppose the price of labor rises and the price of capital doesn't change. What does the firm do to maintain the original level of output? How does its input use change?

Question 11

We are looking at a graph with capital on the vertical axis and labor on the horizontal axis. If the price of labor increases, then the

A) isocost line becomes steeper.
B) isoquants become steeper.
C) isoquants become flatter.
D) isocost line becomes flatter.
E) isocost line and isoquants become flatter.

Question 12

An isocost line has a

A) positive slope because the two inputs can replace each other in production.
B) negative slope because the two inputs can replace each other in production.
C) negative slope because the two inputs are complementary to each other in production.
D) positive slope because the two inputs are complementary to each other in production.
E) slope equal to zero because the two inputs are basically identical.

Question 13

The combination of two inputs that results in a given quantity of output at least cost occurs where

A) an isocost line is tangent to the relevant isoquant.
B) average total cost is at its minimum.
C) long-run average total cost is at its minimum.
D) an isoquant reaches its minimum.
E) an isoquant is at its steepest.

Question 14

Explain the similarities and differences between consumer choice theory and producer theory. More specifically, explain how a budget line and indifference curve are related to an isocost line and isoquant, and explain the importance of the tangency point.

Question 15

In a given isocost line, any combination of different inputs results in the same total cost.

Question 16

An isoquant indicates different combinations of outputs that can be used to yield the same amount of profits.

Question 17

The slope of an isocost line depends on the ratio of

A) the output prices.
B) the input prices.
C) an output price over an input price.
D) an input price over an output price.
E) total profits over total costs.

Question 18

The slope of an isocost line is constant.

Question 19

A firm that maximizes output for a specific total cost is producing at the point where the isocost line is above the highest isoquant.