Question 1

The average total cost curve of a firm is U shaped but the average variable cost is not.

Accepted Answer

A) True 
 B)False

Question 2

Economies of scale

Accepted Answer

A) require inputs' MPP to fall as output increases (everything else equal). 
B) pertain to the long run only. 
C) refer to increased output generalized by an increase in the quantity of a single input. 
D) imply that the AC curve will fall continuously as output increases in the short run.

Question 3

Which of the following will not lead to increase in the marginal revenue product?

Accepted Answer

A) MPP increases without any changes in the price. 
B) Price of the product increases without any changes in MPP. 
C) MPP and price of the product increase. 
D) MPP remains the same and price of the product falls.

Question 4

The long-run average cost curve shows the lowest possible average cost for each output level, given that all inputs are variable.

Accepted Answer

A) True 
 B)False

Question 5

Figure 7-13

Figure 7-13 shows the average total cost curves of four firms that produce milk. Some of the dairies are more productive. AR = P is the long-run price of milk. How many of these dairies will remain in the industry in the long run?

Accepted Answer

A) All of them 
B) Only 2 
C) Only 3 
D) Cannot determine with information given

Question 6

Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?

Accepted Answer

A) Increase the number of lumberjacks with chain saws and observe the change in output of cut trees 
B) Increase the number of workers on an assembly line and record the change in output 
C) Increase the number of data entry operators and computers and calculate the extra output. 
D) Check the number of workers before and after a given time period.

Question 7

Where should a producer stop devoting more of his spending on labor if initially the MRP of the additional dollar spent on labor is higher than the MRP of the additional unit spent on tools?

Accepted Answer

A) MRP\$ of additional labor falls below MRP\$ of additional tools. 
B) MRP\$ of additional capital increases above MRP\$ of additional tools. 
C) MRP\$ of additional labor becomes equal to MRP\$ of additional tools. 
D) MRP\$ of the additional labor falls to zero.

Question 8

Economies of scale lead to declining long-run average cost curves.

Accepted Answer

A) True 
 B)False

Question 9

One reason why critics argue that large firms should not be broken up is that in some cases

Accepted Answer

A) large firms have a concentration of economic power. 
B) large firms are less-efficient producers. 
C) many smaller firms would be less-efficient producers. 
D) there is no economic reason to break up large firms that may have some control over the market.

Question 10

A change in input prices will change the location of the firm's budget line.

Accepted Answer

A) True 
 B)False

Question 11

If the firm's marginal physical product is 8, and its handicrafts sell for $70, when a unit of labor costs $150, the firm is operating

Accepted Answer

A) short of an optimal input point. 
B) at the optimum input point. 
C) beyond the optimum input point. 
D) There isn't enough information to determine if the input point is optimal.

Question 12

Peter Piper picks a peck of pickled peppers using 10 units of labor and two pepper-picking machines. The last worker hired picked 100 peppers, and the last machine added 1,000 peppers. If labor can be hired at $5 a pepper picker and machines cost $5,000, what advice do you have for Peter Piper?

Accepted Answer

The answer of Peter Piper picks a peck of pickled...

Question 13

Firms should use a resource up to a point where MRP = P.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is most likely to be a variable cost for an airline?

Accepted Answer

A) Insurance 
B) Property taxes 
C) Jet fuel 
D) The lease payment on the building where the airline's headquarters are located.

Question 15

The "law" of diminishing returns rests on the "law" of variable input proportions.

Accepted Answer

A) True 
 B)False

Question 16

When economies of scale exist,

Accepted Answer

A) production costs per unit increase as output expands. 
B) production costs per unit decline as output expands. 
C) total production costs decrease. 
D) total production costs increase.

Question 17

The United Auto Workers union is largely responsible for the historically high pay of American auto workers by negotiating pay raises above those obtained by workers in other industries. In addition to increasing the pay of auto workers, what other long-run effect would this high pay have on the use of auto workers?

Accepted Answer

The answer of The United Auto Workers union is largely...

Question 18

If a firm increases inputs by 15 percent and output increases by 12.5 percent, the firm is experiencing

Accepted Answer

A) increasing returns to scale. 
B) decreasing returns to scale. 
C) constant returns to scale. 
D) increasing costs per unit of output.

Question 19

If in some range of production, average cost is falling, the firm is experiencing

Accepted Answer

A) increasing returns to scale. 
B) decreasing returns to scale. 
C) constant returns to scale. 
D) increasing costs per unit of output.

Question 20

The least costly way to produce a given level of output is indicated by the point of tangency between a budget line and the production indifference curve corresponding to that level of output.

Accepted Answer

A) True 
 B)False

Exam 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis

The average total cost curve of a firm is U shaped but the average variable cost is not.

Economies of scale

Which of the following will not lead to increase in the marginal revenue product?

The long-run average cost curve shows the lowest possible average cost for each output level, given that all inputs are variable.

Figure 7-13 Figure 7-13 shows the average total cost curves of four firms that produce milk. Some of the dairies are more productive. AR = P is the long-run price of milk. How many of these dairies will remain in the industry in the long run?

Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?

Where should a producer stop devoting more of his spending on labor if initially the MRP of the additional dollar spent on labor is higher than the MRP of the additional unit spent on tools?

Economies of scale lead to declining long-run average cost curves.

One reason why critics argue that large firms should not be broken up is that in some cases

A change in input prices will change the location of the firm's budget line.

If the firm's marginal physical product is 8, and its handicrafts sell for $70, when a unit of labor costs $150, the firm is operating

Peter Piper picks a peck of pickled peppers using 10 units of labor and two pepper-picking machines. The last worker hired picked 100 peppers, and the last machine added 1,000 peppers. If labor can be hired at $5 a pepper picker and machines cost $5,000, what advice do you have for Peter Piper?

Firms should use a resource up to a point where MRP = P.

Which of the following is most likely to be a variable cost for an airline?

The "law" of diminishing returns rests on the "law" of variable input proportions.

When economies of scale exist,

If a firm increases inputs by 15 percent and output increases by 12.5 percent, the firm is experiencing

If in some range of production, average cost is falling, the firm is experiencing

The least costly way to produce a given level of output is indicated by the point of tangency between a budget line and the production indifference curve corresponding to that level of output.