Question 1

The different points on a cost curve represent alternative production possibilities in the same time period.

Accepted Answer

A) True 
 B)False

Question 2

An airline industry study recently reported, "Evidence is abundant that larger firms are not more efficient or less costly simply because they are larger.In fact, other things equal, the largest carriers tend to have a higher level of unit costs, possibly caused by the difficulties of managing an airline of large size." This means that

Accepted Answer

A) there are increasing returns to scale in the airline industry. 
B) the airline industry has constant returns to scale. 
C) the larger airlines are not profitable. 
D) airlines are experiencing decreasing returns to scale.

Question 3

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

Accepted Answer

A) True 
 B)False

Question 4

If the price of one input changes, generally the firm will change its use of both inputs.

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

The marginal physical product of an input is the

Accepted Answer

A) addition to output from using one more unit of an input. 
B) extra amount of an input needed to produce one additional unit of output. 
C) change in average physical product, given a change in the quantity of an input. 
D) slope of the production indifference curve for an output made using the input.

Question 7

In most businesses there is only one way to produce output.

Accepted Answer

A) True 
 B)False

Question 8

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

Accepted Answer

The answer of Graph typical total, average, and marginal cost...

Question 9

Figure 7-11
 
-Figure 7-11 shows an average cost curve with points on it that correspond to three quantity levels.Which of the following statements must be wrong?

Accepted Answer

A) The firm's technology may show increasing marginal returns as production increases from A to B. 
B) The firm may have positive fixed costs. 
C) As production expands from A to B to C, the firm may become increasingly difficult to manage efficiently. 
D) The firm's average fixed cost may rise as production increases from B to C.

Question 10

Marginal cost

Accepted Answer

A) is the increase in total cost resulting from production of one additional unit of output. 
B) is the cost of the marginal unit of output. 
C) and the average cost curve are U-shaped. 
D) All of the above are correct.

Question 11

Production costs for a given output will be minimized when the

Accepted Answer

A) budget line and the product indifference curve meet in the vertical axis. 
B) budget line crosses the product indifference curve. 
C) budget line begins to bend back on itself. 
D) product indifference curve and the budget line are tangent.

Question 12

Total physical product is maximized if marginal physical product is zero.

Accepted Answer

A) True 
 B)False

Question 13

The least costly combination of inputs is influenced by the relative prices of inputs.

Accepted Answer

A) True 
 B)False

Question 14

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 15

A rise in the price of an input can be expected to lead to a rise in its marginal physical product.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

-The production relationship in Table 7-4 indicates a process characterized by

Accepted Answer

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

Question 18

Where marginal cost is less than average cost,

Accepted Answer

A) opportunity cost must have been excluded from the calculation of marginal cost. 
B) marginal cost must be falling. 
C) marginal cost must be rising. 
D) marginal cost may be rising, falling, or constant.

Question 19

On Naomi's pig farm, Naomi hires all the labor used, grows all the grain fed to the pigs, and owns the barn.The costs used to calculate the total cost curve include

Accepted Answer

A) only the cost of labor. 
B) only the cost of labor and the cost of grain, which is completely consumed in the period in which it is grown. 
C) only the variable cost of growing grain. 
D) the cost of labor, the cost of growing grain, and the opportunity cost of the barn.

Question 20

The major incentive for cost minimization is the

Accepted Answer

A) power of shareholders in the company. 
B) fear of top management by workers. 
C) discipline imposed by the market system. 
D) impact on U.S.corporations of taxing by the government.

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

The different points on a cost curve represent alternative production possibilities in the same time period.

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

If the price of one input changes, generally the firm will change its use of both inputs.

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.

The marginal physical product of an input is the

In most businesses there is only one way to produce output.

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

Figure 7-11 -Figure 7-11 shows an average cost curve with points on it that correspond to three quantity levels.Which of the following statements must be wrong?

Marginal cost

Production costs for a given output will be minimized when the

Total physical product is maximized if marginal physical product is zero.

The least costly combination of inputs is influenced by the relative prices of inputs.

Economies of scale

A rise in the price of an input can be expected to lead to a rise in its marginal physical product.

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

-The production relationship in Table 7-4 indicates a process characterized by

Where marginal cost is less than average cost,

On Naomi's pig farm, Naomi hires all the labor used, grows all the grain fed to the pigs, and owns the barn.The costs used to calculate the total cost curve include

The major incentive for cost minimization is the