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

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

The "law" of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input is increased.

Answer 3

True

Question 4

Marginal revenue product is the effect of a one-unit increase in an input on the cost of production.

Question 5

Average physical product measures the output per unit of input.

Question 6

The long run is a period long enough so that one of the firm's commitments ends.

Question 7

For most firms, the short run is a one-year period.

Question 8

In the long run, more costs become fixed

Question 9

In the short run, the firm has no more than one fixed input.

Question 10

In the short run the firm has at least one fixed input.

Question 11

The short run is that period during which there are no fixed commitments.

Question 12

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

Question 13

Total physical product shows what happens to the quantity of a firm's output when that firm changes the quantity of an input in the production process.

Question 14

Fixed cost increases when output rises.

Question 15

In the short run, a firm has fixed costs but never any variable costs.

Question 16

Variable costs increase when output rises.

Question 17

Total physical product is the quantity of a firm's output based upon a given input usage.

Question 18

The "law" of diminishing returns is what happens to marginal returns as all inputs are varied.

Question 19

Marginal physical product measures the increase in total output that results from a one-unit increase in an input.

Question 20

Average physical product measures the increase in total output that results from a one-unit increase in an input.

Question 21

If MPP _a \P _a = MPP _b \P _b , then the firm should increase the usage of both input a and input b.

Question 22

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

Question 23

If the price of one input changes, the firm will change its use of that input only.

Question 24

Most firms have very little flexibility in their choice of input proportions.

Question 25

If MPP _a \P _a > MPP _b \P _b , then the proportions of these two inputs is optimal.

Question 26

A firm will tend to select the least costly input combination to produce its output.

Question 27

The rule that states that the marginal revenue product equal to price does not hold when there are more than two inputs.

Question 28

Input choices in the present are often affected by past decisions.

Question 29

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Question 30

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

Question 31

Production technology determines the relationship of total cost to outputs.

Question 32

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

Question 33

If MRP > P, a firm should use less of that input.

Question 34

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

Question 35

If a firm is using optimal input proportions, it is minimizing its costs.

Question 36

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

Question 37

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Question 38

If diminishing marginal returns are present for an input, then the marginal revenue product will be decreasing.

Question 39

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

Question 40

Input proportions are usually fixed by technological conditions alone.

Question 41

The firm's average cost curve is the result of cost minimization in the use of fixed inputs.

Question 42

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Question 43

The marginal cost curve shows the per-unit cost associated with various levels of output.

Question 44

Economies of scale are also called increasing returns to scale.

Question 45

The average total cost curve of a firm is U shaped.

Question 46

The average cost curve shows the total cost divided by quantity produced for various levels of output.

Question 47

Total variable costs will initially increase and then begin to decrease as output increases.

Question 48

A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.

Question 49

Cost curves in the long run differ from cost curves in the short run.

Question 50

Total fixed cost falls as output expands.

Question 51

For most firms, average total costs will decrease initially due to decreasing marginal physical product for the inputs used in the production process

Question 52

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Question 53

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

Question 54

The principal determinants of total and average cost curves are the firm's technology and the prices of its inputs.

Question 55

Marginal fixed costs decrease as output increases.

Question 56

For most industries, average costs decrease indefinitely as output expands.

Question 57

The average fixed cost curve increases as output increases.

Question 58

Variable cost changes as the time period under consideration changes.

Question 59

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

Question 60

The average total cost curve is U shaped in the short run but this is not true for the average total cost curve for the long run.

Question 61

A production indifference curve describes the input combinations that will produce a given output.

Question 62

A change in one input price will cause the slope of the firm's budget line to change.

Question 63

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

Question 64

If production indifference curves cross, this indicates that there are different ways to produce the same output level.

Question 65

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

Question 66

A production indifference curve shows all combinations of input quantities capable of producing a given quantity of output.

Question 67

Production indifference curves generally have a positive slope.

Question 68

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

Question 69

Production indifference curves show the combination of inputs that produce a given output.

Question 70

A change in input prices has no impact on a firm's budget line.

Question 71

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

Question 72

Higher production indifference curves correspond to larger amounts of one input in relation to a second input.

Question 73

Decreasing returns to scale is strictly a short run phenomenon for firms.

Question 74

The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.

Question 75

Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.

Question 76

Diminishing marginal returns explains why a firm's long-run average total cost curve is U shaped.

Question 77

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

Question 78

The law of diminishing marginal returns is the same as increasing returns to scale.

Question 79

A firm's budget line shows a given expenditure on production, given the input prices for the production process.

Question 80

A production indifference curve is sometimes called "isoquants" since the term implies equal quantities of output.