question

In a typical production function, the relevant factors of production are land, labor, capital, and?

I

A. raw materials.

B. technology.

C. entrepreneurship.

D. resources.

I

A. raw materials.

B. technology.

C. entrepreneurship.

D. resources.

answer

C. entrepreneurship.

question

In a value added production function like the one used in the text, raw materials are

answer

B. called intermediate goods.

question

Which is true?

A. Production functions consider only the value added part of a particular production process.

B. Production functions are as subjective as utility functions.

C. Production functions count raw materials, but not labor, as inputs into the production

process.

D. Production functions do not count technology into the production process.

A. Production functions consider only the value added part of a particular production process.

B. Production functions are as subjective as utility functions.

C. Production functions count raw materials, but not labor, as inputs into the production

process.

D. Production functions do not count technology into the production process.

answer

A. Production functions consider only the value added part of a particular production process.

question

If a chef and her equipment transform $50 worth of raw foodstuff into a meal with a total value

of $150, the resulting output would be

of $150, the resulting output would be

answer

C. measured as the $100 of value added.

question

In the long run

A. all inputs are fixed.

B. only capital inputs are fixed.

C. all intermediate goods are fixed.

D. all inputs are variable.

A. all inputs are fixed.

B. only capital inputs are fixed.

C. all intermediate goods are fixed.

D. all inputs are variable.

answer

D. all inputs are variable.

question

A fixed input is an input that

A. can never be varied.

B. cannot be varied in the short-run.

C. is fixed only for some quantities of output.

D. can never be moved from one location to the next.

A. can never be varied.

B. cannot be varied in the short-run.

C. is fixed only for some quantities of output.

D. can never be moved from one location to the next.

answer

B. cannot be varied in the short-run.

question

The short run is defined as that period of time during which

A. one or more inputs cannot be freely varied.

B. all inputs are variable.

C. all inputs are fixed.

D. labor is counted as a fixed input.

A. one or more inputs cannot be freely varied.

B. all inputs are variable.

C. all inputs are fixed.

D. labor is counted as a fixed input.

answer

A. one or more inputs cannot be freely varied

question

If capital and labor are perfect substitutes in a production function, the isoquants for this

function will be

A. concave from above.

B. convex from above.

C. a straight line.

D. any one of these depending on the particular combination of labor and capital employed.

function will be

A. concave from above.

B. convex from above.

C. a straight line.

D. any one of these depending on the particular combination of labor and capital employed.

answer

C. a straight line.

question

If equal amounts of a variable input are sequentially added to the fixed input in a typical

production function,

A. the increments to output will decrease first and then increase.

B. the additions to output will be constant.

C. increments to output will increase indefinitely.

D. increments to output will first increase at an increasing rate and then at a decreasing rate.

production function,

A. the increments to output will decrease first and then increase.

B. the additions to output will be constant.

C. increments to output will increase indefinitely.

D. increments to output will first increase at an increasing rate and then at a decreasing rate.

answer

D. increments to output will first increase at an increasing rate and then at a decreasing rate.

question

The nineteenth-century British economist Thomas Malthus argued that the law of diminishing

returns implied that

A. capital would increase relative to labor.

B. technological change would grow at an increasing pace.

C. eventual misery would befall the human race.

D. raw materials would eventually run out.

returns implied that

A. capital would increase relative to labor.

B. technological change would grow at an increasing pace.

C. eventual misery would befall the human race.

D. raw materials would eventually run out.

answer

C. eventual misery would befall the human race.

question

When Thomas Malthus argued that the prospects for human flourishing were gloomy and that

starvation would eventually become the normal human condition, he was assuming that

A. diseconomies of scale will become more commonplace.

B. diminishing returns to production will become more apparent.

C. epidemics will overpower the many technological advances that he expected.

D. self-interest will become more intense and religion will cease to be an influential force in

society.

starvation would eventually become the normal human condition, he was assuming that

A. diseconomies of scale will become more commonplace.

B. diminishing returns to production will become more apparent.

C. epidemics will overpower the many technological advances that he expected.

D. self-interest will become more intense and religion will cease to be an influential force in

society.

answer

B. diminishing returns to production will become more apparent.

question

The marginal product of a variable input is

A. zero at the point of diminishing returns.

B. the change in the average product that occurs when the variable input is increased one

unit.

C. the change in the total product that occurs in response to a unit change in the variable

input.

D. the second derivative of the total product function.

A. zero at the point of diminishing returns.

B. the change in the average product that occurs when the variable input is increased one

unit.

C. the change in the total product that occurs in response to a unit change in the variable

input.

D. the second derivative of the total product function.

answer

C. the change in the total product that occurs in response to a unit change in the variable

question

The law of diminishing returns to an input says that if other inputs are fixed

A. output eventually will decrease with increases of the variable input.

B. change in output will eventually decrease with increases in the variable input.

C. revenue will eventually decrease with increases in the variable input.

D. the variable input will eventually decrease with more output.

A. output eventually will decrease with increases of the variable input.

B. change in output will eventually decrease with increases in the variable input.

C. revenue will eventually decrease with increases in the variable input.

D. the variable input will eventually decrease with more output.

answer

B. change in output will eventually decrease with increases in the variable input.

question

The average product of a variable input

A. decreases at an increasing rate.

B. constantly rises over the relevant range of production.

C. is the change in the total product that occurs when the variable input increases one unit.

D. is defined as the total product divided by the quantity of the variable input.

A. decreases at an increasing rate.

B. constantly rises over the relevant range of production.

C. is the change in the total product that occurs when the variable input increases one unit.

D. is defined as the total product divided by the quantity of the variable input.

answer

D. is defined as the total product divided by the quantity of the variable input.

question

Geometrically, the marginal product

A. is the slope of the line joining the origin to the corresponding point on the total product

curve.

B. at any point is the slope of the total product curve at that point.

C. is that point at which the total product curve exhibits diminishing returns.

D. is the slope of the average product curve.

A. is the slope of the line joining the origin to the corresponding point on the total product

curve.

B. at any point is the slope of the total product curve at that point.

C. is that point at which the total product curve exhibits diminishing returns.

D. is the slope of the average product curve.

answer

B. at any point is the slope of the total product curve at that point.

question

Geometrically, the average product

A. is the slope of the line joining the origin to the specified point on the total product curve.

B. at any point is the slope of the total product curve at that point.

C. is that point at which the total product curve exhibits diminishing returns.

D. falls at low levels of input use and rises at high levels of input use.

A. is the slope of the line joining the origin to the specified point on the total product curve.

B. at any point is the slope of the total product curve at that point.

C. is that point at which the total product curve exhibits diminishing returns.

D. falls at low levels of input use and rises at high levels of input use.

answer

A. is the slope of the line joining the origin to the specified point on the total product curve.

question

In a typical short-run production function, before diminishing returns set in, the slope of the

total product curve

A. is decreasing.

B. is increasing.

C. rises and then falls before diminishing returns sets in.

D. falls and then rises before diminishing returns sets in.

total product curve

A. is decreasing.

B. is increasing.

C. rises and then falls before diminishing returns sets in.

D. falls and then rises before diminishing returns sets in.

answer

B. is increasing.

question

In a short-run production function before diminishing returns set in, both MPL and APL will

have

A. positive slopes and MPL will lie above APL.

B. positive slopes and APL will lie above MPL.

C. negative slopes and MPL will lie above APL.

D. negative slopes and APL will lie above MPL.

have

A. positive slopes and MPL will lie above APL.

B. positive slopes and APL will lie above MPL.

C. negative slopes and MPL will lie above APL.

D. negative slopes and APL will lie above MPL.

answer

A. positive slopes and MPL will lie above APL.

question

Diminishing returns begin to occur when the

A. slope of the ray from the origin reaches a maximum.

B. total product curve reaches a maximum.

C. slope of the total product curve reaches a maximum.

D. marginal product curve intersects the average product curve.

A. slope of the ray from the origin reaches a maximum.

B. total product curve reaches a maximum.

C. slope of the total product curve reaches a maximum.

D. marginal product curve intersects the average product curve.

answer

...

question

When the marginal product curve lies above the average product curve

A. the average product curve must be falling.

B. the total product curve must be falling.

C. the average product curve must be rising.

D. the marginal product curve must be rising.

A. the average product curve must be falling.

B. the total product curve must be falling.

C. the average product curve must be rising.

D. the marginal product curve must be rising.

answer

C. the average product curve must be rising.

question

Say you are the owner of a Pizza place. You know that when you produce 10 pizzas, the

average product of each of your workers is 10, and the marginal product of your last worker is

15. From this information you know that

A. the marginal product is increasing.

B. the average product is increasing.

C. the average product is decreasing.

D. the marginal product is decreasing.

average product of each of your workers is 10, and the marginal product of your last worker is

15. From this information you know that

A. the marginal product is increasing.

B. the average product is increasing.

C. the average product is decreasing.

D. the marginal product is decreasing.

answer

B. the average product is increasing.

question

If the contribution to output of an additional unit of the variable input exceeds the average

contribution of the variable inputs used,

A. the average contribution must rise.

B. the average contribution must fall.

C. the total product will begin to decline.

D. the average product will be at its minimum.

contribution of the variable inputs used,

A. the average contribution must rise.

B. the average contribution must fall.

C. the total product will begin to decline.

D. the average product will be at its minimum.

answer

A. the average contribution must rise.

question

When the marginal product curve lies below the average product curve,

A. the average product curve must be falling.

B. the total product curve must be falling.

C. the average product curve must be rising.

D. the marginal product curve must be rising.

A. the average product curve must be falling.

B. the total product curve must be falling.

C. the average product curve must be rising.

D. the marginal product curve must be rising.

answer

A. the average product curve must be falling.

question

The general rule for allocating a productive resource efficiently across different production

activities of the same product, like fishing boats in the text case example, is to choose the

allocation for which the

A. average product of the resource is the same in every activity.

B. marginal product of the resource is the same in every activity.

C. total product of the resource is the same in every activity.

D. average product is equal to the marginal product in every activity.

activities of the same product, like fishing boats in the text case example, is to choose the

allocation for which the

A. average product of the resource is the same in every activity.

B. marginal product of the resource is the same in every activity.

C. total product of the resource is the same in every activity.

D. average product is equal to the marginal product in every activity.

answer

B. marginal product of the resource is the same in every activity.

question

The rate at which one input can be exchanged for another without altering output is called

A. the slope of the total product curve.

B. the marginal rate of technical substitution.

C. the slope of the marginal product of labor.

D. the law of diminishing returns of labor.

A. the slope of the total product curve.

B. the marginal rate of technical substitution.

C. the slope of the marginal product of labor.

D. the law of diminishing returns of labor.

answer

B. the marginal rate of technical substitution.

question

On an isoquant, the MRTS is defined as

A.

.

B. MPK/MPL at the relevant point on the isoquant.

C. MPL * MPK.

D. MP + MPL.

A.

.

B. MPK/MPL at the relevant point on the isoquant.

C. MPL * MPK.

D. MP + MPL.

answer

B. MPK/MPL at the relevant point on the isoquant.

question

Say you own a Mexican place that produces, among other things, Mexican burritos. Your

production of burritos is given by the equation Q = 6KL2, where Q is the amount of burritos, K

is the amount of capital and L is the amount of labor. How many workers would you need to

use in order to minimize the cost of producing 100 burritos when the capital is, K, is 20?

A. 1

B. 2

C. 4

D. 0

production of burritos is given by the equation Q = 6KL2, where Q is the amount of burritos, K

is the amount of capital and L is the amount of labor. How many workers would you need to

use in order to minimize the cost of producing 100 burritos when the capital is, K, is 20?

A. 1

B. 2

C. 4

D. 0

answer

B. 2

question

From an isoquant map, one can illustrate diminishing returns to production by

A. observing the slope of the isoquant as one moves outward on the labor axis but stays at

the same point on the capital axis.

B. following the curvature of an individual isoquant.

C. moving from isoquant to isoquant along a ray from the origin.

D. constructing a positively sloped isoquant.

A. observing the slope of the isoquant as one moves outward on the labor axis but stays at

the same point on the capital axis.

B. following the curvature of an individual isoquant.

C. moving from isoquant to isoquant along a ray from the origin.

D. constructing a positively sloped isoquant.

answer

A. observing the slope of the isoquant as one moves outward on the labor axis but stays at

the same point on the capital axis.

the same point on the capital axis.

question

A production function for which proportional changes in all inputs leads to a more-than-

proportional change in output is said to exhibit

A. diminishing returns.

B. decreasing returns to scale.

C. constant returns to scale.

D. increasing returns to scale.

proportional change in output is said to exhibit

A. diminishing returns.

B. decreasing returns to scale.

C. constant returns to scale.

D. increasing returns to scale.

answer

D. increasing returns to scale.

question

For any constant returns production function, the isoquants for Q = 1, Q = 2, Q = 3, etc. will

A. all be inversely proportional to the inputs.

B. exhibit diminishing returns in the long run.

C. be straight lines.

D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and

Q = 3, etc.

A. all be inversely proportional to the inputs.

B. exhibit diminishing returns in the long run.

C. be straight lines.

D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and

Q = 3, etc.

answer

D. be equally spaced, in that the distance between Q = 1 and Q = 2 is the same as Q = 2 and

Q = 3, etc.

Q = 3, etc.

question

Say you own a Mexican place that produces, among other things, Mexican burritos. The

marginal product of your last worker was 5. If the marginal rate of technical substitution

between capital and labor is 0.5, then marginal product of capital is

A. 10.

B. 5.

C. 1.

D. we can't say with the information given

marginal product of your last worker was 5. If the marginal rate of technical substitution

between capital and labor is 0.5, then marginal product of capital is

A. 10.

B. 5.

C. 1.

D. we can't say with the information given

answer

A. 10.

question

For production functions with decreasing returns to scale, a proportional increase in output

A. requires a less-than-proportional growth in all inputs.

B. requires a more-than-proportional growth in all inputs.

C. exhibits diminishing returns.

D. requires proportional growth in all inputs.

A. requires a less-than-proportional growth in all inputs.

B. requires a more-than-proportional growth in all inputs.

C. exhibits diminishing returns.

D. requires proportional growth in all inputs.

answer

B. requires a more-than-proportional growth in all inputs.

question

Returns to scale refers to

A. what happens to output when at least one input is fixed and one is varied.

B. what happens to output when all inputs are held fixed.

C. what happens to output when all inputs are varied in some proportion.

D. the law of diminishing returns.

A. what happens to output when at least one input is fixed and one is varied.

B. what happens to output when all inputs are held fixed.

C. what happens to output when all inputs are varied in some proportion.

D. the law of diminishing returns.

answer

C. what happens to output when all inputs are varied in some proportion.

question

The isoquant mapping for perfect complements in production is

A. L-shaped.

B. a straight line.

C. a ray passing through the origin.

D. concave.

A. L-shaped.

B. a straight line.

C. a ray passing through the origin.

D. concave.

answer

A. L-shaped.

question

Which of the following statements about isoquant maps is true?

A. They can illustrate diminishing returns to production only when they have numerical values

attached.

B. They cannot illustrate economies of scale unless some numerical values are attached.

C. They always have positive slope.

D. They always have negative slope.

A. They can illustrate diminishing returns to production only when they have numerical values

attached.

B. They cannot illustrate economies of scale unless some numerical values are attached.

C. They always have positive slope.

D. They always have negative slope.

answer

B. They cannot illustrate economies of scale unless some numerical values are attached.

question

If the owner of an ice-cream stand told a student looking for summer work that he would not

hire him even if he worked for nothing, we can infer that

A. the marginal product of the labor is zero or less.

B. the average product of labor is rising.

C. the marginal product of labor is rising.

D. the owner is producing at the lowest cost.

hire him even if he worked for nothing, we can infer that

A. the marginal product of the labor is zero or less.

B. the average product of labor is rising.

C. the marginal product of labor is rising.

D. the owner is producing at the lowest cost.

answer

A. the marginal product of the labor is zero or less.

question

In conceptual production functions, technological change is

A. treated like an addition to the capital stock.

B. treated as a movement upward along a given production function.

C. a factor that eliminates diminishing returns to a production function.

D. not considered and is therefore assumed to be constant in all deliberations.

A. treated like an addition to the capital stock.

B. treated as a movement upward along a given production function.

C. a factor that eliminates diminishing returns to a production function.

D. not considered and is therefore assumed to be constant in all deliberations.

answer

A. treated like an addition to the capital stock.

question

On this chapter quiz for this course you can study for up to four hours. If you don't study at all

you will get a 70. One hour would give you an 80, the second hour increased your score to 89,

the third to 92. If you studied the fourth hour your score would be 87. In which hour did

diminishing returns set in?

A. The first because the score was the lowest of the studying options.

B. The second because your gain is less than the previous hour.

C. The third because your score peaked there.

D. The fourth because you had a drop in points in this hour.

you will get a 70. One hour would give you an 80, the second hour increased your score to 89,

the third to 92. If you studied the fourth hour your score would be 87. In which hour did

diminishing returns set in?

A. The first because the score was the lowest of the studying options.

B. The second because your gain is less than the previous hour.

C. The third because your score peaked there.

D. The fourth because you had a drop in points in this hour.

answer

B. The second because your gain is less than the previous hour.

question

Suppose you are using 10 units of labor in your short-run production process. At this point, the

average product of your labor is 10, and the marginal product of the last unit of labor was 14.

Given this, we know that the

A. average product of labor must be increasing.

B. average product of labor must be decreasing.

C. marginal product of labor must be increasing.

D. marginal product of labor must be decreasing.

average product of your labor is 10, and the marginal product of the last unit of labor was 14.

Given this, we know that the

A. average product of labor must be increasing.

B. average product of labor must be decreasing.

C. marginal product of labor must be increasing.

D. marginal product of labor must be decreasing.

answer

A. average product of labor must be increasing.

question

Suppose that at a firm's current level of production the marginal product of capital is equal to

10 units, while the marginal rate of technical substitution between capital and labor is 2. Given

this, we know the marginal product of labor must be

A. 5.

B. 20.

C. 10.

D. It is not possible to say with the information given in the problem

10 units, while the marginal rate of technical substitution between capital and labor is 2. Given

this, we know the marginal product of labor must be

A. 5.

B. 20.

C. 10.

D. It is not possible to say with the information given in the problem

answer

B. 20.

question

In the production of bicycles an increase of 2 percent in the level of capital and labor

respectively will generate an increase of 1 percent in the production of bicycles. From this

information we know that the production of bicycles exhibits

A. diminishing marginal returns.

B. decreasing returns to scale.

C. increasing returns to scale.

D. constant returns to scale.

respectively will generate an increase of 1 percent in the production of bicycles. From this

information we know that the production of bicycles exhibits

A. diminishing marginal returns.

B. decreasing returns to scale.

C. increasing returns to scale.

D. constant returns to scale.

answer

B. decreasing returns to scale.

question

What will happen to a typical isoquant if robots become increasingly good at doing manual and

mental labor?

A. Isoquants will become much steeper.

B. Isoquants will not change but movement will occur upward on the curve.

C. Isoquants will become much flatter.

D. Isoquants will become a negatively sloped straight line.

mental labor?

A. Isoquants will become much steeper.

B. Isoquants will not change but movement will occur upward on the curve.

C. Isoquants will become much flatter.

D. Isoquants will become a negatively sloped straight line.

answer

C. Isoquants will become much flatter.

question

Karl has a home business that consists of only himself and his computer. If he were to analyze

his operations in the form of a long run production function his isoquants would

A. be straight lines with a negative slope.

B. be L shaped.

C. be concave from above.

D. be straight lines with a positive slope.

his operations in the form of a long run production function his isoquants would

A. be straight lines with a negative slope.

B. be L shaped.

C. be concave from above.

D. be straight lines with a positive slope.

answer

B. be L shaped.

question

If climate change starts creating earthquakes, storms, droughts and all manner of obstacles to

production operations, the effects can be shown on effected production function graphs by

A. eliminating the increasing returns portion of the short run production function.

B. lowering the short run production function and reducing the numbers on each isoquant.

C. changing the curves of the isoquants to straight lines.

D. eliminating long run production functions because they are irrelevant.

production operations, the effects can be shown on effected production function graphs by

A. eliminating the increasing returns portion of the short run production function.

B. lowering the short run production function and reducing the numbers on each isoquant.

C. changing the curves of the isoquants to straight lines.

D. eliminating long run production functions because they are irrelevant.

answer

B. lowering the short run production function and reducing the numbers on each isoquant.

question

(Appendix) Which of the following production functions exhibits increasing returns to scale?

A. Q = K 1/2 L l/2

B. Q = K l/2 L 2/3

C. Q = K l/4 L l/3

D. Q = K/L

A. Q = K 1/2 L l/2

B. Q = K l/2 L 2/3

C. Q = K l/4 L l/3

D. Q = K/L

answer

B. Q = K l/2 L 2/3

question

46. (Appendix) The defining characteristics of increasing returns to scale may be summarized as

A. F(cK,cL) > cF(K,L).

B. F(cK,cL) = cF(K,L).

C. F(cK,cL) < cF(K,L).

D. Q = min(aK,aL).

A. F(cK,cL) > cF(K,L).

B. F(cK,cL) = cF(K,L).

C. F(cK,cL) < cF(K,L).

D. Q = min(aK,aL).

answer

A. F(cK,cL) > cF(K,L).

question

(Appendix) Suppose the production function for widgets is Q = (KL) ½ . If capital is fixed at 4

units, what is the marginal product of labor when you produce 10 units of output?

A. 0.4

B. 1

C. 1.5

D. 0.2

units, what is the marginal product of labor when you produce 10 units of output?

A. 0.4

B. 1

C. 1.5

D. 0.2

answer

D. 0.2

question

CHAPTER 9

answer

...

question

Given input prices and the usual strategy of a profit-maximizing firm, efficient production

occurs at

A. the highest isoquant Q for a given isocost C.

B. the lowest isoquant Q for a given isocost C.

C. the highest isocost C for a given isoquant Q.

D. the lowest isocost C for a given isoquant Q.

occurs at

A. the highest isoquant Q for a given isocost C.

B. the lowest isoquant Q for a given isocost C.

C. the highest isocost C for a given isoquant Q.

D. the lowest isocost C for a given isoquant Q.

answer

D. the lowest isocost C for a given isoquant Q

question

A firm that is trying to produce a given level of output Q0 at the lowest possible cost will

A. select the input combination at which an isocost line is tangent to the Q0 isoquant.

B. select the input combination at which an isocost line is above the Q0 isoquant.

C. select the input combination at which an isocost line is below the Q0 isoquant.

D. choose to produce at a level where variable costs are less than or equal to fixed costs.

A. select the input combination at which an isocost line is tangent to the Q0 isoquant.

B. select the input combination at which an isocost line is above the Q0 isoquant.

C. select the input combination at which an isocost line is below the Q0 isoquant.

D. choose to produce at a level where variable costs are less than or equal to fixed costs.

answer

A. select the input combination at which an isocost line is tangent to the Q0 isoquant.

question

When costs are at a minimum,

A. the ratio of the MPL/MPK < Price L/Price K.

B. MPL = MPK.

C. the extra output we get from the last dollar spent on an input must be the same for all

inputs.

D. Price L = Price K.

A. the ratio of the MPL/MPK < Price L/Price K.

B. MPL = MPK.

C. the extra output we get from the last dollar spent on an input must be the same for all

inputs.

D. Price L = Price K.

answer

C. the extra output we get from the last dollar spent on an input must be the same for all

inputs.

inputs.

question

For a given firm, whenever the ratio of marginal product to input price differs across inputs,

A. the market will adjust the price of the higher priced input.

B. it will always be possible to make a cost-saving substitution in favor of the input with the

lower MP/P ratio (except in the case of corner solutions).

C. it will always be possible to make a cost-saving substitution in favor of the input with the

higher MP/P ratio.

D. the market will adjust the price of the lower priced input.

A. the market will adjust the price of the higher priced input.

B. it will always be possible to make a cost-saving substitution in favor of the input with the

lower MP/P ratio (except in the case of corner solutions).

C. it will always be possible to make a cost-saving substitution in favor of the input with the

higher MP/P ratio.

D. the market will adjust the price of the lower priced input.

answer

C. it will always be possible to make a cost-saving substitution in favor of the input with the

higher MP/P ratio.

higher MP/P ratio.

question

Assume initially this firm is at point A. The following would be a reason for a movement to point

A. Wages go up and per unit capital costs go up.

B. Wages go down and per unit capital cost go up.

C. Both wages and per unit capital costs go down.

D. Output decreases.

A. Wages go up and per unit capital costs go up.

B. Wages go down and per unit capital cost go up.

C. Both wages and per unit capital costs go down.

D. Output decreases.

answer

B. Wages go down and per unit capital cost go up.

question

The following is true about point A for a firm with the I1 isocost curve.

A. The firm is minimizing the costs of production.

B. Capital is relatively more expensive than labor.

C. Labor has a lower marginal product than capital.

D. All of the choices are true.

A. The firm is minimizing the costs of production.

B. Capital is relatively more expensive than labor.

C. Labor has a lower marginal product than capital.

D. All of the choices are true.

answer

A. The firm is minimizing the costs of production.

question

Gravel is made by hand in Nepal, but by machine in the U.S. because

A. the marginal product of labor is higher in Nepal than in the U.S.

B. capital is much more expensive in the U.S. than in Nepal.

C. of consumer preferences.

D. the relative prices of labor and capital differ so dramatically in the two countries.

A. the marginal product of labor is higher in Nepal than in the U.S.

B. capital is much more expensive in the U.S. than in Nepal.

C. of consumer preferences.

D. the relative prices of labor and capital differ so dramatically in the two countries.

answer

D. the relative prices of labor and capital differ so dramatically in the two countries.

question

Whenever the ratio of marginal products to input prices differs across inputs,

A. the marginal products of inputs will adjust as input combinations change to correct for the

inefficiency.

B. no change will necessarily follow because the process could still be at peak efficiency.

C. a firm's costs could be reduced by shifting input usage toward the input with the lower

marginal product to price ratio.

D. the costs of the inputs adjust to bring the marginal product ratios and cost ratios together.

A. the marginal products of inputs will adjust as input combinations change to correct for the

inefficiency.

B. no change will necessarily follow because the process could still be at peak efficiency.

C. a firm's costs could be reduced by shifting input usage toward the input with the lower

marginal product to price ratio.

D. the costs of the inputs adjust to bring the marginal product ratios and cost ratios together.

answer

A. the marginal products of inputs will adjust as input combinations change to correct for the

inefficiency.

inefficiency.

question

Suppose labor and capital are both used to produce output. In the long run, if the wage rate

rises while the rental rate on capital remains unchanged,

A. the process will become more labor intensive.

B. the process will become more capital intensive.

C. market forces will come into play to bring the prices back to their earlier relationship.

D. the marginal product of capital will rise and the marginal product of labor will fall.

rises while the rental rate on capital remains unchanged,

A. the process will become more labor intensive.

B. the process will become more capital intensive.

C. market forces will come into play to bring the prices back to their earlier relationship.

D. the marginal product of capital will rise and the marginal product of labor will fall.

answer

B. the process will become more capital intensive

question

Total cost is broken down into two components:

A. average cost and marginal cost.

B. average cost and fixed cost.

C. variable cost and marginal cost.

D. variable cost and fixed cost.

A. average cost and marginal cost.

B. average cost and fixed cost.

C. variable cost and marginal cost.

D. variable cost and fixed cost.

answer

D. variable cost and fixed cost.

question

Once we enter the region of diminishing returns, total variable cost

A. increases at a decreasing rate.

B. increases at an increasing rate.

C. decreases at a decreasing rate.

D. decreases at an increasing rate.

A. increases at a decreasing rate.

B. increases at an increasing rate.

C. decreases at a decreasing rate.

D. decreases at an increasing rate.

answer

B. increases at an increasing rate.

question

The total fixed cost curve

A. varies with the level of output.

B. is negatively sloped.

C. is simply a horizontal line.

D. is simply a vertical line.

A. varies with the level of output.

B. is negatively sloped.

C. is simply a horizontal line.

D. is simply a vertical line.

answer

C. is simply a horizontal line.

question

The short run total cost of zero output is equal to

A. variable cost.

B. fixed cost.

C. zero.

D. variable cost plus fixed cost.

A. variable cost.

B. fixed cost.

C. zero.

D. variable cost plus fixed cost.

answer

B. fixed cost.

question

The vertical distance between the average variable cost and average total cost curves

A. is everywhere equal to total fixed costs.

B. is everywhere equal to marginal cost.

C. increases at a decreasing rate.

D. decreases as quantity increases.

A. is everywhere equal to total fixed costs.

B. is everywhere equal to marginal cost.

C. increases at a decreasing rate.

D. decreases as quantity increases.

answer

D. decreases as quantity increases.

question

The vertical distance between the total variable cost and total cost curves

A. is everywhere equal to zero.

B. is everywhere equal to marginal cost.

C. is everywhere equal to total fixed cost.

D. increases at a decreasing rate.

A. is everywhere equal to zero.

B. is everywhere equal to marginal cost.

C. is everywhere equal to total fixed cost.

D. increases at a decreasing rate.

answer

C. is everywhere equal to total fixed cost

question

The total cost curve

A. is a horizontal line.

B. increases at a decreasing rate due to diminishing returns.

C. is parallel to the total fixed cost curve.

D. is parallel to and above the total variable cost curve.

A. is a horizontal line.

B. increases at a decreasing rate due to diminishing returns.

C. is parallel to the total fixed cost curve.

D. is parallel to and above the total variable cost curve.

answer

D. is parallel to and above the total variable cost curve.

question

The variable cost of zero units of output is equal to

A. total cost.

B. total fixed cost.

C. zero.

D. one.

A. total cost.

B. total fixed cost.

C. zero.

D. one.

answer

C. zero.

question

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the total cost of producing 80 units of output?

A. $525

B. $200

C. $233

D. $225

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the total cost of producing 80 units of output?

A. $525

B. $200

C. $233

D. $225

answer

D. $225

question

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the variable cost of producing 80 units of output?

A. $200

B. $33

C. $25

D. $85

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the variable cost of producing 80 units of output?

A. $200

B. $33

C. $25

D. $85

answer

C. $25

question

Output for a simple production process is given by Q = 2KL, where K denotes capital, and L

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output?

A. $200

B. $33

C. $25

D. $85

denotes labor. The price of capital is $25 per unit and capital is fixed at 8 units in the short run.

The price of labor is $5 per unit. What is the total fixed cost of producing 80 units of output?

A. $200

B. $33

C. $25

D. $85

answer

A. $200

question

Average fixed cost

A. is a horizontal line.

B. increases steadily as output increases.

C. decreases steadily as output increases.

D. exhibits diminishing returns.

A. is a horizontal line.

B. increases steadily as output increases.

C. decreases steadily as output increases.

D. exhibits diminishing returns.

answer

C. decreases steadily as output increases.

question

The slope of a ray from the origin to a point on the total cost curve is the

A. average fixed cost of producing the corresponding level of output.

B. average total cost of producing the corresponding level of output.

C. marginal cost of producing the corresponding level of output.

D. variable cost of producing the corresponding level of output.

A. average fixed cost of producing the corresponding level of output.

B. average total cost of producing the corresponding level of output.

C. marginal cost of producing the corresponding level of output.

D. variable cost of producing the corresponding level of output.

answer

B. average total cost of producing the corresponding level of output.

question

Average variable cost is

A. the ratio of total variable cost to the quantity of output produced.

B. the ratio of variable cost to total cost.

C. the ratio of variable cost to fixed cost.

D. the difference between variable and fixed cost.

A. the ratio of total variable cost to the quantity of output produced.

B. the ratio of variable cost to total cost.

C. the ratio of variable cost to fixed cost.

D. the difference between variable and fixed cost.

answer

A. the ratio of total variable cost to the quantity of

question

The vertical distance between the average total cost and the average variable cost curves at any

level of output will always be

A. variable cost.

B. average fixed cost.

C. fixed cost less variable cost.

D. total cost less fixed cost.

level of output will always be

A. variable cost.

B. average fixed cost.

C. fixed cost less variable cost.

D. total cost less fixed cost.

answer

B. average fixed cost.

question

Marginal cost is defined as

A. the rate at which average cost changes with output.

B. the rate at which total variable cost changes with output.

C. the rate at which fixed cost changes with output.

D. total cost minus variable cost.

A. the rate at which average cost changes with output.

B. the rate at which total variable cost changes with output.

C. the rate at which fixed cost changes with output.

D. total cost minus variable cost.

answer

B. the rate at which total variable cost changes with output.

question

Geometrically, marginal cost at any level of output may be interpreted as the slope of

A. a ray to the total cost curve at that level of output.

B. the average variable cost curve at that level of output.

C. the total cost curve at that level of output.

D. the isoquant at that level of output.

A. a ray to the total cost curve at that level of output.

B. the average variable cost curve at that level of output.

C. the total cost curve at that level of output.

D. the isoquant at that level of output.

answer

C. the total cost curve at that level of output.

question

When marginal cost is greater than average total cost,

A. average total cost must be increasing with output.

B. average variable cost must be decreasing with output.

C. average fixed cost must be increasing with output.

D. marginal cost must be increasing with output.

A. average total cost must be increasing with output.

B. average variable cost must be decreasing with output.

C. average fixed cost must be increasing with output.

D. marginal cost must be increasing with output.

answer

A. average total cost must be increasing with output.

question

Say at the current output level marginal costs = $20 and the average total cost = $10. From this

information we know that the

A. marginal costs are increasing.

B. average total costs are increasing.

C. average total costs are decreasing.

D. marginal costs are decreasing

information we know that the

A. marginal costs are increasing.

B. average total costs are increasing.

C. average total costs are decreasing.

D. marginal costs are decreasing

answer

B. average total costs are increasing.

question

When marginal cost is less than average total cost, ______ as output increases.

A. average total cost must be increasing

B. average variable cost must be decreasing

C. average fixed cost must be increasing

D. average total cost must be decreasing

A. average total cost must be increasing

B. average variable cost must be decreasing

C. average fixed cost must be increasing

D. average total cost must be decreasing

answer

D. average total cost must be decreasing

question

Producing an additional unit whose marginal cost exceeds the average total cost incurred thus

far has the effect of pulling the

A. fixed cost up.

B. average cost up.

C. average cost down.

D. total cost down.

far has the effect of pulling the

A. fixed cost up.

B. average cost up.

C. average cost down.

D. total cost down.

answer

B. average cost up.

question

In order to divide a given production quota between two production processes in such a way as

to produce the quota at the lowest possible cost, one should produce the output where

A. average costs are equal for both processes.

B. average cost is equal to marginal cost for both processes.

C. marginal costs are equal in both processes.

D. marginal costs are at least equal to ATC in each process.

to produce the quota at the lowest possible cost, one should produce the output where

A. average costs are equal for both processes.

B. average cost is equal to marginal cost for both processes.

C. marginal costs are equal in both processes.

D. marginal costs are at least equal to ATC in each process.

answer

C. marginal costs are equal in both processes.

question

The long-run total cost of zero output is equal to

A. variable cost.

B. fixed cost.

C. zero.

D. the marginal revenue product of labor

A. variable cost.

B. fixed cost.

C. zero.

D. the marginal revenue product of labor

answer

C. zero.

question

Markets characterized by declining long-run average costs are often referred to as

A. perfect competition.

B. diseconomies of scale.

C. natural monopolies.

D. nonprofit organizations.

A. perfect competition.

B. diseconomies of scale.

C. natural monopolies.

D. nonprofit organizations.

answer

C. natural monopolies.

question

The MC curve slopes upward due to

A. increasing returns to scale.

B. decreasing returns to scale.

C. diminishing returns.

D. constant returns to scale.

A. increasing returns to scale.

B. decreasing returns to scale.

C. diminishing returns.

D. constant returns to scale.

answer

C. diminishing returns.

question

The total fixed cost function

A. is horizontal.

B. is U-shaped.

C. is an upward sloping line.

D. is a downward sloping line.

A. is horizontal.

B. is U-shaped.

C. is an upward sloping line.

D. is a downward sloping line.

answer

A. is horizontal.

question

The AFC curve

A. always slopes downward.

B. is U-shaped.

C. is a horizontal line.

D. is the same as the total fixed cost curve.

A. always slopes downward.

B. is U-shaped.

C. is a horizontal line.

D. is the same as the total fixed cost curve.

answer

C. is a horizontal line.

question

ATC equals

A. AVC - AFC.

B. FC/Q.

C. (TFC + TVC)/Q.

D. MC + AFC.

A. AVC - AFC.

B. FC/Q.

C. (TFC + TVC)/Q.

D. MC + AFC.

answer

C. (TFC + TVC)/Q.

question

MC equals

A. ΔTC/ΔQ.

B. ΔVC/ΔQ.

C. FC/Q.

D. VC/Q.

A. ΔTC/ΔQ.

B. ΔVC/ΔQ.

C. FC/Q.

D. VC/Q.

answer

A. ΔTC/ΔQ.

question

At one unit of output AVC is

A. zero.

B. infinite.

C. equal to marginal cost.

D. less than marginal cost.

A. zero.

B. infinite.

C. equal to marginal cost.

D. less than marginal cost.

answer

C. equal to marginal cost.

question

If the total variable cost curve is a straight line then the

A. total cost curve will also be a straight line.

B. total cost curve may or may not be a straight line.

C. marginal cost function is downward sloping.

D. marginal cost function is upward sloping.

A. total cost curve will also be a straight line.

B. total cost curve may or may not be a straight line.

C. marginal cost function is downward sloping.

D. marginal cost function is upward sloping.

answer

A. total cost curve will also be a straight line

question

. If the variable cost curve is a straight line, then the

A. marginal cost curve will be U-shaped.

B. marginal cost curve may be U-shaped.

C. marginal cost curve will be horizontal.

D. marginal cost curve is upward sloping.

A. marginal cost curve will be U-shaped.

B. marginal cost curve may be U-shaped.

C. marginal cost curve will be horizontal.

D. marginal cost curve is upward sloping.

answer

C. marginal cost curve will be horizontal.

question

Let TC(Q) = 10 + Q; MC equals

A. 10.

B. 1.

C. 11.

D. It cannot be determined from the information given

A. 10.

B. 1.

C. 11.

D. It cannot be determined from the information given

answer

B. 1.

question

Let the TC curve be given by the equation TC(Q) = 20 + 5Q. The variable cost curve can be

expressed as

A. 20 + 5Q.

B. 20.

C. 5Q.

D. 5.

expressed as

A. 20 + 5Q.

B. 20.

C. 5Q.

D. 5.

answer

C. 5Q.

question

Let the TC curve be given by the equation TC(Q) = 6Q. The FC curve can be expressed as

A. 6.

B. 6Q.

C. 0.

D. It cannot be determined with the information given

A. 6.

B. 6Q.

C. 0.

D. It cannot be determined with the information given

answer

C. 0.

question

Let the TC curve be given by the equation TC(Q) = 5 + Q. The ATC curve can be expressed as

A. (1/Q) + 5.

B. (5/Q) + 1.

C. 5.

D. Q.

A. (1/Q) + 5.

B. (5/Q) + 1.

C. 5.

D. Q.

answer

B. (5/Q) + 1.

question

Let the TC curve be given by the equation TC(Q) = 10 + 5Q. The average variable cost can be

expressed as

A. 10.

B. (10/Q) + 5.

C. 10 + (5/Q).

D. It cannot be determined.

expressed as

A. 10.

B. (10/Q) + 5.

C. 10 + (5/Q).

D. It cannot be determined.

answer

B. (10/Q) + 5.

question

With constant returns to scale and factor prices invariant with the amount of factors used, the

long-run output expansion path is

A. horizontal.

B. a straight line.

C. U-shaped.

D. zero

long-run output expansion path is

A. horizontal.

B. a straight line.

C. U-shaped.

D. zero

answer

B. a straight line.

question

The short-run output expansion path is __________ in the relevant area.

A. a ray

B. horizontal

C. U-shaped

D. upward sloping

A. a ray

B. horizontal

C. U-shaped

D. upward sloping

answer

B. horizontal

question

Suppose you have the following values for a short-run production process: Q = 20, VC = 100,

FC = 600 and MC = 40. Given this, we know that the

A. average cost curve must be increasing.

B. average cost curve must be decreasing.

C. marginal cost curve must be increasing.

D. marginal cost curve must be decreasing.

FC = 600 and MC = 40. Given this, we know that the

A. average cost curve must be increasing.

B. average cost curve must be decreasing.

C. marginal cost curve must be increasing.

D. marginal cost curve must be decreasing.

answer

A. average cost curve must be increasing.

question

Output for a simple production process is given by Q = KL, where K denotes capital and L

denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit.

If at the current level of production the marginal product of labor is 4 while the marginal

product of capital is 2, then in order to minimize your costs of production you should use

A. more capital and less labor.

B. more labor and less capital.

C. more of both inputs.

D. the same amount of both inputs.

denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit.

If at the current level of production the marginal product of labor is 4 while the marginal

product of capital is 2, then in order to minimize your costs of production you should use

A. more capital and less labor.

B. more labor and less capital.

C. more of both inputs.

D. the same amount of both inputs.

answer

A. more capital and less labor.

question

Output for a simple production process is given by Q = KL, where K denotes capital and L

denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit.

Suppose at the current level of production the firm is minimizing costs and the marginal

product of labor is 10. Given this you know that the marginal product of capital must be

A. 5.

B. 2.

C. 10.

D. It is impossible to say with the information given

denotes labor. The price of labor is $10 per unit and the price of capital is $2 per unit.

Suppose at the current level of production the firm is minimizing costs and the marginal

product of labor is 10. Given this you know that the marginal product of capital must be

A. 5.

B. 2.

C. 10.

D. It is impossible to say with the information given

answer

B. 2.

question

Suppose output for a simple production process is given by Q = K + L, where K denotes capital,

and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit.

What would be the minimum costs of producing 10 units of output?

A. $40

B. $20

C. $10

D. It is impossible to say with the information given

and L denotes labor. The price of labor is $2 per unit and the price of capital is $4 per unit.

What would be the minimum costs of producing 10 units of output?

A. $40

B. $20

C. $10

D. It is impossible to say with the information given

answer

B. $20

question

The minimum efficient scale of production is the level of production required for the

A. long run average curve to reach its minimum.

B. variable cost curve to reach its minimum.

C. marginal cost curve to reach its minimum.

D. average cost curve to reach its minimum

A. long run average curve to reach its minimum.

B. variable cost curve to reach its minimum.

C. marginal cost curve to reach its minimum.

D. average cost curve to reach its minimum

answer

A. long run average curve to reach its minimum.

question

Which statement is false?

A. Short-run cost assumes a fixed capital size, while long-run cost includes all possible capital

levels in determining cost.

B. Short-run total cost can never be less than long-run total cost at any given output level.

C. Long-run marginal cost never intersects long-run average cost as long as increasing returns

to scale are present.

D. Short run ATC and long run ATC are never equal except at the minimum point on the long

run ATC curve.

A. Short-run cost assumes a fixed capital size, while long-run cost includes all possible capital

levels in determining cost.

B. Short-run total cost can never be less than long-run total cost at any given output level.

C. Long-run marginal cost never intersects long-run average cost as long as increasing returns

to scale are present.

D. Short run ATC and long run ATC are never equal except at the minimum point on the long

run ATC curve.

answer

D. Short run ATC and long run ATC are never equal except at the minimum point on the long

run ATC curve.

run ATC curve.

question

If some inputs of production do not vary with the level of output we call them fixed inputs

which when multiplied by their price become fixed cost. Which of the following items typically

fit this category?

A. Property taxes

B. Insurance payments

C. Interest on loans

D. All of these are fixed costs

which when multiplied by their price become fixed cost. Which of the following items typically

fit this category?

A. Property taxes

B. Insurance payments

C. Interest on loans

D. All of these are fixed costs

answer

D. All of these are fixed costs

question

In a graph of short run cost curves, which starts rising first?

A. The average variable cost curve

B. The average total cost curve

C. The marginal cost curve

D. The average fixed cost curve

A. The average variable cost curve

B. The average total cost curve

C. The marginal cost curve

D. The average fixed cost curve

answer

C. The marginal cost curve

question

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run

production output and the sixth laborer adds 20 units to the total output and the firm can hire

all the labor it wants at the going wage we can be sure that

A. marginal cost is increasing.

B. average total cost is increasing.

C. average variable cost is increasing.

D. None of these is correct because all the costs listed are decreasing.

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. If the fifth laborer adds 25 units to the short run

production output and the sixth laborer adds 20 units to the total output and the firm can hire

all the labor it wants at the going wage we can be sure that

A. marginal cost is increasing.

B. average total cost is increasing.

C. average variable cost is increasing.

D. None of these is correct because all the costs listed are decreasing.

answer

A. marginal cost is increasing.

question

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. Which of the following is a true statement?

A. At an output of 20 the total cost is $20.

B. Average total cost at an output of 50 is 11.

C. Average fixed cost is 10 when output is 45.

D. Marginal cost keeps falling as the number of laborers hired increases

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. Which of the following is a true statement?

A. At an output of 20 the total cost is $20.

B. Average total cost at an output of 50 is 11.

C. Average fixed cost is 10 when output is 45.

D. Marginal cost keeps falling as the number of laborers hired increases

answer

B. Average total cost at an output of 50 is 11.

question

Assume fixed costs are 470 and labor costs $20 per unit. The first laborer produces 20 units of

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. What is the average variable cost of output when

one worker is hired?

A. 1

B. 20

C. 24.50

D. None of these is the correct AVC.

output. Subsequent hires add 5 units less to production than the previous worker. Thus the

second worker adds 15, the third adds 10 etc. What is the average variable cost of output when

one worker is hired?

A. 1

B. 20

C. 24.50

D. None of these is the correct AVC.

answer

A. 1

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