Question 1

If the inputs to a production process are perfect substitutes and the marginal rate of technical substitution is equal to the ratio of the prices of the two inputs, the firm can choose from a virtually infinite array of combinations of the two inputs to minimize the costs of producing a given level of output.

Accepted Answer

A) True 
 B)False

Question 2

An increase in the amount of competition with other firms that employ "best practices" would be likely to cause a particular firm's labor productivity to:

Accepted Answer

A)   increase
B)   stay the same.
C)   decrease.
D)   cannot be determined without additional information.

Question 3

Graphically, all else constant, a decrease in the price of labor would be illustrated by:

Accepted Answer

A)   a parallel shift of the isocost line in toward the origin.
B)   rotating the isocost line away from the origin along the labor axis.
C)   a parallel shift of the isocost line away from the origin.
D)   rotating the isocost line in toward the origin along the capital axis.

Question 4

Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?

Accepted Answer

A)   The price of a competitor's output.
B)   The technology of the production process.
C)   The marginal productivity of the inputs that can be used in the production process.
D)   The prices of the inputs that can be used in the production process.

Question 5

The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:

Accepted Answer

A)   engineering estimation technique.
B)   statistical cost estimation technique.
C)   survivor approach.
D)   back-of-the-envelope approach.

Question 6

Diseconomies of scale are illustrated by:

Accepted Answer

A)   a downward sloping long-run average cost curve.
B)   a flat long-run average cost curve.
C)   an upward-sloping long-run average cost curve.
D)   an upward-sloping short-run average total cost curve.

Question 7

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

Accepted Answer

A)   relatively modest.
B)   nonexistent.
C)   substantial.
D)   heavily dependent on the minimum efficient scale of the firm's production process.

Question 8

When a firm is experiencing economies of scale, the minimum point of the firm's short-run average total cost curve shifts down as it expands its scale of production.

Accepted Answer

A) True 
 B)False

Question 9

All else constant, an improvement in technology at each scale of operation would cause:

Accepted Answer

A)   a movement up an industry's LRAC curve.
B)   a movement down an industry's LRAC curve.
C)   an upward shift of an industry's LRAC curve.
D)   a downward shift of an industry's LRAC curve.

Question 10

Economies of scale are illustrated by:

Accepted Answer

A)   a downward sloping long-run average cost curve.
B)   a flat long-run average cost curve.
C)   an upward-sloping long-run average cost curve.
D)   a downward-sloping short-run average total cost curve.

Question 11

Assume a firm produces 500 units of a good by using two inputs, capital and labor, whose per unit prices are $10 and $4. Assume also that the marginal physical product of the last unit of capital is 30 and the marginal physical product of the last unit of labor is 10. To minimize costs this firm should employ:

Accepted Answer

A)   the existing combination of resources.
B)   more labor and less capital.
C)   more capital and less labor.
D)   both more labor and more capital.

Question 12

One of the major motivations for labor resistance to productivity enhancing changes in a production process is the resulting threat to job security.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the number of people in the United States with health insurance could cause the cost of providing health care services to increase as the incentive for health care providers to minimize costs decreases.

Accepted Answer

A) True 
 B)False

Question 14

Generally speaking, the inclusion of transportation costs in the total costs of production has the effect of causing the LRAC curve to:

Accepted Answer

A)   shift down.
B)   flatten out.
C)   shift up.
D)   become steeper over the range on economies of scale.

Question 15

Which of the following statements about production isoquants is correct?

Accepted Answer

A)   They show all the combinations of two inputs that result in the same level of output.
B)   They are usually concave to the origin.
C)   They show all the combinations of two inputs that yield the same cost of production.
D)   They represent lower levels of output the farther they are from the origin.

Question 16

The positively-sloped part of the long-run average total cost curve is due to which of the following?

Accepted Answer

A)   Diseconomies of scale.
B)   Diminishing returns.
C)   The firm being able to take advantage of large-scale production techniques as it expands its output.
D)   The increase in productivity that results from specialization.

Question 17

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

Accepted Answer

A) True 
 B)False

Question 18

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

Accepted Answer

A)   When the LRAC curve slopes downward over the relevant range of output.
B)   When the LRAC curve hits its minimum point at a relatively low level of output and then increases and the demand for output is quite large.
C)   When the LRAC curve hits its minimum point at a relatively low level of output but then remains constant as the scale of operation is increased and the demand for output is quite large.
D)   When the LRAC curve initially increases and then decreases beyond some point.

Question 19

In the case of a short-run production function:

Accepted Answer

A)   all of the inputs are variable.
B)   the amount of labor employed is held constant.
C)   at least one of the inputs is fixed.
D)   all of the inputs are fixed.

Question 20

Assume a firm is currently employing 20 units of capital and 100 units of labor in its production process. Assume also that the marginal product of the 20th unit of capital is 40 units of output, the marginal product of the 100th unit of labor is 10 units of output and the per unit prices of capital and labor are $20 and $10, respectively. In this case, in order to minimize its costs of production the firm should:

Accepted Answer

A)   hire more capital and less labor.
B)   hire more labor and less capital.
C)   hire less capital and less labor.
D)   hire more capital and more labor.

Exam 6: Production and Cost Analysis in the Long Run

Correct Answer
verified

An increase in the number of people in the United States with health insurance could cause the cost of providing health care services to increase as the incentive for health care providers to minimize costs decreases.

Correct Answer
verified

An increase in the amount of competition with other firms that employ "best practices" would be likely to cause a particular firm's labor productivity to:

Correct Answer
verified

Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?

Correct Answer
verified

Economies of scale are illustrated by:

Correct Answer
verified

Graphically, all else constant, a decrease in the price of labor would be illustrated by:

Correct Answer
verified

Diseconomies of scale are illustrated by:

Correct Answer
verified

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

Correct Answer
verified

Which of the following statements about production isoquants is correct?

Correct Answer
verified

The positively-sloped part of the long-run average total cost curve is due to which of the following?

Correct Answer
verified

The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:

Correct Answer
verified

All else constant, an improvement in technology at each scale of operation would cause:

Correct Answer
verified

When a firm is experiencing economies of scale, the minimum point of the firm's short-run average total cost curve shifts down as it expands its scale of production.

Correct Answer
verified

Generally speaking, the inclusion of transportation costs in the total costs of production has the effect of causing the LRAC curve to:

Correct Answer
verified

In the case of a short-run production function:

Correct Answer
verified

One of the major motivations for labor resistance to productivity enhancing changes in a production process is the resulting threat to job security.

Correct Answer
verified

Correct Answer
verified

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

Correct Answer
verified

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

Correct Answer
verified

Correct Answer
verified

Exam 6: Production and Cost Analysis in the Long Run

Correct AnswerverifiedShow Answer

An increase in the number of people in the United States with health insurance could cause the cost of providing health care services to increase as the incentive for health care providers to minimize costs decreases.

Correct AnswerverifiedShow Answer

An increase in the amount of competition with other firms that employ "best practices" would be likely to cause a particular firm's labor productivity to:

Correct AnswerverifiedShow Answer

Which of the following would have the least amount of influence on a manager's choice of which inputs to employ in a production process?

Correct AnswerverifiedShow Answer

Economies of scale are illustrated by:

Correct AnswerverifiedShow Answer

Graphically, all else constant, a decrease in the price of labor would be illustrated by:

Correct AnswerverifiedShow Answer

Diseconomies of scale are illustrated by:

Correct AnswerverifiedShow Answer

In which of the following situations would consideration of the minimum efficient scale of operation suggest that the market should be served by a single firm to minimize production costs?

Correct AnswerverifiedShow Answer

Which of the following statements about production isoquants is correct?

Correct AnswerverifiedShow Answer

The positively-sloped part of the long-run average total cost curve is due to which of the following?

Correct AnswerverifiedShow Answer

The technique that estimates long-run costs and the minimum efficient scale by determining the scale of operation at which most firms in an industry are concentrated is called the:

Correct AnswerverifiedShow Answer

All else constant, an improvement in technology at each scale of operation would cause:

Correct AnswerverifiedShow Answer

When a firm is experiencing economies of scale, the minimum point of the firm's short-run average total cost curve shifts down as it expands its scale of production.

Correct AnswerverifiedShow Answer

Generally speaking, the inclusion of transportation costs in the total costs of production has the effect of causing the LRAC curve to:

Correct AnswerverifiedShow Answer

In the case of a short-run production function:

Correct AnswerverifiedShow Answer

One of the major motivations for labor resistance to productivity enhancing changes in a production process is the resulting threat to job security.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Much of the research on the minimum efficient scale suggests that for many firms, economies of scale are:

Correct AnswerverifiedShow Answer

One of the primary sources of diseconomies of scale is the inefficiencies associated with managing large scale operations.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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