CHAPTER 8: INPUTS, PRODUCTION, AND COSTS IN THE LONG RUN
In the long-run, the law of diminishing marginal product is the cause of _________. A Higher wage rates B Decreased firm output C Diseconomies of scale D None of the above
D
The amount of time a firm operates with the ability to make long-run decisions is how long? A Between five and ten years B Greater than five years C Greater than two years D Differs by industry
D
Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts, which of the following best describes the effect on inputs? The marginal product of labor will \_\_\_\_\_\_\_\_________; the marginal product of machines will \_\_\_\_\_\_\_\_________. A Increase; decrease B Not change; not change C Increase; increase D Decrease; decrease E Decrease; increase
A
An increase in the prices of an input will cause long-run average costs to ___________. A Increase B Decrease C Not change. The input is fixed. D Either increase or decrease, depending upon whether variable inputs are substituted.
A
When a firm gets so large that coordination and management of workers and other inputs becomes costly and difficult, it is experiencing which of the following? A Diseconomies of scale B Diminishing marginal product C Economies of scale D Economies of scope
A
In the long-run, firms can vary _________. A All inputs B Only capital; changes in labor occur in the short-run C Only labor; changes in capital occur in the short-run D Neither capital or labor. In the long-run, the market determines use of inputs
A
In the long-run, marginal cost will be _____________ average cost if the firm is experiencing economies of scale. A Below B Above C Equal to D None of the above. Marginal cost is a short-run concept.
A
The marginal product of an automobile assembly line worker is currently one automobile per month. The wage and benefits of that typical worker is currently $4,000 per month. A new robot will cost $20,000 per month and its marginal product is four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do? A Hire more labor and buy fewer robots B Hire less labor and buy more robots C Hire more labor and more robots D Change neither the current levels of labor or robots
A
As a firm increases output, long-run average costs typically _________. A Rise, peak, then fall B Fall, hit a minimum, then rise C Increase gradually D Remain constant
B
For any firm, what is the long-run average cost curve? A A downward sloping line B A function which shows the lowest average cost of producing any output level C The same as the long-run marginal cost curve D Upward sloping at all levels of output
B
In the long-run, what will diminishing marginal returns be? A Relevant if all inputs are changed B Relevant if one input is changed while the other input is held constant or reduced C Not be relevant, because all inputs can be changed D Apply if all resources are increased in portion to one another
B
A long-run average cost curve that rises through all levels of possible outputs represents which effect? A The law of diminishing marginal returns B Economies of scale C Diseconomies of scale D None of the above
C
Assume a firm is operating in the long-run. At the current level of output, MPL = 60 and MPK = 600. Also assume that in this industry, W = 20 and R = 200. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.
C
At a bakery, which of the following operating characteristics might result in economies of scale? A Each oven requires one worker attending to it. B Two ovens can produce twice as many cakes as one oven. C A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily. D Each cake produced uses the same amount of ingredients.
C
Suppose an additional worker can handle an additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle an additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct? A The firm should increase labor and decrease capital, because labor costs more per hour. B The firm should increase capital and decrease labor, because labor produces less per hour. C The firm should increase capital and decrease labor, because labor produces less per dollar spent. D The firm should increase labor and decrease capital, because labor produces less per dollar spent.
C
Suppose that the cost of all inputs (both labor and capital) decreases. What will happen to the long-run cost curve? The curve will _____, illustrating that _______. A Shift right; there are no diseconomies of scale B Shift downward; economies of scale now occur at more output levels C Shift downward; any level of output can now be produced at a lower average cost D Shift upward; the firm will increase costs by spending money elsewhere
C
The marginal product of labor is 100 boxes of software and wages are $10 per hour. A machine that does the same work rents for $200 per hour and packages 1000 boxes per hour. If the firm is currently producing the amount it wishes, what should it do? A Expand labor and reduce capital, the marginal product of capital is greater than the marginal product of labor B Expand labor and reduce capital, as capital costs significantly more C Expand capital and reduce labor, as the additional output for each dollar spent is greater for capital than labor D Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital
D
In the previous question, what will happen if the wage increases to $75 per day and the rent of the machines increases to $100 per day? A The firm should expect that its average costs will increase. B The firm should reduce the rental of machines and expand labor, because the cost of machines increased by a larger amount. C The firm should hire more machines, as the marginal product of each dollar spent is less on machines. D The firm should hire more labor, as labor still costs less than machines.
A
For the next three questions, the following abbreviations are used. MPL = marginal product of labor. MPK = marginal product of capital. W = wage rate (the cost of a unit of labor). R = rental rate (the cost of a unit of capital). Assume a firm is operating in the long-run. At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.
B
Once firms have adjusted their hiring, a college-educated worker, whose marginal product is twice that of the typical worker with only a high-school education, should expect that her wages will be which of the following? A More than twice the amount of the high-school graduate B Twice the amount of the high-school graduate C Less than twice that of the high-school graduate D One cannot tell. The college worker may have better alternatives.
B
Suppose a firm doubles its inputs in the long-run, and as a result, output doubles. Which of the following is true? A This firm is experiencing economies of scale. B This firm is experiencing constant returns to scale. C This firm is not using the lowest cost combination of capital and labor. D This firm is growing too fast and reducing profits.
B
The marginal product of labor (MPL) can be defined as which of the following? A The change in output costs when another worker is hired B The change in output level as the result of hiring another worker C The change in the wage rate as the result of hiring another worker D The change in capital productivity when another worker is hired
B
When can diseconomies of scale occur? A In the short-run B In the long-run C When total costs are falling D When average costs are falling
B
Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale? A Specialization of all inputs B Reducing issues with diminishing marginal product of labor C Firms using larger volume equipment D Improved equipment
B
Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do? A Rent more machines, because their marginal products are higher B Hire more workers, because they cost less per day C Not change the number of machines or workers D Expand both the number of machines and workers
C
Economies of scale happen when increases in output result in _________. A Increasing average costs B Constant average costs C Lower average costs D Lower total costs
C
For a firm, the short-run is defined as being __________. A A period of time less than one year B A period of time less than one month C A period of time in which at least one of the firm's inputs is unchangeable D A period of time in which all the firm's inputs are variable
C
Regarding input choices, how would a firm respond to an increase in the wage rate? A The firm would use less capital. B The firm would use less labor. C The firm would use less labor and more capital. D The firm would use more labor and less capital.
C
What is the main source of diseconomies of scale? A Physical capital breaking more often with large output levels B Specialization of capital and labor C Limited ability to manage and coordinate larger amounts of inputs D Workers getting fatigued
C
Which of the following is an example of long-run decision for a firm? A A grocery hires a new deli manager B A university hires a new president C A car manufacturer builds a new factory D A tech company hires ten new interns
C
