ECON 2201 CH. 6 & 7 Quizzes for Exam 3
Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. The total cost to produce 50 cookies is $20 $60 $50 $25 indeterminate
$20
Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. The total cost to produce 100 cookies is $0.25 $0.10 $100.00 $25.00 indeterminate
$25.00
*(Start of Ch. 7) Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? $45,000 per year zero $25,000 per year $70,000 per year
$45,000 per year
Assume that a firm spends $500 on two inputs, labor (graphed on the horizontal axis) and capital (graphed on the vertical axis). If the wage rate is $20 per hour and the rental cost of capital is $25 per hour, the slope of the isocost curve will be 25/500. 500. -4/5. 25/20 or 1.25.
-4/5.
Suppose that the price of labor (PL) is $10 and the price of capital (PK) is $20. What is the equation of the isocost line corresponding to a total cost of $100? PL + 20PK 100 + 30 100 = 10L + 20K 100 = 30(L+K) none of the above
100 = 10L + 20K
The total cost (TC) of producing computer software diskettes (Q) is given as: What is the average total cost? 5 + (200/Q) 500 5Q 5 none of the above
5 + (200/Q)
The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the variable cost? 5 + (200/Q) 200 5 5Q none of the above
5Q
An important factor that contributes to labor productivity growth is: technological change. growth in the capital stock. the standard of living. A and B only A, B, and C are correct.
A and B only
The marginal rate of technical substitution is equal to: the ratio of the marginal products of the inputs. the absolute value of the slope of an isoquant. the ratio of the prices of the inputs. all of the above A and B only
A and B only
You operate a car detailing business with a fixed amount of machinery (capital), but you have recently altered the number of workers that you employ per hour. As you increased the number of employees hired per hour from three to five, your total output increased by 5 cars to 15 cars per hour. What is the average product of labor at the new levels of labor? AP = 5 cars per worker AP = 3 cars per worker AP = 4 cars per worker We do not have enough information to answer this question.
AP = 3 cars per worker
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the average product of labor? AP = 5L AP = 5 AP = 5K AP = 5K/L
AP = 5K
Technological improvement can be shown as a shift in the total product curve. allows more output to be produced with the same combination of inputs. can hide the presence of diminishing returns. All of the above are true.
All of the above are true.
Refer to Figure 6.1. Which of the following statements is false? At point E the average product of labor is decreasing. At point E the marginal product of labor is decreasing. At point E the marginal product of labor is negative. At point E the average product of labor is negative. At point E the marginal product of labor is less than the average product of labor.
At point E the average product of labor is negative.
Which of the following costs always declines as output increases? Fixed cost Average cost Marginal cost Average variable cost Average fixed cost
Average fixed cost
An examination of the production isoquants in the diagram below reveals that: capital and labor must be used in fixed proportions. capital and labor are perfectly substitutable. except at the corners of the isoquants the MRTS is constant. Both B and C are correct. none of the above
Both B and C are correct. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q72g1.jpg)
Two isoquants, which represent different output levels but are derived from the same production function, cannot cross because isoquants represent different utility levels additional inputs will not be used by profit maximizing firms if those inputs decrease output isoquants are downward sloping this would violate a technical efficiency condition Both B and D are true.
Both B and D are true.
Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale. Both I and II are true. Both I and II are false. I is true, and II is false. I is false, and II is true.
Both I and II are false.
An effluent fee is imposed on a steel firm to reduce the amount of waste materials that it dumps in a river. Use the following two statements to answer this question: I. The more easily factors of production can be substituted for one another (for example, capital can be used to reduce waste water), the more effective the fee will be in reducing effluent. II. The greater the degree of substitution of capital for waste water, the less the firm will have to pay in effluent fees. Both I and II are false. I is true, and II is false. Both I and II are true. I is false, and II is true.
Both I and II are true.
Consider the following statements when answering this question. I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale. II. Diminishing returns determines the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve. Both I and II are false. Both I and II are true. I is true, and II is false. I is false, and II is true.
Both I and II are true.
Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the variable cost curve at that level of output. Both I and II are true. Both I and II are false. I is true, and II is false. I is false, and II is true.
Both I and II are true.
Use the following two statements to answer this question: I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present. II. A firm's average cost of production can decline over time if learning occurs as cumulative output increases. Both I and II are false. Both I and II are true. I is true, and II is false. I is false, and II is true.
Both I and II are true.
Use the following two statements to answer this question: I. A growing firm's average cost of production will decline over time if output continually expands and economies of scale are present. II. A firm's average cost of production can decline over time if learning occurs as cumulative output increases. Both I and II are true. I is true, and II is false. Both I and II are false. I is false, and II is true.
Both I and II are true.
Use the following two statements to answer this question: I. The average total cost of a given level of output is the slope of the line from the origin to the total cost curve at that level of output. II. The marginal cost of a given level of output is the slope of the line that is tangent to the total cost curve at that level of output. Both I and II are true. I is false, and II is true. I is true, and II is false. Both I and II are false.
Both I and II are true.
Which of the following is NOT a reason for average costs to fall according to the learning curve? Managers schedule more efficiently over time. Suppliers may become better able to produce the exact inputs the firm needs. Workers accomplish tasks more quickly after doing the task a few times. Engineers determine more accurately what tolerances can be used. Competing firms leave the industry as the learning firm becomes more efficient.
Competing firms leave the industry as the learning firm becomes more efficient.
What is the economies of scope character for a firm that has a straight-line product transformation curve? SC = 0 Economies of scope (SC > 0) SC = 1 Diseconomies of scope (SC < 0)
Economies of scope (SC > 0)
Which of the following actions is not an example of the production coordination provided by firms? Manage production activities of workers Pay wages to workers Set the production schedule for each week Establish industry safety regulations
Establish industry safety regulations
Which of the following actions is not an example of the production coordination provided by firms? Pay wages to workers Set the production schedule for each week Manage production activities of workers Establish industry safety regulations
Establish industry safety regulations
Which of the following equations based on capital (K) and labor (L) inputs does not represent a plausible production function? F(K,L) = 3KL F(K,L) = 10(KL)0.5 F(K,L) = 3K F(K,L) = K + L - 1
F(K,L) = K + L - 1
Why do firms tend to experience decreasing returns to scale at high levels of output? Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output. Firms face fewer problems with inventory management and marketing as output reaches very high levels. Government tax policy tends to discourage large-scale production operations. Firms tend to use more capital and less labor at higher levels of output.
Firms face more problems with coordinating tasks and communications among managers and workers at very high levels of output.
Which of the following statements does not explain why US health care expenditures are higher than in other countries? Government policies have shifted the health care production function downward over time. The US health care system is relatively inefficient compared to other countries. Demand for health care in the US has increased, so health care production occurs at a higher point on the total product curve than in other countries. Consumer incomes have increased, which allows consumers to purchase more health care.
Government policies have shifted the health care production function downward over time.
Consider the following statements when answering this question. I. As Boeing's production fell 10% to 100 planes last year, learning by doing cannot account for this year's changes in long-run average costs. II. Failure to take into account the effects of learning by doing will lead to overestimates of the cost-output elasticity. I is false, and II is true. Both I and II are true. I is true, and II is false. Both I and II are false.
I is false, and II is true.
Use the following statements to answer this question: I. The long-run average cost (LAC) curve is the envelope of the short-run average cost (SAC) curves. II. The long-run marginal cost (LMC) curve is the envelope of the short-run marginal cost (SMC) curves. II is true and I is false. I and II are false. I and II are true. I is true and II is false.
I is true and II is false.
Use the following statements to answer this question. I. The numerical labels attached to indifference curves are meaningful only in an ordinal way. II. The numerical labels attached to isoquants are meaningful only in an ordinal way. both I and II are true. I is false, and II is true. I is true, and II is false. both I and II are false.
I is true, and II is false.
Use the following two statements to answer this question: I. If the marginal product of labor is zero, the total product of labor is at its maximum. II If the marginal product of labor is at its maximum, the average product of labor is falling. I is false, and II is true. Both I and II are true. Both I and II are false. I is true, and II is false.
I is true, and II is false.
Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale. I is false, and II is true. I is true, and II is false. Both I and II are true. Both I and II are false.
I is true, and II is false.
Use the following two statements to answer this question: I. Isoquants cannot cross one another. II. An isoquant that is twice the distance from the origin represents twice the level of output. Both I and II are true. I is false, and II is true. I is true, and II is false. Both I and II are false.
I is true, and II is false.
Use the following two statements to answer this question: I. Production functions describe what is technically feasible when the firm operates efficiently. II. The production function shows the least cost method of producing a given level of output. I is false, and II is true. Both I and II are false. Both I and II are true. I is true, and II is false.
I is true, and II is false.
Use the following statements to answer this question: I. The scale economies index is positive if the cost-output elasticity that is greater than one. II. A negative scale economies index indicates the presence of diseconomies of scale. II is true and I is false. I is true and II is false. I and II are true. I and II are true.
II is true and I is false.
Which of the following statements demonstrates an understanding of the importance of sunk costs for decision making? I. "Even though I hate my MBA classes, I can't quit because I've spent so much money on tuition." II. "To break into the market for soap our firm needs to spend $10M on creating an image that is unique to our new product. When deciding whether to develop the new soap, we need to take this marketing cost into account." Both I and II II only Neither I nor II I only
II only
From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MPL. Based on this equation, which of the following statements is NOT true? If the marginal product of labor is a concave curve, then the MC curve is U-shaped. If the marginal product of labor is a concave curve, then the MC curve is also concave. MC increases as the marginal product of labor declines. If the marginal product of labor is constant, then MC is constant.
If the marginal product of labor is a concave curve, then the MC curve is also concave.
Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Short-run time period Law of diminishing resource availability Law of diminishing returns Shortage of labor
Law of diminishing returns
Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Law of diminishing returns Short-run time period Shortage of labor Law of diminishing resource availability
Law of diminishing returns
A learning curve may be expressed as a relationship between the labor per unit (L) and the cumulative number of units produced (N). Which of the following learning curves exhibits a faster reduction in cost of production due to learning, (1) L = 10 + N-1 or (2) L = 10 + N-0.5? Learning curve (2) Learning curve (1) Curves (1) and (2) exhibit the same rate. We cannot determine the rate of cost reduction without knowing the value of N.
Learning curve (1)
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). What is the marginal product of labor? MP = 5 MP = 5K MP = 5L MP = 5K/L
MP = 5K
What describes the graphical relationship between average product and marginal product? Average product cuts marginal product from below, at the maximum point of marginal product. Marginal product cuts average product from above, at the maximum point of average product. Marginal product cuts average product from below, at the maximum point of average product. Average product cuts marginal product from above, at the maximum point of marginal product. Average and marginal product do not intersect.
Marginal product cuts average product from above, at the maximum point of average product.
In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale. Are returns to scale in this industry likely to continue increasing as these firms become even larger? The authors do not provide any comments on this issue. Yes, the marginal products of labor and capital are known to be positive at all levels of output in the U.S. carpet industry, which implies continued increasing returns to scale. No, the authors predict that returns to scale in carpet production will likely decline at some point. Yes, increasing returns are always observed in other countries that produce carpeting on large scale.
No, the authors predict that returns to scale in carpet production will likely decline at some point.
Joe owns a coffee house and produces coffee drinks under the production function q = 5KL where q is the number of cups generated per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). The average product of labor and the marginal product of labor are both equal to AP = MP = 5K. Does labor exhibit diminishing marginal returns in this case? Yes, if capital also exhibits diminishing marginal returns. Yes, this is true for all values of K. No, the marginal product of labor is constant (for a given K). No, the marginal product of labor is increasing (for a given K).
No, the marginal product of labor is constant (for a given K).
Does it make sense to consider the returns to scale of a production function in the short run? No, returns to scale is a property of the consumer's utility function. Yes, this is an important short-run characteristic of production functions. Yes, returns to scale determine the diminishing marginal returns of the inputs. No, we cannot change all of the production inputs in the short run.
No, we cannot change all of the production inputs in the short run.
For any given level of output: marginal cost must be greater than average cost. average fixed cost must be greater than average variable cost. fixed cost must be greater than variable cost. average variable cost must be greater than average fixed cost. None of the above is necessarily correct.
None of the above is necessarily correct.
For many firms, capital is the production input that is typically fixed in the short run. Which of the following firms would face the longest time required to adjust its capital inputs? Nuclear power plant Flat-screen TV manufacturer Computer chip fabricator Firm that makes DVD players.
Nuclear power plant
For Figure 6.9 in the book, MRTS = K/(4L) with capital (K) on the vertical axis of the isoquant map. Suppose L=100 hours and K=400 machine hours at the current level of output. How much additional labor is required to maintain output if we reduce capital by one machine hour? Two hours Four hours Three hours One hour
One hour
Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output? Output decreases by more than 25 percent Output increases by less than 25 percent Output decreases by less than 25 percent Output decreases by exactly 25 percent
Output decreases by more than 25 percent
Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? Executive Positive Administrative Normative
Positive
Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? Normative Executive Administrative Positive
Positive
Suppose there are ten identical manufacturing firms that produce computer chips with machinery (capital, K) and labor (L), and each firm has a production function of the form q = 10KL0.5. What is the industry-level production function? Q = 100KL0.5 Q = 10K10L5 Q = 100L0.5 none of the above
Q = 100KL0.5
Which of the following relationships is NOT valid? When marginal cost is below average total cost, the latter is falling. When marginal cost is above average variable cost, AVC is rising. Rising marginal cost implies that average total cost is also rising. none of the above
Rising marginal cost implies that average total cost is also rising.
Joe's Organic Cereal Company produces granola breakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change? Shift downward Shift leftward Shift rightward Shift upward
Shift downward
Which of the following is true of cost curves? The MC curve goes through the minimum of the AVC curve, to the right of the minimum of the ATC curve. The ATC curve goes through the minimum of the MC curve. The AVC curve goes through the minimum of the MC curve. The MC curve goes through the minimum of the ATC curve, to the left of the minimum of the AVC curve. The MC curve goes through the minimum of both the AVC curve and the ATC curve.
The MC curve goes through the minimum of both the AVC curve and the ATC curve.
Which of the following is NOT related to the slope of isoquants? The fact that more of either input increases output The fact that input prices are positive The fact that inputs have diminishing marginal product The fact that there are diminishing returns to inputs The fact that inputs have positive marginal product
The fact that input prices are positive
If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit maximizing firm choose between these two inputs? The firm will only use the input with higher cost The firm will only use the input with lower cost The firm cannot achieve a profit maximizing level of output under these circumstances The firm will use equal amounts of the two inputs, even if one of the inputs has a lower cost
The firm will only use the input with lower cost
As an economy recovers from a recession, the observed level of labor productivity tends to decline. Why? The marginal product of labor increases at a slower rate than the decline in employment. The marginal product of labor declines as new workers enter the expanding work force. The total product remains the same during the recovery, but the number of workers declines. The total product increases during the recovery, but the number of workers declines.
The marginal product of labor declines as new workers enter the expanding work force.
A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale? The short-run average cost curve reveals nothing regarding returns to scale. The firm experiences first decreasing, then increasing returns to scale. The firm experiences increasing, constant, and decreasing returns in that order. The firm experiences increasing returns to scale.
The short-run average cost curve reveals nothing regarding returns to scale.
Which of the following is true regarding the relationship between returns to scale and economies of scope? A firm experiencing economies of scope must also experience increasing returns to scale. A firm experiencing increasing returns to scale must also experience economies of scope. There is no definite relationship between returns to scale and economies of scope. Economies of scale and economies of scope must occur together.
There is no definite relationship between returns to scale and economies of scope.
Suppose capital and labor are perfect substitutes in a long-run production process. If labor costs $15 per hour and the rental rate of capital is $20 per hour, what can we say about the profit maximizing choice of labor and capital inputs? The optimal capital-labor ratio is 0.75-to-1. We will only use labor in the production process We will only use capital in the production process We will use equal amounts of capital and labor
We will only use labor in the production process
In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land? It depends on what the rate of interest was. It depends on what the rate of inflation was between 1985 and 1992. Yes. No.
Yes.
A cubic cost function implies: linear average fixed cost curve. a U-shaped average cost curve. linear marginal cost curve. all of the above
a U-shaped average cost curve.
A firm's expansion path is a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices. a curve that makes the marginal product of the last unit of each input equal for each output. the firm's production function. none of the above
a curve that shows the least-cost combination of inputs needed to produce each level of output for given input prices.
To model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: equal to the 45-degree line from the origin. a horizontal line. a vertical line. not defined.
a horizontal line.
A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called a production possibility curve. an isoquant. a production function. an isocost function.
a production function.
If the law of diminishing returns applies to labor then the marginal product of labor must rise and then fall as employment rises. the marginal product of labor must eventually become negative. after some level of employment, the marginal product of labor must fall. the average product of labor must eventually become negative. the average product of labor must rise and then fall as employment increases.
after some level of employment, the marginal product of labor must fall.
If the law of diminishing returns applies to labor then the marginal product of labor must eventually become negative. the average product of labor must eventually become negative. the average product of labor must rise and then fall as employment increases. after some level of employment, the marginal product of labor must fall. the marginal product of labor must rise and then fall as employment rises.
after some level of employment, the marginal product of labor must fall.
A cubic cost function implies: a U-shaped average cost curve. a U-shaped marginal cost curve. a U-shaped average variable cost curve. all of the above
all of the above
Refer to Figure 7.1. At output level Q1 average variable cost is less than average fixed cost. marginal cost is falling. marginal cost is less than average total cost. average total cost is falling. all of the above
all of the above
Which of the following examples represents a fixed-proportion production system with capital and labor inputs? Horse-drawn carriages and carriage drivers Clerical staff and computers Airplanes and pilots all of the above
all of the above
Which of the following inputs are variable in the long run? capital and equipment. plant size. labor. all of these.
all of these.
If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called: the marginal product. the total product. an isoquant. the average product. none of the above
an isoquant.
For consideration of such issues as labor's productivity growth nationwide, the relevant measure is the wage. marginal product of labor. average product of labor. cost of capital. total product of labor.
average product of labor.
Refer to Figure 7.1. At output level Q2 average fixed cost is increasing. average variable cost equals average fixed cost. average total cost is negative. marginal cost is negative. none of the above
average variable cost equals average fixed cost.
Refer to Figure 7.1. At output level Q3 average fixed cost reaches its minimum. average total cost reaches its minimum. marginal cost reaches its minimum. average variable cost reaches its minimum. all of the above
average variable cost reaches its minimum.
A learning curve may be stated as L = A + BN-b where L is the labor per unit and N is the cumulative number of units produced. Learning does not occur when b = 0 b > 0 b = 1 b < 0
b = 0
The Malthusian dilemma relates to marginal product in that starvation can be averted only if marginal product is constant. because of diminishing marginal product, the wage falls as the population decreases. because of diminishing marginal product, the amount of food produced by each additional member of the population decreases. because of diminishing average product, the population will not have additional capital to work with. because of diminishing marginal product, the amount of food produced by each additional member of the population increases.
because of diminishing marginal product, the amount of food produced by each additional member of the population decreases.
As we move downward along a typical isoquant, the slope of the isoquant becomes flatter. becomes steeper. remains constant. becomes linear.
becomes flatter.
An examination of the production isoquants in the diagram below reveals that: capital and labor will be used in fixed proportions. the MRTS is constant. capital and labor are perfectly substitutable. Both B and C are correct. none of the above
capital and labor will be used in fixed proportions. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q73g1.jpg)
If input prices are constant, a firm with increasing returns to scale can expect costs to go up less than double as output doubles. to never reach the point where the marginal product of labor is equal to the wage. costs to more than double as output doubles. costs to double as output doubles. to hire more and more labor for a given amount of capital, since marginal product increases.
costs to go up less than double as output doubles.
A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm could increase its output at no extra cost by employing more capital and less labor. could reduce the cost of producing its current output level by employing more capital and less labor. could reduce the cost of producing its current output level by employing more labor and less capital. is producing its current output level at the minimum cost. Both B and D are true.
could reduce the cost of producing its current output level by employing more labor and less capital.
In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences decreasing returns to scale. negative returns to scale. increasing returns to scale. constant returns to scale.
decreasing returns to scale.
If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: diminishing marginal returns. positive average product. free disposal. technical efficiency.
diminishing marginal returns.
When a product transformation curve for a firm is bowed inward, there are ________ in production. diseconomies of scope economies of scale economies of scope diseconomies of scale
diseconomies of scope
Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. For 100 cookies, the average total cost is neither rising nor falling. rising. less than average fixed cost. falling.
falling.
Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will: follow the 45-degree line from the origin. increase at a decreasing rate because we will substitute capital for labor as the business grow. not be defined. be a vertical line.
follow the 45-degree line from the origin.
The presence of a learning curve may induce a decision maker in a startup firm to choose low levels of output to shift the average cost curve down over time. high levels of output to shift the average cost curve down over time. low levels of output to exploit economies of scale. high levels of output to exploit economies of scale. to produce more than one output.
high levels of output to shift the average cost curve down over time.
At a given level of labor employment, knowing the difference between the average product of labor and the marginal product of labor tells you whether increasing labor use changes the marginal product of labor. whether increasing labor use raises output. whether economies of scale exist. whether the law of diminishing returns applies. how increasing labor use alters the average product of labor.
how increasing labor use alters the average product of labor.
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function This production function exhibits constant returns to scale for all output levels increasing returns to scale for all output levels no clear pattern of returns to scale decreasing returns to scale for all output levels
increasing returns to scale for all output levels
A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function This production function exhibits decreasing returns to scale for all output levels no clear pattern of returns to scale increasing returns to scale for all output levels constant returns to scale for all output levels
increasing returns to scale for all output levels
The LAC and LMC curves in the diagram below are consistent with a production function that exhibits increasing returns to scale. decreasing returns to scale. constant returns to scale. decreasing returns to scale for small levels of output, then constant returns to scale, and eventually increasing returns to scale as output increases. increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases.
increasing returns to scale for small levels of output, then constant returns to scale, and eventually decreasing returns to scale as output increases. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/chapter%207%20quiz0607131447/f1q78g1.jpg)
Refer to Figure 6.2. The situation pictured is one of decreasing returns to scale, because the isoquants are convex. constant returns to scale, because the line through the origin is linear. decreasing returns to scale, because doubling inputs results in less than double the amount of output. increasing returns to scale, because the isoquants are convex. increasing returns to scale, because doubling inputs results in more than double the amount of output.
increasing returns to scale, because doubling inputs results in more than double the amount of output. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q94g1.jpg)
According to the diagram below, where each isoquant's output level is marked to the right of the isoquant, production is characterized by increasing returns to scale. constant returns to scale. increasing, constant and decreasing returns to scale. decreasing returns to scale.
increasing returns to scale.
An isocost line reveals the costs of inputs needed to produce along an isoquant. output combinations that can be produced with a given outlay of funds. input combinations that can be purchased with a given outlay of funds. costs of inputs needed to produce along an expansion path.
input combinations that can be purchased with a given outlay of funds.
An isoquant is a curve that shows all possible output levels that can be produced at the same cost. must be linear. is a curve that shows the maximum total output as a function of the level of labor input. cannot have a negative slope. is a curve that shows all the combinations of inputs that yield the same total output.
is a curve that shows all the combinations of inputs that yield the same total output.
The situation pictured in Figure 6.2 is one of increasing marginal returns to capital. is one of increasing marginal returns to labor. is consistent with diminishing marginal product. contradicts the law of diminishing marginal product. shows decreasing returns to scale.
is consistent with diminishing marginal product. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q95g1.jpg)
The function which shows combinations of inputs that yield the same output is called a(n) production function. isoquant curve. production possibilities frontier. isocost curve.
isoquant curve.
A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that isoquants have negative slope isoquants are relevant only in the long run isoquants are convex isoquants can become vertical or horizontal none of the above
isoquants have negative slope
A construction company builds roads with machinery (capital, K) and labor (L). If we plot the isoquants for the production function so that labor is on the horizontal axis, then a point on the isoquant with a small MRTS (in absolute value) is associated with high ________ use and low ________ use. concrete, gravel labor, capital capital, labor none of the above
labor, capital
Increasing returns to scale in production means isoquants must be linear. more than 10% as much of all inputs are required to increase output 10%. less than twice as much of all inputs are required to double output. more than twice as much of only one input is required to double output.
less than twice as much of all inputs are required to double output.
A production function in which the inputs are perfectly substitutable would have isoquants that are linear. L-shaped. concave to the origin. convex to the origin.
linear.
A variable cost function of the form: VC = 23 + Q + 7Q2 implies a marginal cost curve that is downward sloping. U-shaped. quadratic. linear.
linear.
Incremental cost is the same concept as ________ cost. fixed marginal average variable
marginal
In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus, average fixed cost is constant. marginal cost is above average variable cost. marginal cost is below average fixed cost. marginal cost is below average variable cost.
marginal cost is below average variable cost.
The key assumption required for us to use a linear variable cost function of the form VC = bq is that: marginal cost is always greater than average variable cost. marginal cost must be constant and equal to b. marginal cost must be increasing at rate b. fixed costs must be zero.
marginal cost must be constant and equal to b.
The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the marginal rate of substitution. marginal rate of technical substitution. average product of the input. slope of the isocost curve.
marginal rate of technical substitution.
The law of diminishing returns refers to diminishing average returns. total returns. marginal returns. all of these.
marginal returns.
A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm's long-run average cost curve over this range of output is horizontal. is downward sloping. is upward sloping. may be any of the above.
may be any of the above.
A group of friends recently started manufacturing specialty T-shirts. The business has grown rapidly, with monthly production up from 50 to 250 in the first 6 months. During this same period, average production cost has been cut in half. The firm's long-run average cost curve over this range of output is upward sloping. is horizontal. is downward sloping. may be any of the above.
may be any of the above.
The total cost of producing a given level of output is maximized when a corner solution exists. minimized when the marginal products of all inputs are equal. minimized when the ratio of marginal product to input price is equal for all inputs. minimized when marginal product multiplied by input price is equal for all inputs.
minimized when the ratio of marginal product to input price is equal for all inputs.
Economies of scope refer to the very long run. multiproduct firms. short-run economies of scale. changes in technology. single product firms that utilize multiple plants.
multiproduct firms.
The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the average fixed cost? 5 + (200/Q) 500 5 5Q none of the above
none of the above
Refer to Figure 6.1. At which point on the total product curve is the average product of labor the highest? point A. point B. point C. point D. none of the above
point B.
Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that: production at this point is technically inefficient. the airline will have negative profits. the isoquants for this production process are upward sloping. the production process violates diminishing margin returns.
production at this point is technically inefficient.
Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that: the airline will have negative profits. production at this point is technically inefficient. the production process violates diminishing margin returns. the isoquants for this production process are upward sloping.
production at this point is technically inefficient.
Which of the following production functions exhibits constant returns to scale? q = log(KL) q = K + L q = KL0.5 q = KL
q = K + L
If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the marginal product of labor. marginal product of capital. average rate at which the firm can replace capital with labor without changing the output rate. rate at which the firm can replace capital with labor without changing the output rate.
rate at which the firm can replace capital with labor without changing the output rate.
Refer to Figure 6.1. At point A, the marginal product of labor is diminishing. at its maximum. at its minimum. rising.
rising. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q36g1.jpg)
Refer to Figure 7.1. The diagram above contains ________ cost curves. short run long run both short run and long run. intermediate run
short run (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/chapter%207%20quiz0607131447/f1q37g1.jpg)
The situation pictured in Figure 6.3 shows constant returns to scale. is one of increasing marginal returns to capital. shows diminishing marginal products of labor and capital. is one of increasing marginal returns to labor. is not consistent with diminishing marginal product of labor or capital.
shows diminishing marginal products of labor and capital. (https://lms.uconn.edu/courses/1/1155-UCONN-ECON-2201-SEC10-1185/ppg/Chapter%2006%20Quiz0401131541/f1q97g1.jpg)
A farmer uses L units of labor and K units of capital to produce Q units of corn using a production function F(K,L). A production plan that uses to produce Q' units of corn where Q'< F(10,10) is said to be technically feasible and efficient. technically unfeasible and inefficient. technically feasible and inefficient. technically unfeasible and efficient. none of the above
technically feasible and inefficient.
The concerns about world food production raised by Malthus have not materialized because: crop prices have risen over time. technological improvements have increased our ability to produce food over time. Malthus was wrong about the diminishing returns to labor in agriculture. input prices have fallen over time.
technological improvements have increased our ability to produce food over time.
We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K=10 robots and L=10 workers in order to produce q = 450 autos per shift, then we know that production is: technologically efficient. technologically inefficient. maximized. optimal.
technologically inefficient.
A production function assumes a given set of input prices. ratio of input prices. amount of capital and labor. amount of output. technology.
technology.
The link between the productivity of labor and the standard of living is inverse. tenuous and changing. that over the long run, consumers' rate of consumption is not related to labor productivity. that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity. that the productivity of labor grows much more erratically than the standard of living.
that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.
The marginal product of an input is total product divided by the amount of the input used to produce this amount of output. the addition to total output due to the addition of one unit of all other inputs. the addition to total output due to the addition of the last unit of an input, holding all other inputs constant. the addition to total output that adds nothing to total revenue. the addition to total output that adds nothing to profit.
the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.
When labor usage is at 12 units, output is 36 units. From this we may infer that the average product of labor is 3. the marginal product of labor is 3. the total product of labor is 1/3. none of the above
the average product of labor is 3.
In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that as more labor is used, the average product of labor falls the average product of labor is always equal to the marginal product of labor the average product of labor is always greater that the marginal product of labor the average product of labor is always less than the marginal product of labor there is no unambiguous relationship between labor's marginal and average products.
the average product of labor is always equal to the marginal product of labor
One of the factors contributing to the fact that labor productivity is higher in the U.S. than in the People's Republic of China is China's larger stock of capital. the fact that much labor in the U.S. is in management. China's smaller stock of fossil fuels. the higher capital/labor ratio in China. the higher capital/labor ratio in the U.S.
the higher capital/labor ratio in the U.S.
According to the law of diminishing returns the total product of an input will eventually decline. the marginal product of an input will eventually decline. the marginal product of an input will eventually be negative. the total product of an input will eventually be negative. none of the above
the marginal product of an input will eventually decline.
With its current levels of input use, a firm's MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies the firm could produce 3 more units of output if it increased its use of labor by one unit (holding capital constant). if the firm reduced its capital stock by one unit, it would have to hire 3 more workers to maintain its current level of output. the firm could produce 3 more units of output if it increased its use of capital by one unit (holding labor constant). the marginal product of labor is 3 times the marginal product of capital. if it used one more unit of both capital and labor, the firm could produce 3 more units of output.
the marginal product of labor is 3 times the marginal product of capital.
If the isoquants are straight lines, then inputs have fixed costs at all use rates. there are constant returns to scale. only one combination of inputs is possible. the marginal rate of technical substitution of inputs is constant.
the marginal rate of technical substitution of inputs is constant.
The difference between the economic and accounting costs of a firm are the corporate taxes on profits . the opportunity costs of the factors of production that the firm owns. the accountant's fees. the explicit costs of the firm. the sunk costs incurred by the firm.
the opportunity costs of the factors of production that the firm owns.
The equation below gives the degree of economies of scope (SC): SC = (C(Q1) + C(Q2) - C(Q1,Q2))) / C(Q1,Q2) where C(Q1) is the cost of producing output is the cost of producing output Q2, and is the joint cost of producing both outputs. If SC is negative: there are diseconomies of scope. there are neither economies nor diseconomies of scope. there are economies of scope. there are both economies and diseconomies of scope.
there are diseconomies of scope.
At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that: the cost-output elasticity is greater than one. there are diseconomies of scale. there are economies of scale. there are neither economies nor diseconomies of scale.
there are economies of scale.
Marginal product crosses the horizontal axis (is equal to zero) at the point where total product is maximized. diminishing returns set in. output per worker reaches a maximum. average product is maximized. All of the above are true.
total product is maximized.
A straight-line isoquant is impossible. would indicate that capital and labor are perfect substitutes in production. would indicate that the firm could not switch from one output to another. would indicate that capital and labor cannot be substituted for each other in production. would indicate that the firm could switch from one output to another costlessly.
would indicate that capital and labor are perfect substitutes in production.
An L-shaped isoquant would indicate that capital and labor are perfect substitutes in production. would indicate that capital and labor cannot be substituted for each other in production. would indicate that the firm could switch from one output to another costlessly. would indicate that the firm could not switch from one output to another. is impossible.
would indicate that capital and labor cannot be substituted for each other in production.
The MRTS for isoquants in a fixed-proportion production function is: zero or one. always zero. always one. zero or undefined.
zero or undefined.
Writing total output as Q, change in output as Q, total labor employment as L, and change in labor employment as L, the marginal product of labor can be written algebraically as ΔQ ∙ L. ΔL / ΔQ. ΔQ / ΔL. Q / L.
ΔQ / ΔL.
