Chapter 9

When a purchasing agent is able to secure lower input prices as output increases, the result is

When a purchasing agent is able to secure lower input prices as output increases, the result is

In the long run...

a firm is making the optimal input choice when the marginal rate of technical substitution is equal to the input price ratio.

When output is zero, LRTC =

$0

The slope of the isocost line is

-w/r.

The firm's long run average costs can generally be reduced by

adjusting the quantity of the fixed inputs as the opportunity arises.

A(n) _____ shows all combinations of inputs that may be purchased for a given level of total expenditures at given input prices.

isocost curve

A(n) ______ is a curve showing all possible combinations of inputs capable of producing a given fixed level of output. Multiple choice question.

isoquant

A(n) ______ is a graph showing a group of isoquants.

isoquant map

Economies of scope exist whenever

it is less costly for a firm to produce two goods together than a firm to produce the goods individually.

When the process of producing one good also produces a by-product at little to no additional cost, this is economies of scope caused by

joint products.

If a manager has a fixed expenditure budget and wishes to produce as much output as possible with that expenditure, the manager should produce the quantity on the isoquant that is _______ the related isocost.

just tangent to

The envelope of the lowest short run average costs makes the

long-run average cost curve.

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

long-run average cost decreases as more is produced.

Economies of scale exist when

long-run average cost decreases as output increases.

Economies of scale occur when

long-run average total costs fall as output increases

Long-run average cost is calculated as

long-run total cost / output

Long-run average cost is calculated by _____.

long-run total cost / output

Long-run average costs are often _____ than short-run average costs.

lower

The slope of an isoquant is

marginal rate of technical substitution

Cost and output are ______ related in long-run total cost.

positively

An increase in the expenditures on inputs will _______ the isocost line.

shift out

Isoquants

slope downward

An isoquant is

technically efficient.

The marginal rate of technical substitution is

the rate at which the firm can substitute labor for capital while holding output constant.

Which of the following are characteristics of a typical isoquant?

All input combinations on the isoquant will produce the same level of output.

Which of the following is likely to occur when a firm adopts division of labor in its production process?

An increase in worker productivity and a reduction in unit costs

_____ occurs when the cumulative output increases causes and costs decrease because of learning through experience.

Experience economies

When firms experience long-run constant costs

LRAC = LRMC.

Diseconomies of scale occur when

LRAC rise as output increases.

If the last unit of labor purchased by a producer yields 6 units of output for a wage of $12 while the last unit of capital purchased yields 8 units at a rental rate of $10, the producer should

buy more capital and less labor.

Economies of scope...

can arise when firms employ common inputs in production. .

The minimum cost combination of inputs is the

cheapest way of producing a particular level of output.

A publishing house is using 400 printers and 200 printing presses to produce books. The printers' wage rate is $20 and the price of a printing press is $100. The last printer added 20 books to total output, while the last printing press added 50 books to total output. The publishing house

could produce the same number of books at a lower cost by using more printers and fewer printing presses.

Long-run average cost

decreases initially, reaches a minimum, and then increases.

As labor is substituted for capital, MPL ______, MPK ______, so MPL / MPK will decrease.

decreases; increases

The firm's cost structure is defined by the firm's

expansion path.

An expansion path shows

the cost-minimizing input combination for each level of output.

Learning economies differ from economies of scale because

the former involves cumulative production and the latter involves rate of production per period.

In order for a combination of inputs to have the lowest cost of producing the level of output,

the last dollar spent on both inputs must buy the same marginal product.

Minimum efficient scale is

the lowest level of output needed to reach minimum long-run average cost.

A multiproduct total cost function is derived from

the multiproduct expansion path.

The expansion path is the locus of points where ______ for all levels of output.

MRTS = MP(L)/MP(K) = w/r and MP(L)/w = MP(K)/r

The least cost combination of inputs to produce a given level of output is the combination of inputs where

MRTS = w/r.

When long-run marginal cost is less than long-run average cost, long-run average cost is

decreasing.

Select all that apply Technological factors contributing to economies of scale include excess capacity in capital equipment may lead to reduced unit costs as output increases. higher capacity capital equipment costs proportionately less than lower capacity equipment. capital equipment always becomes more productive as output increases. labor and capital become more productive together as output increases. the quality of capital equipment can increase as output increases.

excess capacity in capital equipment may lead to reduced unit costs as output increases. higher capacity capital equipment costs proportionately less than lower capacity equipment. the quality of capital equipment can increase as output increases.

The slope of the isocost line tells producers

how much capital must be given up to purchase one more unit of labor.

An isocost curve shows all combinations of

inputs that can be purchased with a given level of expenditure.

As output increases, the cost of quasi-fixed inputs _____, reducing unit costs.

is spread over more units of output

An isoquant map shows higher levels of output as you

move out from the origin.

Long-run total cost

represents the lowest possible total cost of producing a given level of output.

Economies of _____ exist whenever it is less costly for a firm to produce two goods together than a firm to produce the goods individually.

scope

When the process of producing one good does not use up an input that will also produce another good, this is economies of scope caused by

shared inputs.