Econ 303 Chp 7

How does a change in the price of one input change the​ firm's long-run expansion​ path? If the price of an input​ changes, then the A. slope of the isocost lines will​ change, and the firm will substitute away from the relatively more expensive input​, pivoting the expansion path toward the axis of the relatively cheaper input. B. isocost lines will shift in a parallel​ fashion, and the firm will substitute away from both​ inputs, shifting the expansion path in a parallel fashion. C. slope of the isocost lines will​ change, and the firm will substitute toward the relatively cheaper input​, pivoting the expansion path toward the axis of the relatively more expensive input. D. isoquants will shift in a parallel​ fashion, and the firm will substitute away from the relatively more expensive input​, pivoting the expansion path toward the axis of the relatively cheaper input. E. slope of the isoquants will​ change, and the firm will substitute toward the relatively cheaper input​, pivoting the expansion path toward the axis of the relatively cheaper input.

A. slope of the isocost lines will​ change, and the firm will substitute away from the relatively more expensive input​, pivoting the expansion path toward the axis of the relatively cheaper input.

The owner of a small retail store does her own accounting work. How would you measure the opportunity cost of her​ work? The opportunity cost of the​ owner's accounting work is A. the monetary amount that her time would have been worth in its next best use. B. the difference between the monetary value of her time and the monetary amount that her time would have been worth in its next best use. C. the monetary amount that she would have paid an accountant to do the work. D. the monetary amount that she pays for the​ work, which is zero since she does it herself. E. the difference between what she would have paid an accountant to do the work and the accounting cost of her time.

A. the monetary amount that her time would have been worth in its next best use.

Is the​ firm's expansion path always a straight​ line? A​ firm's expansion path A. will not be a straight line if the ratio of inputs used changes with output. B. will only be a straight line if the firm experiences economies of scale. C. will always be a straight line because all isocost lines for given input prices are parallel. D. will not be a straight line if the firm experiences decreasing returns to scale. E. will not be a straight line if the inputs are perfect complements.

A. will not be a straight line if the ratio of inputs used changes with output.

What is the difference between economies of scale and returns to​ scale? A. Economies of scale are present when the​ long-run average cost curve is increasing​, and returns to scale are present when the​ long-run average cost curve is decreasing. B. Economies of scale define how cost changes with​ output, and returns to scale define how output changes with input usage. C. Economies of scale are present when the expansion path is a straight​ line, and returns to scale are present when the expansion path is not a straight line. D. Economies of scale define whether joint output of a single firm is greater than output that could be achieved by two different firms when each produces a single​ product, and returns to scale define how output changes with input usage for a single firm. E. Economies of scale define how cost changes with output in the short ​run, and returns to scale define how cost changes with output in the long run.

B. Economies of scale define how cost changes with​ output, and returns to scale define how output changes with input usage.

Suppose that labor is the only variable input to the production process. If the marginal cost of production is diminishing as more units of output are​ produced, what can you say about the marginal product of​ labor? If the marginal cost of production is diminishing as more units of output are​ produced, then the marginal product of labor A. remains constant. B. is increasing. C. is negative. D. is zero. E. is diminishing.

B. is increasing.

Distinguish between economies of scale and economies of scope. Why can one be present without the​ other? Economies of scale occur when A. output can be doubled for the same cost​; ​however, economies of scope occur when joint output is less costly than the sum of the costs of producing multiple outputs separately. B. output can be doubled for less than a doubling of cost​; ​however, economies of scope occur when joint output is less costly than the sum of the costs of producing multiple outputs separately. C. output can be doubled for less than a doubling of cost​; ​however, economies of scope occur when joint output is more costly than the sum of the costs of producing multiple outputs separately. D. the​ long-run average cost curve is​ increasing; however, economies of scope occur when the​ long-run average cost curve is decreasing. E. output can be doubled for less than a doubling of cost​; ​however, economies of scope occur when various combinations of two different outputs can be produced with a given set of inputs.

B. output can be doubled for less than a doubling of cost​; ​however, economies of scope occur when joint output is less costly than the sum of the costs of producing multiple outputs separately.

A recent issue of Business Week reported the​ following: During the recent auto sales​ slump, GM,​ Ford, and Chrysler decided it was cheaper to sell cars to rental companies at a loss than to lay off workers.​ That's because closing and reopening plants is​ expensive, partly because the auto​ makers' current union contracts obligate them to pay many workers even if​ they're not working. When the article discusses selling cars​ "at a​ loss," is it referring to accounting profit or economic​ profit? How will the two differ in this​ case? Explain briefly. The article is referring to A. accounting​ profit, which includes the marginal cost of the workers and is therefore lower than economic profit. B. economic​ profit, which includes the opportunity cost of the workers and is therefore lower than accounting profit. C. accounting​ profit, which includes the sunk cost of the workers and is therefore lower than economic profit. D. economic​ profit, which includes the marginal cost of the plants and is therefore lower than accounting profit. E. accounting​ profit, which includes the sunk cost of the plants and is therefore lower than economic profit.

C. accounting​ profit, which includes the sunk cost of the workers and is therefore lower than economic profit.

A product transformation curve shows A. all levels of output that can be produced with different combinations of inputs. B. all combinations of inputs that can be used to produce a given level of output. C. all combinations of two different products that can be produced with a given set of inputs. D. None of the above.

C. all combinations of two different products that can be produced with a given set of inputs.

There is no direct relationship between economies of scale and economies of scope because A. economies of scale pertain to input and economies of scope pertain to output. B. economies of scale pertain to more than one input and economies of scope pertain to one input. C. economies of scale pertain to one output and economies of scope pertain to more than one output. D. economies of scale pertain to one input and economies of scope pertain to more than one input. E. economies of scale pertain to cost and economies of scope pertain to output.

C. economies of scale pertain to one output and economies of scope pertain to more than one output.

If the firm wanted to minimize the average total​ cost, would it choose to be very large or very​ small? Explain. A. very small because the average total cost of production rises with output. B. very large because the marginal cost of production falls with output. C. very large because the average total cost of production falls with output. D. very small because the total cost of production rises with output. E. very small because the marginal cost of production rises with output.

C. very large because the average total cost of production falls with output.

If the​ firm's average cost curves are​ U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost​ curve? The average variable cost curve will achieve its minimum at a lower level of output than the average total cost curve because A. average total cost equals average variable cost plus average fixed​ cost, and the average fixed cost of production reaches its minimum at a higher level of output than the average variable cost curve. Your answer is not correct.B. average total cost equals average variable cost plus marginal​ cost, and the marginal cost curve continues to fall as more output is produced. C. average total cost equals average variable cost minus average fixed​ cost, and the average fixed cost of production is constant. D. average total cost equals average variable cost plus average fixed​ cost, and the average fixed cost curve continues to fall as more output is produced. E. average total cost equals average variable cost plus average fixed​ cost, and the decrease in average fixed costs with output is always smaller than eventual increases in average variable costs with output.

D. average total cost equals average variable cost plus average fixed​ cost, and the average fixed cost curve continues to fall as more output is produced.

Firm 1 produces product A​ only, and firm 2 produces product B only. Firm 3 produces the same amount of A as firm 1 AND the same amount of B as firm 2. All three firms use​ state-of-the-art production​ techniques, but firm​ 3's total costs are less than the sum of the other two​ firms' total costs. We can conclude that there are A. decreasing returns to scale in producing products A and B. B. diseconomies of scope in producing products A and B. C. increasing returns to scale in producing products A and B. D. economies of scope in producing products A and B.

D. economies of scope in producing products A and B.

Why are isocost lines straight​ lines? Isocost lines are straight because the slope of such lines​ ___________________. A. equals the marginal rate of technical​ substitution, which is fixed B. equals the ratio of input​ prices, and this ratio is decreasing C. equals the ratio of the marginal products of the​ inputs, and this ratio is fixed D. equals the ratio of fixed costs to variable ​costs, and this ratio is increasing E. equals the ratio of input​ prices, and this ratio is fixed

E. equals the ratio of input​ prices, and this ratio is fixed