Exam #2

The short-term supply curve for a competitive industry is derived by A. horizontally summing the marginal cost curve (above AVC) for each firm in the industry B. horizontally summing the average variable cost curves for each firm in the industry C. vertically summing the marginal cost curve for each firm in the industry D. vertically summing the average total cost curves of each firm in the industry

A. horizontally summing the marginal cost curve (above AVC) for each firm in the industry

If the marginal product of labor is four times the marginal product of capital and the price of labor is twice the price of capital, than A. labor will be substituted for capital B. capital will be substituted for labor C. labor will be substituted for capital until their marginal products are equal D. the answer cannot be determined without knowing relative prices

A. labor will be substituted for capital

Assume that labor is the only variable input. If the marginal product of the variable input rises and then falls A. marginal cost will first fall and then rise B. marginal cost will first rise and then fall C. marginal cost will first fall and then become constant D. none of the above

A. marginal cost will first fall and then rise

A farmer is growing corn on an acre of land. Output will be 200 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The marginal product of the fourth worker is A. 850 bushels B. 150 bushels C. 212.5 bushels D. 50 bushels

B. 150 bushels

Once diminishing returns have set in, each additional unit of the variable input A. decreases total output B. adds less to total output C. adds more to total output D. does not affect total output

B. adds less to total output

In the short-run, if a perfectly competitive firm finds itself operating at a loss, it will A. shut down B. continue to operate as long as price is greater than average variable cost C. raise the price of its product D. reduce the size of its plant to lower fixed costs

B. continue to operate as long as price is greater than average variable cost

The rule of cost minimization indicates that a firm should A. employ inputs so as to maximize output B. employ inputs such that the marginal product per dollar spent is equal for all inputs C. minimize total costs D. minimize marginal costs

B. employ inputs such that the marginal product per dollar spent is equal for all inputs

Economics of scope exist if A. it is cheaper to have only one firm in an industry B. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately C. it is more expensive to have one firm in an industry D. it is cheaper for two firms to work together to make two products than for one firm to make both by itself

B. it is cheaper for one firm to produce two products jointly than for separate firms to produce them separately

The marginal cost curve intersects the average variable cost curve at 1000 units per day. The rate of output at which average total costs are minimized is A. 1000 units B. more than 1000 units C. less than 1000 units D. none of the above. more information is needed

B. more than 1000 units

Along an isoquant A. one input is held constant B. output is held constant C. costs are held constant D. utility is held constant

B. output is held constant

Suppose a firm is using two inputs, labor, and capital. What will happen if the price of labor falls? A. the firm's average cost curve will shift upward B. the firm's marginal cost curve will shift downward C. to produce the same level of output, the firm would need more capital D. the firm's total cost of production will increase

B. the firm's marginal cost curve will shift downward

Isoquants that are farther away from the origin indicate: A. lower cost combinations of inputs B. technologically inefficient levels of output C. higher levels of output D. combinations of inputs that are less preferred

C. higher levels of output

The long-run is a period of time: A. longer than one year B. in which the use rates of both labor and material, but not capital, can be changed C. in which the firm can vary all inputs D. in which the firm can vary the output levels of all products produced by the firm

C. in which the firm can vary all inputs

If the marginal cost of pollution abatement differs between two firms, the total cost of pollution abatement can be lowered by: A. increasing abatement where its marginal cost is high and reducing it where marginal cost is lower B. decreasing abatement where its average cost is high and reducing it where average cost is lower C. increasing abatement where its marginal cost is less and reducing it where marginal cost is greater D. decreasing abatement where its marginal cost is less and increasing it where marginal cost is greater

C. increasing abatement where its marginal cost is less and reducing it where marginal cost is greater

Suppose a bakery is currently producing 1,500 loaves of bread per day using 20 workers and 80 units of capital. After hiring five more workers and twenty additional units of capital, the firm's output increases by 600 loaves per day. This change exhibits: A. increasing marginal product of labor B. constant returns to scale C. increasing returns to scale D. diminishing marginal product of labor

C. increasing returns to scale

The fact that a large-scale operation can take advantage of specialization of labor often gives rise to: A. constant returns to scale B. decreasing returns to scale C. increasing returns to scale D. none of the above

C. increasing returns to scale

Which of the following is a true statement regarding how to get the highest grade-point average out of five courses you are taking? A. study the same amount of time in all courses B. study only the hardest courses C. study such that the marginal product from an extra hour is the same for each subject D. study such that the average product from an extra hour is the same from each subject E. study only your economics classes and skip the other subjects

C. study such that the marginal product from an extra hour is the same for each subject

One of the reasons for the low profitability of U.S. airlines during the era of regulation by the Civil Aeronautics Board (CAB) was _____. A. the absence of organized labor unions B. low airline safety C. the scheduling of airline flights to sparsely populated areas D. the price ceiling imposed by the CAB

C. the scheduling of airline flights to sparsely populated areas

Assume that in the short run a firm which is producing 100 units of output has average total costs of $200 and average variable costs of $150. The firm's total fixed costs are A. $50 B. $0.50 C. $500 D. $5000

D. $5000

If you operated a small bakery, which of the following would be a variable cost in the short run? A. baking ovens B. interest on business loans C. annual lease payment for use of the building D. baking supplies (flour, salt, ect.)

D. baking supplies (flour, salt, ect.)

A production function A. is a relationship between inputs and costs B. identifies the fewest inputs that can be used to produce a given output C. identifies the financial constraints the firm must deal with D. identifies the maximum quantity that can be produced by each specific combination of inputs

D. identifies the maximum quantity that can be produced by each specific combination of inputs

If a competitive firm is producing at an output where marginal revenue exceeds marginal cost, the firm will increase its profits by A. reducing production to the point where variable costs are minimized B. reducing production to the point where fixed costs are minimized C. reducing its output and simultaneously increasing its price D. increasing its output

D. increasing its output

The minimum efficient scale of a firm: A. is realized somewhere in the range of diseconomies of scale B. occurs where marginal product becomes zero C. is in the middle of the rage of constant returns to scale D. is the smallest level of output in which long-run average costs is minimized

D. is the smallest level of output in which long-run average costs is minimized

A tangency point between an isoquant and an isocost line identifies A. the least costly combination of inputs required to produce various levels of output B. the various levels of output that can be produced using a given level of inputs C. the various combinations of inputs that can be used to produce a given level of output D. the least costly combination of inputs required to produce a given level of output

D. the least costly combination of inputs required to produce a given level of output

Which of the following is an implicit cost associated with the operation of a Mom and Pop grocery store? A. insurance B. rent C. property taxes D. the time Mom and Pop spend working in the store

D. the time Mom and Pop spend working in the store