Quiz 5

When there are economies of scope between two products which are separately produced by two firms, merging into a single firm can

Accomplish a reduction in costs

It is profitable to hire labor so long as the

VMPL is greater than wage

Which of the following "costs" could a firm that wants to remain in business avoid if it halted current production?

Variable costs

The difference between average total costs and average variable costs is

Average fixed cost

Average fixed cost

Declines continuously as output is expanded

When marginal cost curve is below an average cost curve, average cost is

Declining with output

Two firms producing identical products may merge due to the existence of:

Economies of scale

If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use

Less labor and more capital

Suppose the marginal product of labor is 10 and the marginal product of capital is 8. If the wage rate is $5 and the price of capital is $2, then in order to minimize costs the firm should use

More capital and less labor

The isoquants are normally drawn with a convex shape because inputs are

Not perfectly substitutable

An isocost line

Represents the combinations of K and L that cost the firm the same amount of money

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MPL = 4, and MPK = 40 the firm:

Should use more K and less L to cost minimize

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

The marginal product per dollar spent on all inputs is equal

In the short run, the marginal cost curve crosses the average total cost curve at

The minimum point of the average total cost curve