Midterm 3 Mod 8

In the long run, if a firm is operating with economies of scale, it is on the ______ portion of its LRAC. - downward-sloping - upward-sloping - horizontal - peak

downward sloping

In the long run, the total cost function will be: - Upward sloping. - Downward sloping. - Horizontal. - U-shaped.

Upward sloping

Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 200 and MPL = 60. The cost of capital is r = 50. The firm would use more labor to expand production only if the wage rate is less than _____ dollars.

15

Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 400. The cost of capital is r = 80, and the wage rate is w = 10. The firm would use more labor to expand production only if the marginal product of labor is greater than _____.

50

Rising average product as inputs increase means that which of the following is happening to costs? - Average costs alone are falling. - Average costs and marginal costs are falling. - Marginal costs alone are falling. - Average costs and marginal costs are rising. - Marginal cost is less than average cost.

Average costs alone are falling

A small shirt factory in Taiwan doubles its labor inputs and experiences a tripling in output. A large catering kitchen in Tokyo increases its inputs by 30% and experiences a 50% increase in production. Which of the following is true? - Both firms enjoy economies of scale. - The factory enjoys economies of scale, and the kitchen experiences diseconomies of scale. - The factory experiences diseconomies of scale, and the kitchen enjoys economies of scale. - Both firms experience diseconomies of scale.

Both firms enjoy economies of scale

Given the following data, what should the firm do?Current production = 1,000Current price = $10Marginal cost = $10Total costs = $15,000Fixed cost = $6,000 - Continue to produce in the short run, but close down in the long run. - Expand production in the short run, but close down in the long run. - Stop producing in the short run and leave the industry in the long run. - Continue to produce in the short and long runs. - Stop producing in the short run, but produce in the long run once its fixed costs become variable.

Continue to produce in the short run, but close down in the long run.

Given the following facts, what should the firm do in the short run? In the long run?Fixed costs are $50,000. Total costs are $90,000. Total revenues are $45,000. - Continue to produce in the short run; leave the industry in the long run. - Shut down in the short run; leave the industry in the long run. - Shut down in the short run; continue to produce in the long run. - Continue to produce in the short and long runs.

Continue to produce in the short run; leave the industry in the long run

A car manufacturing plant in Michigan employs the optimal combination of both unionized and non-unionized labor. The plant agrees to a new union contract that stipulates higher wages. As the plant re-adjusts its inputs, marginal product of non-unionized workers will: - Decrease. - Increase. - Not change. - One cannot tell.

Decrease

Mimi wants to see if she should buy another oven for her restaurant. How might she use marginal analysis to make a decision? - Examine the price of the oven and the marginal product of the oven. - Ask her workers if they want another oven. - See what other restaurants in the area are doing.

Examine the price of the oven and the marginal product of the oven.

An efficient Nebraska corn farm decides to hire more workers and use fewer harvesting machines after learning of: I) An increase in corn commodity prices II) A decrease in fuel prices. III) An increase in worker productivity. IV) An increase in harvesting machine maintenance costs. - III and IV - I and II - II, III, and IV - III only

III and IV

A firm is producing where the Marginal Product of Labor is 18 and the Marginal Product of Capital is 10. The price of labor is $3 and the cost of capital is $2. The firm is planning their future inputs and can now adjust both labor and capital. How should they adjust inputs? - Increase labor and decrease capital - Increase capital and decrease labor - No adjustment; they are already using an efficient ratio - One cannot tell

Increase labor and decrease capital.

Consider a firm, using capital (K) and labor (L) in the production process, that wants to expand production. Suppose MPK = 200 and MPL = 50. The cost of capital is r = 80, and the wage rate is w = 10. Should this firm employ more labor or more capital? - Labor - Capital

Labor

If a production process faces diminishing marginal returns, which of the following is most likely? - Marginal costs are increasing. - Marginal costs are constant. - Marginal costs are decreasing. - We cannot tell what will happen to marginal costs.

Marginal costs are increasing

In order to maximize profits at any level of output, the firm must: - Minimize production costs. - Minimize capital use. - Maximize price. - Have a fixed amount of capital.

Minimize production costs

Which of the following would be likely in a market with firms experiencing economies of scale? - Most of the firms will tend to be large. - Costs will rise as the industry expands. - Costs will decrease as the industry expands. - Firms will be able to earn economic profits. - Most of the firms will tend to be small.

Most of the firms will tend to be large

Suppose a firm wants to do marginal analysis to see if it should employ more capital or more labor in order to increase output. The firm knows the prices of the inputs. Is this enough information to answer the question at hand? - No, the firm also needs to know the marginal productivities of each of the inputs. - Yes, the firm can compare prices and use more of the lower-priced input. - Yes, the firm should use the higher priced input since it will produce more. - No, the firm also needs to know prices of food ingredients.

No, the firm also needs to know the marginal productivities of each of the inputs

Diminishing returns is most relevant when: - None of the these. - The firm employs more of all inputs. - The firm employs less of all inputs. - The firm employs either more or less of all inputs.

None of these

A pool-cleaning firm employs cleaning machines and cleaning workers. If local wages fall and robots become more effective, the firm should employ: - One cannot tell. - More robots and fewer workers. - More workers and fewer robots. - More workers and robots.

One cannot tell

Suppose that as a firm grows, it first experiences economies of scale, then constant returns to scale, then diseconomies of scale. The LRAC for this firm will be ______. - shaped like a wide U. - downward sloping. - horizontal. - shaped like a wide hill.

Shaped like a wide U

A firm is producing where the Marginal Product of Labor is 18 and the Marginal Product of Capital is 10. The price of labor is $3 and the cost of capital is $2. They cannot adjust their capital, so are they in the short run or the long run? - Short Run - Long Run - One cannot tell.

Short run

When a firm is experiencing economies of scale: - the MP curve slopes upward. - the LRAC curve slopes downward. - diminishing returns to labor have been suspended. - the MC curve slopes downward.

The LRAC curve slopes downward

Suppose in the long run a firm's labor costs decrease. What will happen regarding the LRAC? - The entire LRAC function will shift downward. - The firm will move from one point to another point, from left to right, on the same LRAC. - The firm will move from one point to another point, from right to left, on the same LRAC. - The entire LRAC function will shift upward.

The entire LRAC function will shift downward.

Suppose in the long run a firm decides to grow in size and increase output. What will happen regarding the LRAC? - The firm will move from one point to another point, from left to right, on the same LRAC. - The firm will move from one point to another point, from right to left, on the same LRAC. - The entire LRAC function will shift upward. - The entire LRAC function will shift downward.

The firm will move from one point to another point, from left to right, on the same LRAC.

An economy is on its production possibilities frontier. If the economy faces diminishing marginal returns, what will happen to the opportunity cost as the production of one of the categories of goods increases? - The opportunity cost will increase as it takes more to produce the good. - Nothing, as production cannot be increased. - The opportunity cost will decrease as it takes more to produce the good. - One cannot tell without know about the trade-offs between the two goods.

The opportunity cost will increase as it takes more to produce the good.

Consider the concepts of economies of scale and diseconomies of scale. What is meant by the word "scale" in these concepts? - The size of the firm. - The total demand for the firm's product. - The total weight of the product produced by the firm. - How much the workers at the firm weigh.

The size of the firm

At Wisconsin's snowy Lambeau Field, a football stadium, snow removal is currently done by a mix of workers (equipped with shovels and paid minimum wage) and automated self-operating snowblower machines, which require no labor. The stadium is currently using the optimal combination of both snowblowers and workers. If Wisconsin's minimum wage rises, and nothing else changes, what should the stadium do? - Utilize more machines and fewer workers. - Employ more workers and fewer machines. - Preserve the existing proportion of machines to workers. - One cannot tell.

Utilize more machines and fewer workers

The key difference between the short-run and long-run model of the firm is that: - We assume at least one fixed input in the short run and all variable inputs in the long run. - We assume firms cannot change output levels in the short run. - Firms are more concerned about long run profits than short run profits. - We assume lower cost inputs in the long run.

We assume at least one fixed input in the short run and all variable inputs in the long run

Economies of scale occurs when long-run average costs are and diseconomies of scale occurs when long-run average costs are: - decreasing / increasing - decreasing / decreasing - increasing / decreasing - increasing / increasing

decreasing / increasing

A restaurant employs 10 workers and has one oven. The firm hires an 11th worker. The week after, it hires a 12th worker. The marginal product of the 12th worker is less than the 11th worker because of _______. - diminishing returns. - falling wages. - higher production costs. - diseconomies of scale.

diminishing returns

A private psychiatrist's office is a business that will demonstrate ______________, as it will face increasing average costs in the long run. - diseconomies of scale - economies of scale - constant returns to scale

diseconomies of scale

Suppose a company with a single large factory expands to multiple locations. This would require the firm to hire more mid-level management positions and establish an HR department. This firm is likely experiencing ________ with this expansion. - diseconomies of scale - economies of scale - constant returns to scale

diseconomies of scale

Electric utility companies have built larger and larger electric generating stations and, as a result, the long-run average cost of producing each kilowatt hour decreased. This is an example of: - constant returns to cost. - increasing returns to cost. - economies of scale. - diseconomies of scale.

economies of scale

In the long run, if a firm is on the downward-sloping portion of its LRAC curve, the firm is currently experiencing ______. - economies of scale. - constant returns to scale. - diseconomies of scale.

economies of scale

Diseconomies of scale definitely means that as the firm increases its output, its: - long-run average total cost increases. - long-run average total cost decreases. - short-run average total cost increases. - short-run average total cost decreases.

long run average total cost increases

In the short run: - all inputs are variable. - all firms experience increasing returns to scale. - some firms experience economies of scale. - no firm experiences economies of scale.

no firm experiences economies of scale

In the typical short run model of the firm, we generally assume that labor is_______ and capital is________ . - variable; fixed - cheap; expensive - fixed; variable - available; scarce

variable; fixed