Ch 9

A sofa manufacturer currently is using 50 workers and 30 machines to produce 5,000 sofas a day. The wage rate is $200 and the rental rate for a machine is $1,000. At these input levels, another worker adds 200 sofas, while another machine adds 500 sofas. If the firm uses 45 workers and 31 machines instead, then its a. cost will be unchanged, and its output will decrease by 500 units. b. cost will be unchanged, and its output will increase by 300 units. c. cost will be unchanged, and its output will increase by 500 units d. None of the above

a. cost will be unchanged, and its output will decrease by 500 units.

Long−run average total cost (LAC) a. represents the lowest average cost of producing a given level of output. b. is always equal to or greater than short−run average total cost. c. can be measured in the short-run. d. None of the above

a. represents the lowest average cost of producing a given level of output.

Which of the following statements is true? a. In the short run all inputs are fixed. b. In the long run a firm is making the optimal input choice when the marginal products per dollar are equal among all inputs. c. Diminishing returns to labor means that adding one more worker will decrease output. d. All the above

b. In the long run a firm is making the optimal input choice when the marginal products per dollar are equal among all inputs.

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit. The last unit of capital added 50 units of output, while the last unit of labor added 20 units of output. The firm a. could produce the same level of output at a lower cost by using more capital and less labor. b. could produce the same level of output at a lower cost by using less capital and more labor. c. should use more of both inputs in equal proportions. d. is using the cost−minimizing combination of capital and labor.

b. could produce the same level of output at a lower cost by using less capital and more labor.

Diseconomies of scale a. exist when fixed cost increases as output increases. b. exist when long−run average cost increases as output increases. c. result eventually as the firm uses more and more labor with a fixed capital stock. d. never happen to a large company.

b. exist when long−run average cost increases as output increases.

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that a. total cost decreases as more is produced. b. long-run average cost decreases as more is produced. c. marginal cost decreases as more is produced. d. total fixed cost decreases as more is produced.

b. long-run average cost decreases as more is produced.

If a firm is producing the level of output at which long−run average cost equals long−run marginal cost, then a. long−run marginal cost is at its minimum point. b. long−run average cost is at its minimum point. c. long−run total cost is at its minimum point. d. output is maximized

b. long−run average cost is at its minimum point.

In the long run, a. a firm cannot adjust at least one input. b. the law of diminishing returns still holds. c. all inputs can be varied. d. all inputs are fixed.

c. all inputs can be varied.

Suppose that when a firm increases its usage of all inputs by 100%, output increases by less than 100%. The firm's production function exhibits a. increasing returns to scale b. decreasing marginal rate of technical substitution. c. decreasing returns to scale. d. constant returns to scale.

c. decreasing returns to scale.

Economies of scale exist when a. marginal cost decreases as output increases. b. total cost decreases as output increases. c. fixed cost decreases as output increases. d. long-run average cost decreases as output increases.

d. long-run average cost decreases as output increases.