Econ 1100 c8

In the long-run, firms can vary _________. A All inputs B Only capital; changes in labor occur in the short-run C Only labor; changes in capital occur in the short-run D Neither capital or labor. In the long-run, the market determines use of inputs

A All inputs

In the long-run, marginal cost will be average cost if the firm is experiencing economies of scale. A Below B Above C Equal to D None of the above. Marginal cost is a short-run concept.

A Below

If the long-run average cost curve is horizontal, it implies that the firm is experiencing _________. A Constant returns to scale B Technical efficiency of inputs C Constant total costs D Unchanging levels of production

A Constant returns to scale

When a firm gets so large that coordination and management of workers and other inputs becomes costly and difficult, it is experiencing which of the following? A Diseconomies of scale B Diminishing marginal product C Economies of scale D Economies of scope

A Diseconomies of scale

An increase in the prices of an input will cause long-run average costs to . A Increase B Decrease C Not change. The input is fixed. D Either increase or decrease, depending upon whether variable inputs are substituted.

A Increase

Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts, which of the following best describes the effect on inputs? The marginal product of labor will ; the marginal product of machines will . A Increase; decrease B Not change; not change C Increase; increase D Decrease; decrease E Decrease; increase

A Increase; decrease

Suppose a firm triples its inputs in the long-run, and as a result, output doubles. Which of the following is true? A This firm is experiencing diseconomies of scale. B This firm is experiencing constant returns to scale. C This firm is not using the lowest cost combination of capital and labor. D This firm is growing too fast and reducing profits.

A This firm is experiencing diseconomies of scale.

A firm's long-run total cost curve is ________. A Upward sloping B Downward sloping C Horizontal D Any of the above, depending on the industry

A Upward sloping

Assume a firm is operating in the long-run. At the current level of output, MPL =10 and MPK = 30. Also assume that in this industry, W = 10 and R = 10. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

A Use more K and less L

See the table below. Suppose the firm has firm size K = 1. If the firm was attempting to minimize average costs with this level of capital, what output level would they choose? A 100 B 200 C 300 D 400

B 200 Explanation This is found by just reading the table. At K = 1, the given output choices show that 200 units of output produce the lowest average cost.

For any firm, what is the long-run average cost curve? A A downward sloping line B A function which shows the lowest average cost of producing any output level C The same as the long-run marginal cost curve D Upward sloping at all levels of output

B A function which shows the lowest average cost of producing any output level

An electric power plant most likely experiences which of the following? A Constant returns to scale B Economies of scale C Diseconomies of scale

B Economies of scale

As a firm increases output, long-run average costs typically _________. A Rise, peak, then fall B Fall, hit a minimum, then rise C Increase gradually D Remain constant

B Fall, hit a minimum, then rise

When can diseconomies of scale occur? A In the short-run B In the long-run C When total costs are falling D When average costs are falling

B In the long-run

Consider the table below showing different average costs for three different firm sizes across a range of output levels. At a long-run chosen output level of 400, which firm size (amount of capital) would the firm want to use? A K = 1 B K = 2 C K = 3

B K = 2 Explanation Recall that the firm will want to get the output produced at the lowest possible cost to maximize profits. At output level 400, this occurs with size K = 2.

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________. A Output will double B Output will increase, but less than double C Output will remain the same D Output will decrease

B Output will increase, but less than double

Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale? A Specialization of all inputs B Reducing issues with diminishing marginal product of labor C Firms using larger volume equipment D Improved equipment

B Reducing issues with diminishing marginal product of labor

The marginal product of labor (MPL) can be defined as which of the following? A The change in output costs when another worker is hired B The change in output level as the result of hiring another worker C The change in the wage rate as the result of hiring another worker D The change in capital productivity when another worker is hired

B The change in output level as the result of hiring another worker

Once firms have adjusted their hiring, a college-educated worker, whose marginal product is twice that of the typical worker with only a high-school education, should expect that her wages will be which of the following? A More than twice the amount of the high-school graduate B Twice the amount of the high-school graduate C Less than twice that of the high-school graduate D One cannot tell. The college worker may have better alternatives.

B Twice the amount of the high-school graduate

For the next three questions, the following abbreviations are used. MPL = marginal product of labor. MPK = marginal product of capital. W = wage rate (the cost of a unit of labor). R = rental rate (the cost of a unit of capital). Assume a firm is operating in the long-run. At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

B Use more L and less K

Which of the following is an example of long-run decision for a firm? A A grocery hires a new deli manager B A university hires a new president C A car manufacturer builds a new factory D A tech company hires ten new interns

C A car manufacturer builds a new factory

At a bakery, which of the following operating characteristics might result in economies of scale? A Each oven requires one worker attending to it. B Two ovens can produce twice as many cakes as one oven. C A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily. D Each cake produced uses the same amount of ingredients.

C A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily.

For a firm, the short-run is defined as being __________. A A period of time less than one year B A period of time less than one month C A period of time in which at least one of the firm's inputs is unchangeable D A period of time in which all the firm's inputs are variable

C A period of time in which at least one of the firm's inputs is unchangeable

What is true about the long-run for a firm? A At least one input cannot be changed B The firm only uses one of either capital or labor, whichever is cheapest C All inputs can be changed D No inputs can be changed

C All inputs can be changed

A long-run average cost curve that rises through all levels of possible outputs represents which effect? A The law of diminishing marginal returns B Economies of scale C Diseconomies of scale D None of the above

C Diseconomies of scale

When a firm is experiencing economies of scale, the long-run average cost curve is _________. A Upward sloping B Horizontal C Downward sloping D At its minimum

C Downward sloping

See the table below. At a long-run chosen output level of 500, which firm size (amount of capital) would the firm want to use? A K = 1 B K = 2 C K = 3

C K = 3

What is the main source of diseconomies of scale? A Physical capital breaking more often with large output levels B Specialization of capital and labor C Limited ability to manage and coordinate larger amounts of inputs D Workers getting fatigued

C Limited ability to manage and coordinate larger amounts of inputs

Economies of scale happen when increases in output result in _________. A Increasing average costs B Constant average costs C Lower average costs D Lower total costs

C Lower average costs

Assume the following data. The marginal product of labor is 300 washed cars per day. The daily wage is $120. If the marginal product of machines that would wash cars is 400 per day and the rent for the machines is $160, what will the firm do? A Rent more machines, because their marginal products are higher B Hire more workers, because they cost less per day C Not change the number of machines or workers D Expand both the number of machines and workers

C Not change the number of machines or workers

Suppose that the cost of all inputs (both labor and capital) decreases. What will happen to the long-run cost curve? The curve will _____, illustrating that _______. A Shift right; there are no diseconomies of scale B Shift downward; economies of scale now occur at more output levels C Shift downward; any level of output can now be produced at a lower average cost D Shift upward; the firm will increase costs by spending money elsewhere

C Shift downward; any level of output can now be produced at a lower average cost

Assume a firm is operating in the long-run. At the current level of output, MPL = 60 and MPK = 600. Also assume that in this industry, W = 20 and R = 200. Keeping output the same, how can this firm lower production costs? A Use more K and less L B Use more L and less K C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

C The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

Suppose an additional worker can handle an additional 10 orders per hour. That will cost $15 per hour. An additional telephone answering machine will handle an additional 20 calls per hour at a cost of $10 per hour. Which of the following is correct? A The firm should increase labor and decrease capital, because labor costs more per hour. B The firm should increase capital and decrease labor, because labor produces less per hour. C The firm should increase capital and decrease labor, because labor produces less per dollar spent. D The firm should increase labor and decrease capital, because labor produces less per dollar spent.

C The firm should increase capital and decrease labor, because labor produces less per dollar spent.

See the table below. Suppose the firm chooses a permanent output level of 500 units but remains in firm size K = 2. What is the result of this? A The firm will find a way to lower costs further with this amount of capital. B The firm will certainly go out of business. C The firm will be operating inefficiently at higher costs, therefore not maximizing profits. D The firm will be required to begin producing inferior quality goods.

C The firm will be operating inefficiently at higher costs, therefore not maximizing profits.

Regarding input choices, how would a firm respond to an increase in the wage rate? A The firm would use less capital. B The firm would use less labor. C The firm would use less labor and more capital. D The firm would use more labor and less capital.

C The firm would use less labor and more capital.

The amount of time a firm operates with the ability to make long-run decisions is how long? A Between five and ten years B Greater than five years C Greater than two years D Differs by industry

D Differs by industry

The marginal product of labor is 100 boxes of software and wages are $10 per hour. A machine that does the same work rents for $200 per hour and packages 1000 boxes per hour. If the firm is currently producing the amount it wishes, what should it do? A Expand labor and reduce capital, the marginal product of capital is greater than the marginal product of labor B Expand labor and reduce capital, as capital costs significantly more C Expand capital and reduce labor, as the additional output for each dollar spent is greater for capital than labor D Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital

D Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital

In the long-run, the law of diminishing marginal product is the cause of _________. A Higher wage rates B Decreased firm output C Diseconomies of scale D None of the above

D None of the above

See the table below. At what long-run output levels would it be best to choose firm size K = 2? A Any output level less than 500 B Output levels between 200 and 400 C Output levels between 300 and 500 D Output levels between 300 and 400

D Output levels between 300 and 400 Explanation You would want to choose K = 2 only if it provides the lowest cost for your chosen output level. This is true for "mid-range" output levels in our example between 300 and 400 units. Note that there could be actually a wider range than this, but we're not fully certain with the limited output choices detailed in the table.

Which of the following is an example of a short-run decision for a firm? A Moving into a larger production facility B Moving to a smaller production facility C Getting more trucks to transport goods across the count D Reducing the number of workers at the firm

D Reducing the number of workers at the firm

Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed the cooking process and allow each customer to be served more quickly. The oven will allow 200 more customers to be served with no additional labor. The oven can be rented for $75 per day. What should the restaurant do? A Hire another waiter, because the waiter is cheaper B Rent a microwave because the expansion in output is greater than the increase resulting from a new waiter C Hire another waiter, because the increase in output per dollar spent is greater than the increase per dollar spent from renting a microwave D Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker

D Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker