Econ 3010 Ch. 6 Production and Costs
11. Refer to Variable Cost of Production. If the firm actually has $20 in fixed costs, the average cost of the second unit of output is
$35 per unit.
23. If the wage and rental rates are $10 and $50 per hour respectively and an additional worker could produce 100 units of output in an hour, then an extra unit of capital could produce 500 units of output in an hour.
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20. In the long run there is no distinction between average cost and average variable cost.
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24. If the marginal product of labor is currently 40 units per hour and the marginal product of capital is currently 20 units per hour, then workers must be getting paid twice as much as capital per hour.
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9. The marginal cost curve crosses average variable cost at the bottom of the average cost U.
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32. How are a firm's short-run and long-run average cost curves related?
The SRAC curve is tangent to and lies above the LRAC curve.
23. The set of tangencies between isoquants and isocosts is the firm's
expansion path.
4. The marginal product of labor is defined to be
the additional output attributable to the last unit of labor employed.
17. The marginal rate of technical substitution of labor for capital (MRTSLK) measures
the amount of capital that can replace a unit of labor without affecting the firm's output.
5. In order to compute the total cost of production when labor is the only variable, we need only need to know the quantities of labor and the current wage rate.
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7. If marginal cost rises when output is increased, then the average cost of production is also rising.
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25. If all inputs are variable in the long run, then there cannot be decreasing returns to scale. But if some inputs remain fixed in the long run, then decreasing returns to scale can occur.
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6. Inputs owned by the firm are included when calculating its costs.
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6. Which of the following is most likely to be a variable cost in the short run?
The energy costs of running a factory.
22. All points on the firm's expansion path
minimize the firm's cost of producing some level of output.
3. Marginal and average products can be plotted in the same graph as total product costs.
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22. The unit isoquant represents all possible ways of producing one unit.
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13. Output is held fixed along an isocost.
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9. Refer to Variable Cost of Production. The marginal cost of the fourth unit of output is
$20 per unit.
10. Refer to Variable Cost of Production. If the total cost of producing the sixth unit of output is $190, fixed costs must be
$30.
2. Which of the following is not classified as a capital input?
500 shares of General Motors stock.
12. Refer to Variable Cost of Production. For what levels of output does the firm experience diminishing marginal returns?
Beyond the third unit of output.
1. The short run is any period of time less than one year, while the long run refers to a period of time one year or more in length.
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10. Average Variable Cost can always be expressed as the ratio of the price of labor to the Average Product of Labor.
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11. All baskets of labor and capital capable of producing a given level of output are technologically efficient.
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14. Moving down and to the right on an isoquant tells us how much quantity increases as inputs increase.
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15. Like a family, a firm faces a fixed level of expenditure and therefore must choose one point along a particular isocost line.
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17. Cost minimization requires that the marginal product of labor equal the marginal product of capital.
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2. The production function describes how much output a firm can generate for various cost levels.
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21. Diminishing marginal returns is basically the same concept as decreasing returns to scale.
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4. In deriving the marginal product of labor, we consider the increase in output of an additional worker using additional capital.
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8. When labor is the only variable input in the short run, average variable cost equals the wage rate times the average product of labor.
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12. The Marginal Rate of Technical Substitution can be expressed as the ratio of the Marginal Productivities of Labor and Capital.
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16. A firm seeks to product at a point where an isocost is tangent to a isoquant.
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18. A point on the firm's expansion path both minimizes the cost of producing a given output level and maximizes the output obtained for a given expenditure level.
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19. All points on the expansion path have the same marginal rate of technical substitution.
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15. The marginal cost curve crosses
both the average cost curve and the average variable cost curve at their bottoms.
34. If the wage rate is $10 per hour and the rental rate is $5 per hour, then the vertical intercept of the isocost line
can not be determined without more information.
16. An isoquant shows the various combinations of labor and capital that
can produce some fixed level of output.
7. In the short run, a firm's marginal cost tends to rise as more is produced because of
diminishing marginal returns.
1. If a firm can adjust its employment of all inputs, then it is
in the long run.
24. Suppose a firm doubles its employment of all inputs in the long run. If this action more than doubles the amount of output produced, then this firm is experiencing
increasing returns to scale.
20. The set of all baskets of inputs that can be employed at a given cost defines a(n)
isocost curve.
14. If the average cost curve is downward sloping, then
marginal cost is smaller than average cost.
5. The shapes of the total product and marginal product curves are related because
marginal product gives the slope of total product.
33. Marginal cost can be expressed as the ration of the price of labor and the Marginal Product of Labor
only when labor is the only variable input.
3. The association of each quantity of a variable input, like labor, to its total product is the
short-run production function.
19. If the marginal rate of technical substitution of labor for capital (MRTSLK) exceeds the relative price of labor in terms of capital (PL/PK), then
the firm needs to use less capital and more labor to reach its expansion path.
21. A firm is currently producing 200 units of output using 60 hours of labor and 80 hours of capital. The marginal product of labor is 12 units of output per hour, and the marginal product of capital is 15 units of output per hour. If the wage rate is $6 per hour and the rental rate is $3 per hour, then
the firm should use more capital and less labor.
8. Diminishing marginal returns to labor imply that
the firm's short-run marginal cost curve will be upward sloping.
18. The marginal rate of technical substitution of labor for capital (MRTSLK) tends to be higher
the larger the quantity of capital already employed.
35. The MRTS is currently -2. The wage rate is $15 per hour and the rental rate is $30 per hour. It follows that
the marginal product of capital is twice that of labor.
13. If information about the total cost is not given for every possible 1 unit change in quantity, marginal cost can still be computed as
the price of labor divided by the marginal product of labor.
25. When input prices are fixed, decreasing returns to scale implies that the long-run average cost curve is
upward sloping.
