CA5102 - Module 5 Reviewer

represents the technology available for turning inputs into output.

A production function: A. defines the minimum amount of output that can be produced with inputs such as capital and labor. B. defines the average amount of output that can be produced with inputs such as capital and labor. C. represents the technology available for turning inputs into output. D. is determined only by the expenditures on R&D

greater than average product.

As long as marginal product is increasing, marginal product is: A. less than average product. B. greater than average product. C. equal to average output. D. equal to total product.

initially increases then begins to decline.

As the usage of an input increases, marginal product: A. initially increases then begins to decline. B. initially decreases then begins to increase. C. consistently decreases. D. consistently increases.

declines continuously as output is expanded.

Average fixed cost: A. initially declines, reaches a minimum, and then begins to increase as output increases. B. increases continuously as output increases. C. declines continuously as output is expanded. D. keeps constant as output is expanded.

slope changes in the isocost line

Changes in the price of an input cause: A. isoquants to become steeper. B. slope changes in the isocost line. C. parallel shifts of the isocost lines. D. changes in both the isoquants and isocosts of equal magnitude.

slope changes in the isocost line.

Changes in the price of an input cause: A. isoquants to become steeper. B. slope changes in the isocost line. C. parallel shifts of the isocost lines. D. changes in both the isoquants and isocosts of equal magnitude.

remain constant as output is increased.

Constant returns to scale exist when long-run average costs: A. increase as output is increased. B. decrease as output is increased. C. remain constant as output is increased. D. None of the preceding statements is correct.

the marginal cost of producing one output is reduced when the output of another product is increased

Cost complementarity exists in a multiproduct cost function when: A. the average cost of producing one output is reduced when the output of another product is increased. B. the average cost of producing one output is increased when the output of another product is increased. C. the marginal cost of producing one output is increased when the output of another product is decreased. D. the marginal cost of producing one output is reduced when the output of another product is increased

Average advertising

Which of the following is NOT a measure of productivity? A. Total product B. Marginal product C. Average advertising D. Input-output ratio

Independent R&D

Which of the following is the most common source of technology? A. Independent R&D B. Licensing technology C. Publications or technical meetings D. Reverse engineering

Fixed costs are always greater than sunk costs.

Which of the following statements is incorrect? A. Fixed costs do not vary with output. B. Sunk costs are those costs that are forever lost after they have been paid. C. Fixed costs are always greater than sunk costs. D. Fixed costs could be positive when sunk costs are zero.

decrease as output is increased.

Economies of scale exist whenever long-run average costs: A. increase as output is increased. B. decrease as output is increased. C. remain constant as output is increased. D. None of the preceding statements is correct.

less capital and more labor

If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use: A. less capital and more labor. B. less labor and more capital. C. less labor and less capital. D. more labor and more capital.

less of labor and more of capital.

If the price of labor increases, in order to minimize the costs of producing a given level of output, the firm manager should use: A. less of labor and more of capital. B. less of labor and less of capital. C. more of labor and more of capital. D. more of labor and less of capital.

that input's price falls.

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when: A. that input's price rises. B. that input's price falls. C. that input's price remains the same. D. the prices of other inputs fall.

the minimum point of the average total cost curve.

In the short run, the marginal cost curve crosses the average total cost curve at: A. a point just below the average fixed cost curve. B. the minimum point of the average total cost curve. C. the maximum point of the average total cost curve. D. the point where the average total cost curve and average variable cost curve intersect.

variable factors.

Inputs a manager may adjust in order to alter production are: A. all factors. B. variable factors. C. long-run factors. D. fixed factors.

inputs are not perfectly substitutable.

Isoquants are normally drawn with a convex shape because: A. inputs are perfectly substitutable. B. inputs are perfectly complementary. C. inputs are not perfectly substitutable. D. inputs are not perfectly complementary

perfect substitutable relationship between all inputs.

With a linear production function there is a: A. perfect complementary relationship between all inputs. B. perfect substitutable relationship between all inputs. C. fixed-proportion relationship between all inputs. D. variable-proportion relationship between all inputs

should use more L and less K to cost minimize.

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 = 20, and MPK = 40 the firm: A. is cost minimizing. B. should use less L and more K to cost minimize. C. should use more L and less K to cost minimize. D. is profit maximizing but not cost minimizing.

should use more K and less L to cost minimize.

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: A. is cost minimizing. B. should use less L and more K to cost minimize. C. should use more K and less L to cost minimize. D. is profit maximizing but not cost minimizing.

declining with output.

When marginal cost curve is below an average cost curve, average cost is: A. increasing with output. B. declining with output. C. not varying with output. D. None of the preceding statements is correct.

only a minor reduction in costs.

When there are economies of scope between products, selling off an unprofitable subsidiary could lead to: A. a major reduction in costs. B. only a minor reduction in costs. C. only a minor reduction in sales. D. a major reduction in sales

accomplish a reduction in costs.

When there are economies of scope between two products which are separately produced by two firms, merging into a single firm can: A. accomplish an increase in sales. B. accomplish a reduction in costs. C. lead to an increase in cost. D. lead to a reduction in sales.

convex to the origin.

Whenever an isoquant exhibits a diminishing marginal rate of technical substitution, the corresponding isoquants are: A. convex to the origin. B. concave to the origin. C. L-shaped. D. linear.

Average total cost curve and average variable cost curve

Which curve(s) does the marginal cost curve intersect at the (their) minimum point? A. Average total cost curve B. Average fixed cost curve C. Average variable cost curve D. Average total cost curve and average variable cost curve

Variable costs

Which of the following "costs" could a firm that wants to remain in business avoid if it halted current production? A. Fixed costs B. Variable costs C. Sunk costs D. Opportunity costs

The MRTS is equal to the ratio of input prices, and the marginal product per dollar spent on all inputs is equal.

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? A. The MRTS is equal to the ratio of input prices. B. The marginal product per dollar spent on all inputs is equal. C. The marginal products of all inputs are equal. D. The MRTS is equal to the ratio of input prices, and the marginal product per dollar spent on all inputs is equal.

The marginal product per dollar spent on all inputs is equal.

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output? A. The marginal product per dollar spent on all inputs is equal. B. The MRTS is equal to the ratio of the quantity of inputs. C. The marginal products of all inputs are equal. D. The marginal product per dollar spent on all inputs is equal and the MRTS is equal to the ratio of the quantity of inputs.

economies of scale exist.

Larger firms can produce a product at lower average cost than small firms when: A. economies of scope exist. B. diseconomies of scale exist. C. economies of scale exist. D. cost complementarities exist.

more capital and less labor.

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: A. more capital and less labor. B. more labor and less capital. C. equal amounts of labor and capital. D. None of the preceding statements is correct.

All K and no L.

Suppose the production function is given by Q = 2K + L. If w = $4 and r = $4, how many units of K and L will be utilized in the production process? A. All K and no L. B. All L and no K. C. Equal amounts of K and L. D. A combination of K and L not represented above.

implies inputs are used in fixed proportions.

The Leontief production function: A. implies inputs are used in variable proportions. B. implies inputs are used in fixed proportions. C. is Q = max {bK, cL}. D. is Q = aK + bL.

must be putting forth maximal effort.

If a firm is operating on the production function, then workers: A. must be putting forth maximal effort. B. may not be putting forth maximal effort. C. are usually putting forth average effort. D. are usually putting forth minimal effort.

cost-minimizing combination of capital and labor does not change.

If a firm's production function is Leontief and the price of capital goes down, the: A. firm must use less labor in order to minimize the cost of producing a given level of output. B. firm must use more capital in order to minimize the cost of producing a given level of output. C. firm must use less capital in order to minimize the cost of producing a given level of output. D. cost-minimizing combination of capital and labor does not change.

in the increasing stage.

Suppose the cost function is C(Q) = 50 + Q − 10Q^2+ 2Q^3. At 10 units of output, the average cost curve is: A. in the increasing stage. B. in the declining stage. C. at the minimum level. D. at the maximum level.

diseconomies of scale.

Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist: A. economies of scope. B. diseconomies of scope. C. economies of scale. D. diseconomies of scale.

more labor and less capital.

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use: A. more capital and less labor. B. more labor and less capital. C. three times more capital than labor. D. none of the answers are correct

L-shaped isoquants.

The Leontief production function implies: A. straight-line isoquants. B. convex-shaped isoquants. C. A positive MRTS. D. L-shaped isoquants.

marginal product is zero

Total product begins to fall when: A. marginal product is maximized. B. average product is below zero. C. average product is negative. D. marginal product is zero.

economies of scale.

Two firms producing identical products may merge due to the existence of: A. economies of scope. B. economies of scale. C. cost complementarities. D. All of the preceding statements are correct.

VMPL is greater than wage.

It is profitable to hire labor so long as the: A. MPL is greater than wage. B. MPL is less than wage. C. VMPL is less than wage. D. VMPL is greater than wage.

exceeds wage

It is profitable to hire units of labor as long as the value of marginal product: A. is less than wage. B. exceeds average product. C. equals price. D. exceeds wage

cost minimizing combination of capital and labor does not change.

If a firm's production function is Leontief and the wage rate goes up, the: A. firm must use more labor in order to minimize the cost of producing a given level of output. B. firm must use more capital in order to minimize the cost of producing a given level of output. C. firm must use less labor in order to minimize the cost of producing a given level of output. D. cost minimizing combination of capital and labor does not change.

positive.

If the last unit of input increases total product, we know that the marginal product is: A. positive. B. negative. C. zero. D. indeterminate.

None of the preceding statements is correct.

In order for isoquants to have a diminishing marginal rate of substitution, they must be: A. L-shaped. B. straight lines. C. vertical. D. None of the preceding statements is correct.

marginal rate of technical substitution.

The absolute value of the slope of the isoquant is the: A. marginal rate of technical substitution. B. marginal product of capital. C. marginal rate of substitution. D. value marginal product of labor

labor and capital are used

The average product of labor depends on how many units of: A. labor are used. B. capital are used. C. labor and capital are used. D. None of the preceding statements is correct

Mass production of the existing product

Which of the following is NOT a means of acquiring product and process innovations? A. Independent research and development B. Mass production of the existing product C. Reverse engineering D. Hiring employees of innovating firms

all factors of production.

The long-run average cost curve defines the minimum average cost of producing alternative levels of output, allowing for optimal selection of: A. fixed factors of production. B. variable factors of production. C. all factors of production. D. sunk cost factors of production

marginal product.

The change in total output attributable to the last unit of an input is the: A. total product. B. average product. C. marginal product. D. marginal return.

isoquants.

The combinations of inputs that produce a given level of output are depicted by: A. indifference curves. B. budget lines. C. isocost curves. D. isoquants.

accounting costs and opportunity costs.

The costs of production include: A. the costs that appear on the income statements. B. the opportunity costs foregone by producing a given product. C. accounting costs. D. accounting costs and opportunity costs.

product innovation.

The creation of a new product is referred to as: A. process innovation. B. independent research and development. C. product innovation. D. patent disclosure.

the VMP of the input.

The demand for an input is: A. sloping upward. B. the VMP of the input. C. determined by MPL = W. D. derived from input owner's profit-maximizing condition.

VMPL = W.

The demand for labor by a profit-maximizing firm is determined by: A. MPL = MC. B. VMPL = MC. C. MPL = W. D. VMPL = W.

technology

The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by: A. land. B. production. C. capital. D. technology

not perfectly substitutable.

The isoquants are normally drawn with a convex shape because inputs are: A. not perfectly substitutable. B. perfectly substitutable. C. perfect complements. D. normal goods.

the firm produces on the production function.

The manager institutes an incentive structure to ensure: A. workers are in fact working at the expected potential. B. workers are in fact working at their utility-maximizing effort level. C. the firm produces on the production function. D. the firm produces above the production function.

total output attributable to the last unit of an input.

The marginal product of an input is defined as the change in: A. average output attributable to the last unit of an input. B. total output attributable to the last unit of an input. C. total input attributable to the last unit of an output. D. average output attributable to the last unit of an output.

is the absolute value of the slope of the isoquant.

The marginal rate of technical substitution: A. determines the rate at which a producer can substitute between two inputs in order to increase one additional unit of output. B. is the absolute value of the slope of the isoquant. C. is the absolute value of marginal revenue. D. is constant along the isoquant curve.

long-run average total cost curve.

The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the: A. long-run average total cost curve. B. short-run average fixed cost curve. C. short-run marginal cost curve. D. long-run marginal cost curve.

marginal product curve begins to be negatively sloped.

The point where diminishing marginal returns has begun to affect production is best characterized by the point where the: A. total product curve flattens out. B. average product curve begins to be negatively sloped. C. marginal product curve begins to be negatively sloped. D. marginal product curve equals the average product curve

production function.

The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the: A. production function. B. technological constraint. C. research and development schedule. D. total product.

output produced by the last unit of an input.

The value of marginal product of an input is the value of the: A. total output produced by total inputs. B. average output produced by inputs. C. output produced by the last unit of an input. D. output produced by the first unit of an input.

Economies of scope

What is implied when the total cost of producing Q1 and Q2 together is less than the total cost of producing Q1 and Q2 separately? A. Economies of scale B. Diminishing average fixed costs C. Cost complementarity D. Economies of scope