ECON 2201 Chapter 6-9

Consider a good whose own price elasticity of demand is -1.5 and price elasticity of supply is 0.5. The fraction of a specific tax that is borne by producers is ________. 0.5 0.75 1 0 0.25

0.75

Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is ________. 0.5 0.75 0 1 0.25

1

Marginal product crosses the horizontal axis (is equal to zero) at the point where total product is maximized. diminishing returns set in. output per worker reaches a maximum. average product is maximized. All of the above are true.

total product is maximized.

The function which shows combinations of inputs that yield the same output is called a(n) isoquant curve. isocost curve. production function. production possibilities frontier.

isoquant curve.

Your firm owns an old truck that is used to make local deliveries. The truck is fully depreciated and only costs $1.20 per hour to operate, but you could rent it to another firm for $15.00 per hour. What is the opportunity cost of operating this truck in your business? $15.00 per hour Less than $1.20 per hour $16.20 per hour $1.20 per hour

$15.00 per hour

The total cost (TC) of producing computer software diskettes (Q) is given as: TC=200+5Q . What is the variable cost? 5 + (200/Q) 200 5 5Q none of the above

5Q

Government intervention can increase total welfare when there are costs or benefits that are external to the market. consumers do not have perfect information about product quality. a high price makes the product unaffordable for most consumers. all of the above A and B only

A and B only there are costs or benefits that are external to the market. consumers do not have perfect information about product quality.

Following Example 8.8 in the book, the long-run supply of rental housing in most U.S. communities is more inelastic than the long-run supply of owner-occupied housing. Why? Local rental housing regulations Limited demand for rental housing Limitations on the urban land available for rental housing A and C above are correct

A and C above are correct Local rental housing regulations Limitations on the urban land available for rental housing

From Example 7.2, most pizza restaurants have large fixed costs and relatively low variable costs. What does this tell us about the average variable cost (AVC) of producing pizza? AVC is relatively low AVC is relatively high AVC is increasing for all quantity levels AVC is high for low quantities but declines quickly

AVC is relatively low

In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: marginal cost is less than average total cost. average total cost is positive and constant. average total cost equals marginal cost. A and B are correct. B and C are correct.

B and C are correct. average total cost is positive and constant. average total cost equals marginal cost.

Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale. Both I and II are false. I is false, and II is true. I is true, and II is false. Both I and II are true.

Both I and II are false.

Use the following two statements to answer this question: I. The average cost curve and the average variable cost curve reach their minima at the same level of output. II. The average cost curve and the marginal cost curve reach their minima at the same level of output. Both I and II are false. I is true, and II is false. Both I and II are true. I is false, and II is true.

Both I and II are false.

I. A technology with increasing returns to scale will generate a long-run average cost curve that has economies of scale. II. Diminishing returns determines the slope of the short-run marginal cost curve, whereas returns to scale determine the slope of the long-run marginal cost curve. Both I and II are true. Both I and II are false. I is false, and II is true. I is true, and II is false.

Both I and II are true.

Which scenario below would lead to lower profits as we double the inputs used by the firm? Increasing returns to scale with constant input prices Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets) Constant returns to scale with constant input prices all of the above

Constant returns to scale with rising input prices (perhaps because the firm is not a price-taker in the input markets)

Which of the following actions is not an example of the production coordination provided by firms? Establish industry safety regulations Manage production activities of workers Pay wages to workers Set the production schedule for each week

Establish industry safety regulations

Use the following statements to answer this question: I. Markets may be highly (but not perfectly) competitive even if there are a few sellers. II. There is no simple indicator that tells us when markets are highly competitive. I and II are false I and II are true I is true and II is false I is false and II is true

I and II are true

Use the following statements to answer this question: I. For downward sloping demand and upward sloping supply curves, the government expenditure used to pay for a subsidy program exceeds the sum of the changes in producer and consumer surplus. II. To model the price-quantity impacts of a subsidy, we can shift the demand curve upward by the amount of the per-unit subsidy payment. II is true and I is false. I and II are false. I is true and II is false. I and II are true.

I and II are true.

Consider the following statements when answering this question; I. Whenever the marginal product of labor curve is a downward sloping curve, the average product of labor curve is also a downward sloping curve that lies above the marginal product of labor curve. II. If a firm uses only labor to produce, and the production function is given by a straight line, then the marginal product of labor always equals the average product of labor as labor employment expands. Both I and II are true. Both I and II are false. I is false, and II is true. I is true, and II is false.

I is false, and II is true.

Consider the following statements when answering this question I. Waiting lists for kidney transplants have been caused by a 1984 congressional law forbidding humans to sell their kidneys. II. Randomly choosing citizens to serve on juries is an efficient mechanism for selecting jurors. I is false, and II is true. I and II are true. I and II are false. I is true, and II is false.

I is true, and II is false.

Use the following two statements to answer this question: I. Increasing returns to scale cause economies of scale. II. Economies of scale cause increasing returns to scale. I is false, and II is true. I is true, and II is false. Both I and II are false. Both I and II are true.

I is true, and II is false.

From Equation (7.1) in the book, the short-run marginal cost of production is MC = w/MPL. Based on this equation, which of the following statements is NOT true? If the marginal product of labor is a concave curve, then the MC curve is also concave. If the marginal product of labor is constant, then MC is constant. If the marginal product of labor is a concave curve, then the MC curve is U-shaped. MC increases as the marginal product of labor declines.

If the marginal product of labor is a concave curve, then the MC curve is also concave.

Which of the following ideas were central to the conclusions drawn by Thomas Malthus in his 1798 "Essay on the Principle of Population"? Law of diminishing returns Short-run time period Shortage of labor Law of diminishing resource availability

Law of diminishing returns

When there are economies of scale, long-run marginal cost is declining. MC < AC, so cost-output elasticity is less than 1. MC < AC, so cost-output elasticity is less than AC. MC < AC, so cost-output elasticity is greater than 1. MC > AC, so cost-output elasticity is greater than AC.

MC < AC, so cost-output elasticity is less than 1.

Does it make sense to consider the returns to scale of a production function in the short run? No, returns to scale is a property of the consumer's utility function. Yes, this is an important short-run characteristic of production functions. No, we cannot change all of the production inputs in the short run. Yes, returns to scale determine the diminishing marginal returns of the inputs.

No, we cannot change all of the production inputs in the short run.

For any given level of output: marginal cost must be greater than average cost. average fixed cost must be greater than average variable cost. fixed cost must be greater than variable cost. average variable cost must be greater than average fixed cost. None of the above is necessarily correct.

None of the above is necessarily correct.

Ronny's Pizza House operates in the perfectly competitive local pizza market. If the price of pizza cheese increases (ceteris paribus), what is the expected impact on Ronny's profit-maximizing output decision? Output decreases because the price of pizza must also increase Output increases because the marginal cost curve shifts upward Output increases to cover the higher input cost Output decreases because the marginal cost curve shifts upward

Output decreases because the marginal cost curve shifts upward

Some economists conduct empirical research on the theory of the firm by measuring the degree of technical efficiency achieved by actual firms. What type of research contributions are provided by these studies? Positive Administrative Executive Normative

Positive

What is the economies of scope character for a firm that has a straight-line product transformation curve? Economies of scope (SC > 0) Diseconomies of scope (SC < 0) SC = 1 SC = 0

SC = 0

Which of the following is NOT related to the slope of isoquants? The fact that inputs have positive marginal product The fact that input prices are positive The fact that inputs have diminishing marginal product The fact that there are diminishing returns to inputs The fact that more of either input increases output

The fact that input prices are positive

Scenario 7.1: The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. Refer to Scenario 7.1. Which piece of information would NOT be helpful in calculating the marginal cost of the 75th unit of output? The variable cost of 75 units The variable cost of 74 units The firm's fixed cost The total cost of 74 units The total cost of 75 units

The firm's fixed cost

Which of the following is true regarding the relationship between returns to scale and economies of scope? There is no definite relationship between returns to scale and economies of scope. Economies of scale and economies of scope must occur together. A firm experiencing increasing returns to scale must also experience economies of scope. A firm experiencing economies of scope must also experience increasing returns to scale.

There is no definite relationship between returns to scale and economies of scope.

In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive, but can be resold, and are therefore an example of a sunk cost. an implicit cost. an opportunity cost. a variable cost. a fixed cost.

a fixed cost.

o model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: a vertical line. a horizontal line. not defined. equal to the 45-degree line from the origin.

a horizontal line.

Imposition of an output tax on all firms in a competitive industry will result in higher profits for the industry as price rises. a downward shift in each firm's marginal cost curve. the entry of new firms into the industry. a downward shift in each firm's average cost curve. a leftward shift in the market supply curve.

a leftward shift in the market supply curve.

A cubic cost function implies: a U-shaped average cost curve. a U-shaped marginal cost curve . a U-shaped average variable cost curve. all of the above

all of the above

Import tariffs generally result in less consumer surplus. more producer surplus for domestic producers. higher domestic prices. a deadweight loss. all of the above

all of the above

The authors note that the goal of maximizing the market value of the firm may be more appropriate than maximizing short-run profits because: managers will not focus on increasing short-run profits at the expense of long-run profits. this would more closely align the interests of owners and managers. the market value of the firm is based on long-run profits. all of the above

all of the above

Which of the following cases are examples of industries that have potentially increasing costs due to scarce inputs? Medical care Petroleum production Legal services all of the above

all of the above

Which of the following examples represents a fixed-proportion production system with capital and labor inputs? Horse-drawn carriages and carriage drivers Clerical staff and computers Airplanes and pilots all of the above

all of the above

In a constant-cost industry, an increase in demand will be followed by an increase in supply that will bring price down below the level it was before the demand shift. no increase in supply. an increase in supply that will bring price down to the level it was before the demand shift. an increase in supply that will not change price from the higher level that occurs after the demand shift. a decrease in demand to keep price constant.

an increase in supply that will bring price down to the level it was before the demand shift.

For consideration of such issues as labor's productivity growth nationwide, the relevant measure is the average product of labor. wage. cost of capital. marginal product of labor. total product of labor.

average product of labor.

A learning curve may be stated as L = A + BN-b where L is the labor per unit and N is the cumulative number of units produced. Learning does not occur when b = 0 b> 0 b= 1 b< 0

b = 0

A price taker is a firm that accepts different prices from different customers. a consumer who accepts different prices from different firms. a perfectly competitive firm. a firm that cannot influence the market price. both C and D

both C and D a perfectly competitive firm. a firm that cannot influence the market price.

A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm could increase its output at no extra cost by employing more capital and less labor. could reduce the cost of producing its current output level by employing more capital and less labor. could reduce the cost of producing its current output level by employing more labor and less capital. is producing its current output level at the minimum cost. Both B and D are true.

could reduce the cost of producing its current output level by employing more labor and less capital.

Assume that a firm's production process is subject to increasing returns to scale over a broad range of outputs. Long-run average costs over this output will tend to increase. remain constant. fall to a minimum and then rise. decline.

decline.

In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences constant returns to scale. negative returns to scale. increasing returns to scale. decreasing returns to scale.

decreasing returns to scale.

If the isoquants in an isoquant map are downward sloping but bowed away from the origin (i.e., concave to the origin), then the production technology violates the assumption of: diminishing marginal returns. positive average product. free disposal. technical efficiency.

diminishing marginal returns

An improvement in technology would result in increased quality of the good, but little change in MC. upward shifts of MC and reductions in output. downward shifts of MC and increases in output. upward shifts of MC and increases in output. downward shifts of MC and reductions in output.

downward shifts of MC and increases in output.

In the long run, a firm's producer surplus is equal to the revenue it earns in the long run. difference between total revenue and total fixed costs. positive economic profit it earns in the long run. difference between total revenue and total variable costs. economic rent it enjoys from its scarce inputs.

economic rent it enjoys from its scarce inputs.

To model the input decisions for a production system, we plot labor on the horizontal axis and capital on the vertical axis. In the short run, labor is a variable input and capital is fixed. The short-run expansion path for this production system is: a horizontal line. equal to the 45-degree line from the origin. not defined. a vertical line.

horizontal line...

The burden of a tax per unit of output will fall heavily on consumers when demand is relatively ________ and supply is relatively ________. elastic; inelastic inelastic; elastic elastic; elastic inelastic; inelastic

inelastic; elastic

Constantine purchased 100 shares of IBM stock several years ago for $150 per share. The price of these shares has fallen to $55 per share. Constantine's investment strategy is "buy low, sell high." Therefore, he will not sell his IBM stock until the price rises above $150 per share. If he sells at a price lower than $150 per share he will have "bought high and sold low." Constantine's decision: is incorrect because it treats the price of the shares as an explicit cost. is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold. is correct and shows a solid command of the nature of opportunity cost. is incorrect because when the price of a stock falls, the law of demand states that he should buy more shares.

is incorrect because the original price paid for the shares is a sunk cost and should have no bearing on whether the shares should be held or sold.

At the profit-maximizing level of output, marginal profit is increasing. is zero. is positive. may be positive, negative or zero. is also maximized.

is zero.

Incremental cost is the same concept as ________ cost. variable average marginal fixed

marginal

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the marginal rate of substitution. slope of the isocost curve. marginal rate of technical substitution. average product of the input.

marginal rate of technical substitution.

Owners and managers may be different people with the same goals. may be different people with different goals, and in the long run firms that do best are those in which the managers are allowed to pursue their own independent goals. must be the same people. may be different people with different but exactly complementary goals. may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

may be different people with different goals, but in the long run firms that do best are those in which the managers pursue the goals of the owners.

Scenario 8.1: Two soft-drink firms, Fizzle & Sizzle, operate on a river. Fizzle is farther upstream, and gets cleaner water, so its cost of purifying water for use in the soft drinks is lower than Sizzle's by $500,000 yearly. According to Scenario 8.1, Fizzle and Sizzle cannot be perfect competitors because they are not identical firms. would be perfectly competitive if it costs Fizzle $500,000 yearly to keep that land. would be perfectly competitive if their purification costs were equal; otherwise, not. may or may not be perfect competitors, but their position on the river has nothing to do with it.

may or may not be perfect competitors, but their position on the river has nothing to do with it.

Deadweight loss refers to net losses in total surplus. situations where market prices fail to capture all of the costs and benefits of a policy. losses in consumer surplus associated with excess government regulations. losses due to the policies of labor unions.

net losses in total surplus.

A firm never operates on the downward-sloping portion of its ATC curve. on the downward-sloping portion of its AVC curve. at the minimum of its AVC curve. at the minimum of its ATC curve. on its long-run marginal cost curve.

on the downward-sloping portion of its AVC curve.

Revenue is equal to price times quantity minus marginal cost. price times quantity minus total cost. price times quantity minus average cost. price times quantity. expenditure on production of output.

price times quantity.

An effective price ceiling causes a loss of consumer surplus for certain and possibly producer surplus as well. producer surplus only. consumer surplus only. producer surplus for certain and possibly consumer surplus as well. neither producer nor consumer surplus.

producer surplus for certain and possibly consumer surplus as well.

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that: production at this point is technically inefficient. the isoquants for this production process are upward sloping. the airline will have negative profits. the production process violates diminishing margin returns.

production at this point is technically inefficient.

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the marginal product of labor. rate at which the firm can replace capital with labor without changing the output rate. average rate at which the firm can replace capital with labor without changing the output rate. marginal product of capital

rate at which the firm can replace capital with labor without changing the output rate.

We manufacturer automobiles given the production function q = 5KL where q is the number of autos assembled per eight-hour shift, K is the number of robots used on the assembly line (capital) and L is the number of workers hired per hour (labor). If we use K=10 robots and L=10 workers in order to produce q = 450 autos per shift, then we know that production is: optimal. maximized. technologically efficient. technologically inefficient.

technologically inefficient.

The link between the productivity of labor and the standard of living is that over the long run, consumers' rate of consumption is not related to labor productivity. tenuous and changing. that the productivity of labor grows much more erratically than the standard of living. that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity. inverse.

that over the long run, consumers as a whole can increase their rate of consumption only by increasing labor productivity.

Consumer surplus measures the benefit that consumers receive from a good or service beyond what they pay. the excess demand that consumers have when a price ceiling holds prices below their equilibrium. the extra amount that a consumer must pay to obtain a marginal unit of a good or service. gain or loss to consumers from price fixing

the benefit that consumers receive from a good or service beyond what they pay.

The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because the market price is determined (through regulation) by the government the demand curve for the industry's output is downward sloping the short run market price is determined solely by the firm's technology the firm's output is a small fraction of the entire industry's output the firm supplies a different good than its rivals

the firm's output is a small fraction of the entire industry's output

If the isoquants are straight lines, then the marginal rate of technical substitution of inputs is constant. only one combination of inputs is possible. there are constant returns to scale. inputs have fixed costs at all use rates.

the marginal rate of technical substitution of inputs is constant.

If the market price for a competitive firm's output doubles then at the new profit maximizing output, price has increased more than marginal cost competitive firms will earn an economic profit in the long-run. at the new profit maximizing output, price has risen more than marginal revenue the marginal revenue doubles the profit maximizing output will double

the marginal revenue doubles

The difference between the economic and accounting costs of a firm are the corporate taxes on profits . the sunk costs incurred by the firm. the opportunity costs of the factors of production that the firm owns. the explicit costs of the firm. the accountant's fees.

the opportunity costs of the factors of production that the firm owns. the explicit costs of the firm.

The demand curve facing a perfectly competitive firm is the same as its average revenue curve and its marginal revenue curve. not defined in terms of average or marginal revenue. the same as its marginal revenue curve, but not its average revenue curve. the same as its average revenue curve, but not the same as its marginal revenue curve. not the same as either its marginal revenue curve or its average revenue curve.

the same as its average revenue curve and its marginal revenue curve.

The law of diminishing returns assumes that all inputs are held constant. all inputs are changed by the same percentage. additional inputs are added in smaller and smaller increments. there is at least one fixed input.

there is at least one fixed input.

If any of the assumptions of perfect competition are violated, graphs with downward-sloping demand curves cannot be used to study the firm. there may still be enough competition in the industry to make the model of perfect competition usable. one must use the monopoly model instead. graphs with flat demand curves cannot be used to study the firm. supply-and-demand analysis cannot be used to study the industry.

there may still be enough competition in the industry to make the model of perfect competition usable.

A variable cost function of the form: VC=52 +2Q +3Q^2 implies a marginal cost curve that is upward sloping. U-shaped. constant. quadratic.

upward sloping.