Econ Test 2
which of the following inputs are variable in the long run? -labor -capital and equipment -plant size -all of these
all of these
Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what is the marginal product of capital at the new optimal level of input usage? -100 units -133 units -150 units -we do not have enough information to answer this question
133 units
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. -I is true, and II is false. -I is false, and II is true. -Both I and II are true. -Both I and II are false
I is false, and II is true.
In a competitive labor market, with one variable factor, the supply of labor to the firm is: -equal to the marginal expenditure curve -equal to the demand curve for the labor -greater than the marginal expenditure curve -equal to the marginal revenue product curve
equal to the marginal expenditure curve
The substitution effect of a decrease in the wage will: -decrease leisure, regardless of whether leisure is a normal or inferior good. -increase leisure, regardless of whether leisure is a normal or inferior good. -increase leisure only if leisure is a normal good -decrease leisure only if leisure is a normal good
increase leisure, regardless of whether leisure is a normal or inferior good
Suppose labor and capital are variable inputs. The wage rate is $20 per hour, the marginal product of labor is 30 units, the rental rate of capital is $100 per machine hour, and the marginal product of capital is 150 units. If the wage rate declines to $15 per hour, the firm employs more labor and the marginal product of labor declines to 20 units. Assuming the rental rate of capital remains the same, what happens to the amount of capital used by the firm? -decreases -increases -no change -we do not have enough information to answer this question
increases
The Acme Company is a perfect competitor in its input markets and its output market. Its average product of labor is at its maximum and equals 30. The marginal revenue product of labor is $300. The price of its output: - is $0.10 - is $10 -is $9,000 -cannot be determined without more information
is $10
The marginal product of labor for Acme, Inc. is 15. The average product of labor is 25, and the price of labor is $10. Assuming that Acme, Inc. is a competitor in its output and input markets, the marginal revenue product of labor: -is $10 -is$150 -is$250 -is$375 cannot be determined with the information provided
is$150
With its current levels of input use, a firm's MRTS is 3 (when capital is on the vertical axis and labor is on the horizontal axis). This implies: -the firm could produce 3 more units of output if it increased its use of capital by one unit (holding labor constant). -the firm could produce 3 more units of output if it increased its use of labor by one unit (holding capital constant). -if the firm reduced its capital stock by one unit, it would have to hire 3 more workers to maintain its current level of output. -if it used one more unit of both capital and labor, the firm could produce 3 more units of output. -the marginal product of labor is 3 times the marginal product of capital.
the marginal product of labor is 3 times the marginal product of capital.
A firm wants to minimize the total cost of producing 100 tons of dynamite. The firm uses two factors of production, chemicals and labor. The combination of chemicals and labor that minimizes production costs will be found where: -the marginal products of chemicals and labor are equal. -the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the marginal product of chemicals to the marginal product of labor. -the ratio of the amount of chemicals used to the amount of labor used equals the ratio of the price of chemicals to the wage rate. -the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used. -none of the above
the production of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used.
At the current level of output, long-run marginal cost is $50 and long-run average cost is $75. This implies that: -there are neither economies nor diseconomies of scale -there are economies of scale -there are diseconomies of scale -the cost-output elasticity is greater than one
there are economies of scale
The law of diminishing returns assumes that: -there is at least one fixed input. -all inputs are changed by the same percentage. -additional inputs are added in smaller and smaller increments. -all inputs are held constant.
there is at least one fixed input.
Which of the following costs are always increasing as output increases? -marginal cost only -fixed cost only -total cost only -variable cost only -total cost and variable cost
total cost and variable cost
In 1985, Alice paid $20,000 for an option to purchase ten acres of land. By paying the $20,000, she bought the right to buy the land for $100,000 in 1992. When she acquired the option in 1985, the land was worth $120,000. In 1992, it is worth $110,000. Should Alice exercise the option and pay $100,000 for the land? -yes -no -it depends on what the rate of inflation was between 1985 and 1992 -it depends on what the rate of interest was
yes
Jim left his previous job as a sales manager and started his own sales consulting business. He previously earned $70,000 per year, but he now pays himself $25,000 per year while he is building the new business. What is the economic cost of the time he contributes to the new business? -$25,000 per year -zero -$70,000 per year -$45,000 per year
-$45,000 per year
the total cost of producing a given level of output is: -maximized when a corner solution exists -minimized when the ratio of marginal product to input price is equal for all inputs -minimized when the marginal products of all inputs are equal -minimized when marginal product multiplied by input price is equal for all inputs
-minimized when the ratio of marginal product to input price is equal for all inputs
technological improvement -can hide the presence of diminishing returns -can be shown as a shift in the total product curve -allows more output to be produced with the same combination of inputs. -All of the above are true.
All of the above are true.
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
Use the following two statements to answer this question: -I. The marginal product of labor is the slope of the line from the origin to the total product curve at that level of labor usage. -II The average product of labor is the slope of the line that is tangent to the total product curve at that level of labor usage. -Both I and II are true. -I is true, and II is false. -I is false, and II is true. -Both I and II are false.
Both I and II are false
Which of the following equations based on capital (K) and labor (L) inputs does not represent a plausible production function? -F(K,L) = 3KL -F(K,L) = 3K -F(K,L) = K + L - 1 -F(K,L) = 10(KL)0.5
F(K,L) = K + L - 1
Which of the following statements does not explain why US health care expenditures are higher than in other countries? -Government policies have shifted the health care production function downward over time. -Consumer incomes have increased, which allows consumers to purchase more health care. -The US health care system is relatively inefficient compared to other countries. -Demand for health care in the US has increased, so health care production occurs at a higher point on the total product curve than in other countries.
Government policies have shifted the health care production function downward over time.
Why doesn't the marginal worker hired earn economic rent in a competitive labor market? -His reservation wage is less than the wage. -His reservation wage is greater than the wage. -His reservation wage is equal to the wage. -He is paid a wage that is lower than the others.
His reservation wage is equal to the wage.
Consider the following statements when answering this question: I. Suppose a semiconductor chip factory uses a technology where the average product of labor is constant for all employment levels. This technology obeys the law of diminishing returns. II. Suppose a semiconductor chip factory uses a technology where the marginal product of labor rises, then is constant and finally falls as employment increases. This technology obeys the law of diminishing returns. -I is true, and II is false. -I is false, and II is true. -Both I and II are true. -Both I and II are false.
I is false, and II is true
Use the following two statements to answer this question: -I. Production functions describe what is technically feasible when the firm operates efficiently. -II. The production function shows the least cost method of producing a given level of output. -Both I and II are true. -I is true, and II is false. -I is false, and II is true. -Both I and II are false.
I is true, and II is false.
Use the following statements to answer this question: -I. The scale economies index is positive if the cost-output elasticity that is greater than one. -II. A negative scale economies index indicates the presence of diseconomies of scale. - I and II are true - I is true and II is false - II is true and I false - I and II are false
II is true and I false
Suppose a competitive industry produces output, Q, using some input, i, where the price of the output is PQ and the input price is Pi. Efficient use of resources requires that: -MRPi = MPi. -MRPi = Mpi/PQ. -MRPi = MPi PQ. -MRPi = Pi.
MRPi = Pi.
A firm's short-run average cost curve is U-shaped. Which of these conclusions can be reached regarding the firm's returns to scale? -The firm experiences increasing returns to scale. -The firm experiences increasing, constant, and decreasing returns in that order. -The firm experiences first decreasing, then increasing returns to scale. -The short-run average cost curve reveals nothing regarding returns to scale.
The short-run average cost curve reveals nothing regarding returns to scale.
Which of the following is true regarding the relationship between returns to scale and economies of scope? -A firm experiencing economies of scope must also experience increasing returns to scale -Economies of scale and economies of scope must occur together. -A firm experiencing increasing returns to scale must also experience economies of scope. -There is no definite relationship between returns to scale and economies of scope.
There is no definite relationship between returns to scale and economies of scope.
At the optimum combination of two inputs, -the slopes of the isoquant and isocost curves are equal. -costs are minimized for the production of a given output. -the marginal rate of technical substitution equals the ratio of input prices. -all of the above -a and c only
all of the above
An increase in technology that enhances labor productivity will likely result in: -a decrease in labor employment and an increase in the wage rate. -an increase in labor employment and an increase in the wage rate. -a decrease in labor employment and a decrease in the wage rate. -an increase in labor employment and a decrease in the wage rate. -employers using less labor and more capital while the wage effect is unknown.
an increase in labor employment and an increase in the wage rate.
Which would not increase the productivity of labor? -An increase in the size of the labor force -An increase in the quality of capital -An increase in the quantity of capital -An increase in technology -An increase in the efficiency of energy
an increase in the size of the labor force
prospective sunk costs: -are relevant to economic decision-making -are considered as investment decisions -rise as output rises -do not occur when output equals zero
are relevant to economic decision-making
For consideration of such issues as labor's productivity growth nationwide, the relevant measure is the: - marginal product of labor - average product of labor - total product of labor - wage - cost of capital
average product of labor
The Malthusian dilemma relates to marginal product in that: -starvation can be averted only if marginal product is constant. -because of diminishing marginal product, the amount of food produced by each additional member of the population increases. -because of diminishing marginal product, the amount of food produced by each additional member of the population decreases. -because of diminishing marginal product, the wage falls as the population decreases. -because of diminishing average product, the population will not have additional capital to work with.
because of diminishing marginal product, the amount of food produced by each additional member of the population decreases.
In a short-run production process, the marginal cost is rising and the average total cost is falling as output is increased. Thus, marginal cost is: -below average total cost -above average total cost -between the average variable and average total cost curves -below average fixed cost
below average total cost
A firm purchases a factor of production in a competitive market. At the current purchase rate the MRP of the factor is greater than the marginal expenditure for the factor. Thus, the firm: -can increase profit by reducing the employment of the factor of production. -is now maximizing profit. -should not use this factor of production because it has no potential in generating a profit. -can increase profit by expanding the employment of the factor of production.
can increase profit by expanding the employment of the factor of production.
Under what circumstances are the marginal expenditure for an input and the average expenditure always equal? Where there is a: -competitive buyer -competitive seller -monopoly buyer -monopoly seller
competitive buyer
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: -is producing its current output level at the minimum cost. -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. -could increase its output at no extra cost by employing more capital and less labor. -Both B and D are true.
could reduce the cost of producing its current output level by employing more labor and less capital.
which of the following is the user cost of capital? -implicit cost of capital + explicit cost of capital -interest rate × value of capital - depreciation -economic depreciation + (interest rate)(value of capital) -interest rate - depreciation
economic depreciation + (interest rate)(value of capital)
a production function defines the output that can be produced: -at the lowest cost, given the inputs available -for the average firm -if the firm is technically efficient -in a given time period if no additional inputs are hired -as technology changes over time
if the firm is technically efficient
Incremental cost is the same concept as ________ cost. -average -marginal -fixed -variable
marginal
In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus, -average fixed cost is constant -marginal cost is above average variable cost -marginal cost is below average fixed cost -marginal cost is below average variable cost
marginal cost is below average variable cost.
The key assumption required for us to use a linear variable cost function of the form VC = bq is that: -marginal cost must be constant and equal to b. -marginal cost must be increasing at rate b. -fixed costs must be zero -marginal cost is always greater than average variable cost.
marginal cost must be constant and equal to b.
For the firm's cost minimization problem, one of the key assumptions for each input is that: -marginal product is constant. -marginal product is increasing at a decreasing rate. -marginal product is increasing at an increasing rate. -marginal product is decreasing at an increasing rate.
marginal product is constant.
For a given pair of production outputs, the degree of economies of scope: -is constant across different output levels -only increases as the level of output increases -may increase or decrease with output -will always tend to zero as output becomes very large
may increase or decrease with output
for any given level of output: -marginal cost must greater than average cost -average variable cost must be greater than average fixed cost -average fixed cost must be greater than average variable cost -fixed cost must be greater than variable cost -none of the above is necessarily correct
none of the above is necessarily correct
For many firms, capital is the production input that is typically fixed in the short run. Which of the following firms would face the longest time required to adjust its capital inputs? -firm that makes DVD players -Computer chip fabricator -Flat-screen TV manufacturer -Nuclear power plant
nuclear power plant
When an isocost line is just tangent to an isoquant, we know that: -output is being produced at minimum cost. -output is not being produced at minimum cost -the two products are being produced at the least input cost to the firm. -the two products are being produced at the highest input cost to the firm.
output is being produced at minimum cost.
Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=3 machines, what is his short-run production function? - q=3L - q=3L2 - q=9L = q=3K2
q=9L
In our analysis, it is best to treat capital as if it was: -rented, even if it was purchased -purchased, even if it was just rented -purchased and also rented -rented first, then purchased
rented, even if it was purchased
annual economic depreciation equals: -the value of capital at end of year minus new investment. -the amortization payment made annually for the purchase of an asset, spread over the life of the asset. -the annual loss of value of buildings and machines due to deterioration. -the change in the weighted average cost of capital, or percentage change in the components of debt and equity.
the amortization payment made annually for the purchase of an asset, spread over the life of the asset.
When labor usage is at 12 units, output is 36 units. From this we may infer that: -the marginal product of labor is 3. -the total product of labor is 1/3. -the average product of labor is 3. -none of the above
the average product of labor is 3.
One of the factors contributing to the fact that labor productivity is higher in the U.S. than in the People's Republic of China is: -China's larger stock of capital. -the higher capital/labor ratio in China. -the higher capital/labor ratio in the U.S. -China's smaller stock of fossil fuels. -the fact that much labor in the U.S. is in management.
the higher capital/labor ratio in the U.S.
At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because: -diminishing returns apply in the short run. -returns to scale only exist in the long run. -opportunity costs are taken into account in the short run. -there are at least as many possibilities for substitution between factors of production in the long run as in the short run. -none of the above
there are at least as many possibilities for substitution between factors of production in the long run as in the short run.
Writing total output as Q, change in output as △Q, total labor employment as L, and change in labor employment as △L, the marginal product of labor can be written algebraically as: -ΔQ ∙ L. -Q / L. -ΔL / ΔQ. -ΔQ / ΔL
ΔQ / ΔL
economies of scope refer to: -changes in technology -the very long run -multiproduct firms -single product firms that utilize multiple plants -short-run economies of scale
multiproduct firms
When an isocost line is just tangent to an isoquant, we know that: -output is being produced at minimum cost. -output is not being produced at minimum cost. -the two products are being produced at the least input cost to the firm. -the two products are being produced at the highest input cost to the firm.
output is being produced at minimum cost.
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? -normative -positive -administrative -executive
positive
The law of diminishing returns applies to: -the short run only -the long run only -both the short and the long run -neither the short nor the long run -all inputs, with no reference to the time period
the short run only
The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. Its average product of labor is 30, the marginal product of labor is 20, the price of labor is $20, and the price of the output is $5. For Acme Company, the marginal revenue product of labor: -is $100 -is $150 -is $400 -is $600 -cannot be determined with the information provided
$100
The Acme Company is a perfect competitor in its input markets and a monopolist in its output market. The marginal product of labor is 20 and the price of Acme's output is $10. For Acme Company, the marginal revenue product of labor is: -less than $10 -$10 -$20 -less than $200 -$200
$200
The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. The total cost to produce 100 cookies is: -$.10 -$.25 -$25.00 -$100.00 -Indeterminate
$25.00
In a competitive labor market, with one variable factor, the supply of labor to the firm is: -equal to the marginal expenditure curve. -equal to the demand curve for labor. -greater than the marginal expenditure curve. -equal to the marginal revenue product curve.
equal to the marginal expenditure curve
If the capital market is competitive, the user cost of capital equals: - the rental rate of capital -the return in that market - the rate of return of investing elsewhere -all of the above
all of the above
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 -decline -remain constant -fall to a minimum and then rise
decline
Suppose the supply of land is infinitely inelastic and the demand for land is downward sloping but inelastic at the current equilibrium. If the supply curve shifts rightward (e.g., previously unusable land is cleared for production), what happens to the aggregate economic rents in this market? -decrease -increase -remain the same -we do not have enough information to answer this question
decrease
Two firms, each producing different goods, can achieve a greater output than one firm producing both goods with the same inputs. We can conclude that the production process involves: -diseconomies of scope. -economies of scale. -decreasing returns to scale. -increasing returns to scale.
diseconomies of scope.
In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must: -be declining with output -be positive -equal zero -we do not have enough information to answer this question
equal zero
Suppose our firm produces chartered business flights with capital (planes) and labor (pilots) in fixed proportion (i.e., one pilot for each plane). The expansion path for this business will: -increase at a decreasing rate because we will substitute capital for labor as the business grow. -follow the 45-degree line from the origin -not be defined -be a vertical line
follow the 45-degree line from the origin
When the factor market is purely competitive, the firm's average expenditure curve for a factor of production is: -upward sloping and to the right of the marginal expenditure curve. -downward sloping and to the right of the marginal expenditure curve. -identical to the marginal expenditure curve. -downward sloping and to the left of the marginal expenditure curve.
identical to the marginal expenditure curve.
which of the following relationships is NOT valid? -rising marginal cost implies that average total cost is also rising -when marginal cost is below average total cost, the latter is falling -when marginal cost is above average variable cost, AVC is rising -none of the above
rising marginal cost implies that average total cost is also rising
Farmer Jones bought his farm for $75,000 in 1975. Today the farm is worth $500,000, and the interest rate is 10 percent. ABC Corporation has offered to buy the farm today for $500,000 and XYZ Corporation has offered to buy the farm for $530,000 one year from now. Farmer Jones could earn net profit of $15,000 (over and above all of his expenses) if he farms the land this year. What should he do? -sell to ABC Corporation -Farm the land for another year and sell to XYZ Corporation -Accept either offer as they are equivalent -reject both offers
sell to ABC corporation
Suppose a pizza restaurant has two pizza ovens that may be used to bake pizzas, so the restaurant has a maximum capacity constraint that affects the shape of the firm's short-run marginal cost curve. What happens to maximum capacity segment of this curve if the firm adds another pizza oven? -shift upward -shift downward -shift rightward -shift leftward
shift rightward
The concerns about world food production raised by Malthus have not materialized because: -input prices have fallen over time -crop prices haven risen over time -Malthus was wrong about the diminishing returns to labor in agriculture. -technological improvements have increased our ability to produce food over time.
technological improvements have increased our ability to produce food over time.
