1) Assume that at the current level of output a firm's marginal cost and average variable cost of production are both decreasing. Based on this, we can conclude that the marginal product and average product of the firm's variable input(s) are both increasing.
2) All else constant, an improvement in technology at each scale of operation would cause:
a. a movement up an industry's LRAC curve.
b. a movement down an industry's LRAC curve.
c. an upward shift of an industry's LRAC curve.
d. a downward shift of an industry's LRAC curve.
3) All else constant, an increase in the price of labor would cause the total amount of output that can be produced with a fixed amount of spending to ________. This would result in a movement to a ________ isoquant.
a. increase; lower
b. increase; higher
c. decrease; lower
d. decrease; higher
4) The amount of money a firm pays to lease a building it uses for office space is called:
a. the full opportunity cost of production.
b. an explicit cost.
c. a real cost of production.
d. an implicit cost.
5) The marginal product of a variable input is calculated as:
a. the change in total product divided by the change in output.
b. total product divided by the change in the variable input.
c. the change in total product divided by the change in the variable input.
d. total product divided by the total quantity of the variable input.
6) The "law of diminishing marginal returns" applies to:
a. the short run, but not the long run.
b. the long run, but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
7) The marginal rate of technical substitution (MRTS) along an isoquant:
a. is equal to the price ratio at all points along an isoquant.
b. is equal to the ratio of the marginal utilities of the two goods.
c. is equal to the ratio of the marginal products of the two inputs.
d. remains constant as we alter the combinations of the two inputs.
8) The list of the major factors that create economies of scale includes all of the following except:
a. specialization and division of labor.
b. quantity discounts.
c. an increase in demand for the firm's output.
d. the use of automation devices.
9) As the price of labor increases relative to the price of capital, the firm will move to a more labor-intensive production method to minimize costs.
10) Economic profit is equal to the difference between:
a. total revenue and the full opportunity cost of all the resources used in production.
b. total revenue and implicit costs.
c. accounting profit and explicit costs.
d. implicit and explicit costs.
11) Assume a firm is producing 1000 units of a good by using two inputs, capital and labor, whose per unit prices are $50 and $20. Assume also that the marginal physical product of the last unit of capital is 25 and the marginal physical product of the last unit of labor is 15. In order to minimize its costs of production, the firm should adjust its combination of inputs by employing more labor and less capital.
12 Assume the LRAC curve for a particular industry hits its minimum point at a relatively low level of output and then increases, and the demand for industry output is quite large. In this case, consideration of the minimum efficient scale of operation suggest that the market should be served by:
a. a large number of small firms to minimize production costs.
b. a small number of large firms to minimize production costs
c. a large number of large firms to minimize production costs.
d. an indeterminate number of firms of indeterminate size to minimize production costs.
13 The full opportunity costs of production are calculated as the sum of both explicit and implicit costs.
14 An isoquant identifies all of the combinations of two inputs that result in the same total costs of production.
15 An isocost line represents:
a. all the combinations of inputs to a production process that result in the same total costs of production.
b. all the combinations of inputs that result in the same amount of output.
c. all of the combinations of two inputs for which the amount of money spent on each of the inputs is equal.
d. all of the levels of output that result in the same total cost.
16 Assume a factory that currently employs 25 workers and owns a factory with 10,000 square feet of floor space is considering doubling the size of its factory. Economists would classify this as:
a. a short-run decision.
b. a long-run decision.
c. neither a short-run nor a long-run decision.
d. both a short-run and a long-run decision.
17 Which of the following statements is true of the relationship among the average cost functions?
a. ATC = AFC - AVC
b. AVC = AFC + ATC
c. AFC = ATC + AVC
d. AFC = ATC - AVC
18 Which of the following is true of the typical relationship between marginal product (MP) and average product (AP)?
a. If MP is greater than AP, then AP is falling.
b. The AP curve intersects the MP curve at minimum MP.
c. The MP curve intersects the AP curve at maximum AP.
d. If MP is less than AP, then AP is increasing.
19 Assume a firm uses two inputs, capital and labor. All else constant, an increase in the price of labor would create an incentive for the firm to:
a. substitute labor in place of capital in its production function.
b. substitute capital in place of labor in its production function.
c. hire more capital and labor.
d. hire less capital while holding the amount of labor employed constant.
20 A firm's production function is the relationship between:
a. the inputs employed by the firm and the resulting costs of production.
b. the factors of production and the resulting outputs of the production process.
c. the demand for a firm's output and the quantity it is able to produce with available resources.
d. the firm's production costs and the amount of revenue it receives from the sale of its output.
21 The negatively-sloped part of the long-run average total cost curve is due to which of the following?
a. Diseconomies of scale.
b. Diminishing returns.
c. The difficulties encountered in coordinating the many activities of a large firm.
d. The increase in productivity that results from specialization.
22 The amount of output produced with an additional unit of variable input is referred to as:
a. total product.
b. average variable product.
c. marginal product.
d. average fixed product.
23 For a particular farmer and a single growing season, the amount of seed that is planted would be considered a variable input.