Question 1

If a firm experiences diminishing returns its marginal product must be negative.

Accepted Answer

A) True 
 B)False

Question 2

In his book The Wealth of Nations, Adam Smith employed the example of a pin factory in order to explain what economic concept?

Accepted Answer

A)  the relationship between the marginal and average product of labor 
B)  the law of diminishing returns 
C)  why no firm would want to hire so many workers as to experience a negative marginal product of labor 
D)  the division of labor 
A)  the relationship between the marginal and average product of labor 
B)  the law of diminishing returns 
C)  why no firm would want to hire so many workers as to experience a negative marginal product of labor 
D)  the division of labor

Question 3

Economies of scale exist as a firm increases its size in the long run because of all of the following except

Accepted Answer

A)  the firm can afford more sophisticated technology in production. 
B)  labor and management can specialize even further in their tasks. 
C)  as a larger input buyer, the firm can purchase inputs at a lower per unit cost. 
D)  as a firm expands its production, its profit margin per-unit of output increases. 
A)  the firm can afford more sophisticated technology in production. 
B)  labor and management can specialize even further in their tasks. 
C)  as a larger input buyer, the firm can purchase inputs at a lower per unit cost. 
D)  as a firm expands its production, its profit margin per-unit of output increases.

Question 4

A curve that shows all the combinations of two inputs, such as labor and capital, that will produce the same level of output is called

Accepted Answer

A)  an isoquant. 
B)  an isocost line 
C)  a budget line. 
D)  an optimal input combination curve. 
A)  an isoquant. 
B)  an isocost line 
C)  a budget line. 
D)  an optimal input combination curve.

Question 5

Maximizing the level of output for a given total cost of production

Accepted Answer

A)  is equivalent to producing the profit maximizing output level. 
B)  is equivalent to minimizing cost for a given level of output. 
C)  necessitates using only relatively low-priced inputs. 
D)  will maximize total revenue. 
A)  is equivalent to producing the profit maximizing output level. 
B)  is equivalent to minimizing cost for a given level of output. 
C)  necessitates using only relatively low-priced inputs. 
D)  will maximize total revenue.

Question 6

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays

Accepted Answer

A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  decreasing returns to scale. 
D)  constant average fixed costs. 
A)  increasing returns to scale. 
B)  constant returns to scale. 
C)  decreasing returns to scale. 
D)  constant average fixed costs.

Question 7

As output increases

Accepted Answer

A)  average variable cost becomes smaller and smaller. 
B)  the difference between average total cost and average variable cost decreases. 
C)  marginal cost increases continuously. 
D)  the difference between average total cost and average variable cost becomes greater and greater. 
A)  average variable cost becomes smaller and smaller. 
B)  the difference between average total cost and average variable cost decreases. 
C)  marginal cost increases continuously. 
D)  the difference between average total cost and average variable cost becomes greater and greater.

Question 8

Figure 11-6   Figure 11-6 contains information about the short run cost structure of a firm.
-Refer to Figure 11-6. In the figure above, which letter represents the average fixed cost curve?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 9

In the long run, all of a firm's inputs are variable.

Accepted Answer

A) True 
 B)False

Question 10

An isocost line shows

Accepted Answer

A)  all the possible combinations of two inputs that a firm can use to produce its output. 
B)  all the possible combinations of two inputs a firm can use that have the same total cost. 
C)  all the possible combinations of two inputs a firm can use that have the same marginal cost. 
D)  all the possible combinations of two inputs with constant returns to scale. 
A)  all the possible combinations of two inputs that a firm can use to produce its output. 
B)  all the possible combinations of two inputs a firm can use that have the same total cost. 
C)  all the possible combinations of two inputs a firm can use that have the same marginal cost. 
D)  all the possible combinations of two inputs with constant returns to scale.

Question 11

Average fixed cost is equal to

Accepted Answer

A)  the amount of total cost that does not change as output changes in the short run. 
B)  fixed cost divided by the quantity of output produced. 
C)  fixed cost multiplied by the quantity of output produced. 
D)  average total cost plus average variable cost. 
A)  the amount of total cost that does not change as output changes in the short run. 
B)  fixed cost divided by the quantity of output produced. 
C)  fixed cost multiplied by the quantity of output produced. 
D)  average total cost plus average variable cost.

Question 12

Figure 11-11   Figure 11-11 illustrates the long-run average cost curve for a firm that produces picture frames. The graph also includes short-run average cost curves for three firm sizes: ATCS1U1B1aS1U1B0, ATCS1U1B1bS1U1B0 and ATCS1U1B1cS1U1B0.
-Refer to Figure 11-11. If the firm chooses to produce and sell 25,000 frames per month by operating in the short run with a scale operation represented by ATCc

Accepted Answer

A)  the firm will not be operating efficiently. 
B)  the firm will be operating efficiently. 
C)  the firm would lower its average costs by reducing its scale of operation. 
D)  the firm will not be able to earn a profit. 
A)  the firm will not be operating efficiently. 
B)  the firm will be operating efficiently. 
C)  the firm would lower its average costs by reducing its scale of operation. 
D)  the firm will not be able to earn a profit.

Question 13

Which of the following equations is correct?

Accepted Answer

A)  AVC - ATC = AFC 
B)  AVC + ATC = AFC 
C)  AFC + AVC = ATC 
D)  ATC + AVC = AFC 
A)  AVC - ATC = AFC 
B)  AVC + ATC = AFC 
C)  AFC + AVC = ATC 
D)  ATC + AVC = AFC

Question 14

The marginal rate of technical substitution is

Accepted Answer

A)  the rate at which a firm is able to substitute one input for another, while keeping total cost constant. 
B)  the rate at which a firm is able to substitute one input for another, while keeping the level of output constant. 
C)  the rate at which a firm is able to institute positive technological changes to its production process. 
D)  the rate at which a firm is able to increase its output by replacing labor with technology. 
A)  the rate at which a firm is able to substitute one input for another, while keeping total cost constant. 
B)  the rate at which a firm is able to substitute one input for another, while keeping the level of output constant. 
C)  the rate at which a firm is able to institute positive technological changes to its production process. 
D)  the rate at which a firm is able to increase its output by replacing labor with technology.

Question 15

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is

Accepted Answer

A)  $1,000. 
B)  $700. 
C)  $300. 
D)  impossible to determine without additional information. 
A)  $1,000. 
B)  $700. 
C)  $300. 
D)  impossible to determine without additional information.

Question 16

If, after hiring the 6th worker, a firm's output falls, then the marginal product of the 6th worker is negative.

Accepted Answer

A) True 
 B)False

Question 17

If marginal product is greater than average product, then

Accepted Answer

A)  average product must be decreasing. 
B)  marginal product must be decreasing. 
C)  marginal product must be increasing. 
D)  marginal product could either be increasing or decreasing. 
A)  average product must be decreasing. 
B)  marginal product must be decreasing. 
C)  marginal product must be increasing. 
D)  marginal product could either be increasing or decreasing.

Question 18

In the short run, if the marginal product is at its maximum, then the

Accepted Answer

A)  average cost is at its minimum. 
B)  average variable cost is at its minimum. 
C)  marginal cost is at its minimum. 
D)  total cost is at its maximum. 
A)  average cost is at its minimum. 
B)  average variable cost is at its minimum. 
C)  marginal cost is at its minimum. 
D)  total cost is at its maximum.

Question 19

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers?

Accepted Answer

A)  $2.00 
B)  $2.40 
C)  $4.40 
D)  $6.80 
A)  $2.00 
B)  $2.40 
C)  $4.40 
D)  $6.80

Question 20

The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the

Accepted Answer

A)  opportunity cost of inputs. 
B)  marginal rate of technical substitution. 
C)  input trade-off rate. 
D)  isoquant substitution rate. 
A)  opportunity cost of inputs. 
B)  marginal rate of technical substitution. 
C)  input trade-off rate. 
D)  isoquant substitution rate.

Exam 11: Technology, Production, and Costs

If a firm experiences diminishing returns its marginal product must be negative.

In his book The Wealth of Nations, Adam Smith employed the example of a pin factory in order to explain what economic concept?

Economies of scale exist as a firm increases its size in the long run because of all of the following except

A curve that shows all the combinations of two inputs, such as labor and capital, that will produce the same level of output is called

Maximizing the level of output for a given total cost of production

When a firm's long-run average cost curve is horizontal for a range of output, then that range of production displays

As output increases

Figure 11-6 Figure 11-6 contains information about the short run cost structure of a firm. -Refer to Figure 11-6. In the figure above, which letter represents the average fixed cost curve?

In the long run, all of a firm's inputs are variable.

An isocost line shows

Average fixed cost is equal to

Which of the following equations is correct?

The marginal rate of technical substitution is

If average total cost is $50 and average fixed cost is $15 when output is 20 units, then the firm's total variable cost at that level of output is

If, after hiring the 6th worker, a firm's output falls, then the marginal product of the 6th worker is negative.

If marginal product is greater than average product, then

In the short run, if the marginal product is at its maximum, then the

Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers?

The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

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