Deck 4: Production and Costs

Question 1

Technological advances shift a firm's production function and its marginal product of labor curve .

A)downward; downward
B)upward; downward
C)downward; upward
D)upward; upward

Answer 1

D

Question 2

Firms typically experience decreasing marginal returns to labor at levels of employment due to .

A)high; congestion
B)low; congestion
C)high; specialization
D)low; specialization

Answer 2

A

Question 3

Firms typically experience increasing marginal returns to labor at _ levels of employment due to .

A)low; congestion
B)low; specialization
C)high; congestion
D)high; specialization

Answer 3

B

Question 4

The firm's production function is the relationship between the firm's and its maximum .

A)inputs; profits
B)costs; outputs
C)inputs; outputs
D)outputs; profits

Question 5

Refer to the table above. What is the marginal return to labor from increasing employment from 8 to 9 workers?

A)- 8
B)3
C)8
D)- 3

Question 6

If the hiring of one more worker yields no change in the level of output, the marginal product of labor is _ at this hiring level.

A)negative
B)at a maximum
C)at a minimum
D)positive

Question 7

Refer to the table above. If the firm experiences a technological advancement, this will shift the marginal product of labor curve and _ marginal returns of labor at all production levels.

A)upward; decrease
B)downward; decrease
C)downward; increase
D)upward; increase

Question 8

Refer to the table above. What is the marginal return to labor from increasing employment from 2 to 3 workers?

A)18
B)9
C)3
D)2

Question 9

A firm's opportunity costs to produce a good or service depends on all of the following except which one?

A)production technology
B)the quantity of inputs
C)the cost of each input
D)the manager's efforts to maximizing the number of workers hired

Question 10

All of the following are true regarding long- run decisions except which one?

A)They are often more costly to change.
B)They are typically made by upper level management.
C)They are often more tactical in nature.
D)They are often more strategic in nature.

Question 11

Refer to the table above. When the worker is hired, the firm experiences decreasing marginal returns of labor.

A)4th
B)6th
C)2nd
D)3rd

Question 12

If a firm is experiencing increasing marginal returns to labor, the firm's production function is at a(n)rate.

A)increasing; decreasing
B)increasing; increasing
C)decreasing; increasing
D)decreasing; decreasing

Question 13

Refer to the table above. What is the marginal return to labor from increasing employment from 7 to 8 workers?

A)- 1
B)8
C)7
D)1

Question 14

Refer to the table above. When the worker is hired, the firm experiences increasing marginal returns of labor.

A)7th
B)8th
C)3rd
D)6th

Question 15

If a firm is experiencing decreasing marginal returns to labor, the firm's production function is at a(n)rate.

A)increasing; decreasing
B)increasing; increasing
C)decreasing; increasing
D)decreasing; decreasing

Question 16

Refer to the table above. When the worker is hired, the firm experiences negative marginal returns of labor.

A)5th
B)6th
C)2nd
D)10th

Question 17

Refer to the table above. What is the marginal return to labor from increasing employment from 4 to 5 workers?

A)10
B)4
C)7
D)5

Question 18

Which of the following is true regarding short- run decisions?

A)They are often more tactical in nature.
B)They are often more strategic in nature.
C)They are typically made by upper level management.
D)They are often very difficult to reverse.

Question 19

In a two- input production function, _ is fixed in the _ .

A)labor; long- run
B)capital; long- run
C)capital; short- run
D)labor; short- run

Question 20

The marginal product of labor is equal to the change in divided by the change in.

A)output; labor
B)cost; labor
C)labor; cost
D)labor; output

Question 21

If the wage rate paid to a textile employee is $120 and the marginal product of a worker is 12 yards of fabric, this means that for each additional dollar spent on labor, there is a gain of _ yards of fabric.

A)10
B)0.1
C)12
D)0.12

Question 22

If the cost of using an additional unit of capital equipment is $1,500 and the marginal product of a unit of capital is 7,500 units of output, this means that for each additional dollar spent on capital, there is a gain of _ _ units of output.

A)0.20
B)2
C)0.50
D)5

Question 23

In general, as employment increases, the marginal return to labor increases and then decreases as employment continues to increase.

Question 24

Refer to the table above. Holding employment constant at 5 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A)10
B)5
C)45
D)35

Question 25

If the cost of using an additional unit of capital equipment is $24,000 and the marginal product of a unit of capital is 144,000 units of output, this means that for each additional dollar spent on capital, there is a gain of _ _ units of output.

A)3
B)0.167
C)6
D)12

Question 26

If the wage rate paid to a flour mill worker is $75 and the marginal product of a mill worker is 50 pounds of flour, this means that for each additional dollar spent on labor, there is a gain of pounds of flour.

A)3
B)0.33
C)1.5
D)0.67

Question 27

If the cost of using an additional unit of capital equipment is $5,000 and the marginal product of a unit of capital is 2,000 units of output, this means that for each additional dollar spent on capital, there is a gain of _ _ units of output.

A)5
B)0.4
C)2.5
D)2

Question 28

If the cost of capital is $32 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 6 units per hour, to minimize its costs, the firm should _ .

A)not change the amount of labor or capital
B)increase the amount of labor used and decrease the amount of capital used
C)decrease the amount of labor used and increase the amount of capital used
D)decrease the amount of labor and capital used

Question 29

The marginal product of capital follows the same behavior as the marginal product of labor: it rises to a maximum and then falls.

Question 30

If the wage rate paid to a flour mill worker is $50 and the marginal product of a mill worker is 150 pounds of flour, this means that for each additional dollar spent on labor, there is a gain of pounds of flour.

A)5
B)3
C)0.33
D)1.5

Question 31

It is not possible for the marginal return of labor to be negative.

Question 32

If the cost of capital is $80 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 5 units per hour, to minimize its costs, the firm should _ .

A)increase the amount of labor and capital used
B)not change the amount of labor or capital
C)decrease the amount of labor used and increase the amount of capital used
D)increase the amount of labor used and decrease the amount of capital used

Question 33

Firms typically experience decreasing marginal returns to labor before they are able to enjoy increasing marginal returns to labor.

Question 34

Refer to the table above. Holding employment constant at 2 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A)2
B)4
C)13
D)9

Question 35

Refer to the table above. Holding employment constant at 1 worker, what is the marginal product of capital when capital is increases from 8 to 9 units?

A)2
B)4
C)1
D)6

Question 36

If the wage rate paid to a textile employee is $150 and the marginal product of a worker is 225 yards of fabric, this means that for each additional dollar spent on labor, there is a gain of yards of fabric.

A)5
B)0.67
C)3
D)1.5

Question 37

The marginal product of capital is equal to the change in divided by the change in .

A)cost; capital
B)output; capital
C)capital; output
D)capital; cost

Question 38

When a firm hires an additional worker, the firm's output and the firm's total cost .

A)increases; increases
B)decreases; decreases
C)increases; decreases
D)decreases; increases

Question 39

Refer to the table above. Holding employment constant at 7 workers, what is the marginal product of capital when capital is increases from 8 to 9 units?

A)9
B)12
C)16
D)8

Question 40

In a two- input production function, labor is variable in both the short run and long run.

Question 41

Refer to the table above. If A = 5, B = 7.5, and C = 20, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 42

If the cost of capital is $15 per hour, the wage paid to employees is $25 per hour, the marginal product of capital is 90 units per hour, and the marginal product of labor is 100 units per hour, to minimize its costs, the firm should _ .

A)decrease the amount of labor and capital used
B)increase the amount of labor used and decrease the amount of capital used
C)decrease the amount of labor used and increase the amount of capital used
D)not change the amount of labor or capital

Question 43

If the cost of capital is $1,000 per hour, the wage paid to employees is $50 per hour, the marginal product of capital is 800 units per hour, and the marginal product of labor is 40 units per hour, to minimize its costs, the firm should _ .

A)decrease the amount of labor used and increase the amount of capital used
B)not change the amount of labor or capital
C)increase the amount of labor and capital used
D)increase the amount of labor used and decrease the amount of capital used

Question 44

If the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 2 units per hour, the firm is minimizing costs.

Question 45

If the cost of capital is $80 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 24 units per hour; and the marginal product of labor is 3 units per hour, to minimize its costs, the firm should increase the total amount of labor used and decrease the amount of capital used.

Question 46

Refer to the table above. If A = 5, B = 7.5, and C = 10, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 47

If the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 5 units per hour, the firm is minimizing costs.

Question 48

Refer to the table above. If A = 6 and B = 10, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 49

If the cost of capital is $45 per hour, the wage paid to employees is $25 per hour, the marginal product of capital is 90 units per hour, and the marginal product of labor is 75 units per hour, to minimize its costs, the firm should _ .

A)decrease the amount of labor used and increase the amount of capital used
B)not change the amount of labor or capital
C)increase the amount of labor and capital used
D)increase the amount of labor used and decrease the amount of capital used

Question 50

Refer to the table above. If A = 6 and B = 8, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 51

To minimize costs, in the short- run, managers need to focus on minimizing the cost of the fixed inputs.

Question 52

If the cost of capital is $100 per hour, the wage paid to employees is $20 per hour, the marginal product of capital is 10 units per hour; and the marginal product of labor is 4 units per hour, to minimize its costs, the firm should increase the total amount of labor used and decrease the amount of capital used.

Question 53

Refer to the table above. If A = 8 and B = 8, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 54

Refer to the table above. If A = 10 and B = 8, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 55

If the cost of capital is $90 per hour, the wage paid to employees is $45 per hour, the marginal product of capital is 180 units per hour, and the marginal product of labor is 90 units per hour, to minimize its costs, the firm should _ .

A)not change the amount of labor or capital
B)decrease the amount of labor and capital used
C)increase the amount of labor used and decrease the amount of capital used
D)decrease the amount of labor used and increase the amount of capital used

Question 56

Refer to the table above. If A = 6 and B = 9, for which value of C is the firm minimizing costs?

A)6
B)9
C)20
D)12

Question 57

Refer to the table above. If A = 10, B = 15, and C = 20, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 58

Refer to the table above. If A = 10, B = 30, and C = 20, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 59

Refer to the table above. If A = 6 and B = 12, which of the following is true?

A)The firm should buy more of Input 1 and less of Inputs 2 and 3.
B)The firm should buy more of Input 2 and less of Inputs 1 and 3.
C)The firm should buy more of Input 3 and less of Inputs 1 and 2.
D)The firm is minimizing costs.

Question 60

If the cost of capital is $32 per hour, the wage paid to employees is $15 per hour, the marginal product of capital is 16 units per hour, and the marginal product of labor is 7.5 units per hour, to minimize its costs, the firm should _ .

A)increase the amount of labor and capital used
B)not change the amount of labor or capital
C)increase the amount of labor used and decrease the amount of capital used
D)decrease the amount of labor used and increase the amount of capital used

Question 61

At its current output level, Pretty Flowers Florist has average fixed costs equal to $4.40 and average variable costs equal to $2.20. What is Pretty Flowers Florist's average total cost at their current output level?

A)$2.20
B)$6.00
C)$4.40
D)$6.60

Question 62

The vertical distance between the average cost curve and the average total cost curve becomes _ _ as the quantity increases.

A)variable; smaller
B)marginal; smaller
C)variable; larger
D)marginal; larger

Question 63

All of the following are true regarding variable costs except which one?

A)Variable costs are the sum of the costs paid for all variable inputs.
B)Variable costs are equal to total cost minus fixed costs.
C)Variable costs change with changes in output.
D)Variable costs are the sum of the costs paid for all inputs.

Question 64

At its current output level, Pretty Flowers Florist has average total costs equal to $8.40 and average variable costs equal to $5.40. What is Pretty Flowers Florist's average variable cost at their current output level?

A)$8.40
B)$3.40
C)$3.00
D)$5.40

Question 65

Granite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's variable cost?

A)$25,000
B)$500
C)$100,000
D)$75,000

Question 66

All of the following are true regarding fixed costs except which one?

A)Fixed costs are the sum of the costs paid for all fixed inputs.
B)Fixed costs are equal to total cost minus variable costs.
C)Fixed costs are equal to the total cost plus variable costs.
D)Fixed costs do not change with changes in output.

Question 67

When a firm produces zero output, its total cost is .

A)zero
B)equal to its fixed cost
C)equal to its sunk cost
D)equal to its variable cost

Question 68

If the price of a variable input increases, all of the following curves will shift upward except which one?

A)average fixed cost
B)average variable cost
C)average total cost
D)marginal cost

Question 69

The curve constantly decreases as the quantity increases.

A)average variable cost
B)marginal cost
C)average total cost
D)average fixed cost

Question 70

At its current output level, Pretty Flowers Florist has average fixed costs equal to $5.40 and average variable costs equal to $3.20. What is Pretty Flowers Florist's average total cost at their current output level?

A)$3.20
B)$8.60
C)$5.40
D)$7.30

Question 71

When the marginal product of labor increases, the marginal cost and when the marginal product of labor reaches its maximum the marginal cost is at its .

A)increases; maximum
B)decreases; maximum
C)decreases; minimum
D)increases; minimum

Question 72

When a firm produces zero output, its total cost is equal to its .

A)fixed cost
B)sunk cost
C)average variable cost
D)variable cost

Question 73

The manager of Pretty Flowers Florist has realized that she is offering so many different kinds of floral arrangements that her total costs increase if she produces more of any kind of arrangement. This is an example of _.

A)diseconomies of scope
B)economies of scope
C)increasing sunk cost
D)cost complementarities

Question 74

Big Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's total cost?

A)$1,000
B)$4,000
C)$9,000
D)$5,000

Question 75

Granite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's total cost?

A)$50,000
B)$100,000
C)$75,000
D)$25,000

Question 76

Big Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's variable cost?

A)$4,000
B)$1,000
C)$9,000
D)$400

Question 77

At its current output level, Pretty Flowers Florist has average total costs equal to $10.40 and average variable costs equal to $6.20. What is Pretty Flowers Florist's average fixed cost at their current output level?

A)$6.40
B)$4.20
C)$2.20
D)$8.40

Question 78

Big Truck Hauling Company uses 5 units of capital at $1,000 per unit and employs 10 employees at a cost of $400 each. What is the company's fixed cost?

A)$5,000
B)$9,000
C)$1,000
D)$4,000

Question 79

All of the following cost curves have a U- shape except which one?

A)marginal cost
B)average variable cost
C)average total cost
D)average fixed cost

Question 80

Granite Tops for You uses 15 units of capital at $5,000 per unit and employs 50 employees at a cost of $500 each. What is the company's fixed cost?

A)$250,000
B)$5,000
C)$75,000
D)$500