Deck 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis

Question 1

In the short run the firm has at least one fixed input.

Answer 1

True

Question 2

The short run is that period during which there are no fixed commitments.

Answer 2

False

Question 3

In the long run, more costs become fixed.

Answer 3

False

Question 4

Total physical product is maximized if marginal physical product is zero.

Question 5

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Question 6

Variable costs increase when output rises.

Question 7

Firms should use a resource up to a point where MRP = P.

Question 8

The long run is a period long enough so that one of the firm's commitments ends.

Question 9

If MRP > P, a firm should use less of that input.

Question 10

The "law" of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input is increased.

Question 11

Total physical product shows what happens to the quantity of an output when the firm changes the quantity of an input.

Question 12

Fixed cost increases when output rises.

Question 13

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

Question 14

In the short run the firm has no more than one fixed input.

Question 15

In most businesses there is only one way to produce output.

Question 16

In the short run, a firm has fixed costs but never any variable costs.

Question 17

Average physical product measures the output per unit of input.

Question 18

The "law" of diminishing returns rests on the "law" of variable input proportions.

Question 19

Marginal physical product measures the increase in total output that results from a one-unit increase in an input.

Question 20

Average physical product measures the increase in total output that results from a one-unit increase in an input.

Question 21

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Question 22

A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.

Question 23

The least costly combination of inputs is influenced by the relative prices of inputs.

Question 24

A rise in the price of an input can be expected to lead to a rise in its marginal physical product.

Question 25

The average total cost curve of a firm is U-shaped.

Question 26

Production technology determines the relationship of total cost to outputs.

Question 27

Total fixed cost falls as output expands.

Question 28

If the price of one input changes, generally the firm will change its use of both inputs.

Question 29

Input proportions are usually fixed by technological conditions alone.

Question 30

If a firm is using optimal input proportions, it is minimizing its costs.

Question 31

The average cost curve shows the total cost divided by quantity produced for various levels of output.

Question 32

A firm will tend to select the least costly input combination to produce its output.

Question 33

If MPP?/P? > MP $\mathrm { P } _ { \mathrm { B } }$ / $\mathrm { P } _ { \mathrm { B } }$ , then the proportions of these two inputs is optimal.

Question 34

The average fixed cost curve increases as output increases.

Question 35

Most firms have very little flexibility in their choice of input proportions.

Question 36

If the price of one input changes, the firm will change its use of that input only.

Question 37

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

Question 38

The rule that states that the marginal revenue product equal to price does not hold when there are more than two inputs.

Question 39

Input choices in the present are often affected by past decisions.

Question 40

The marginal cost curve shows the per-unit cost associated with various levels of output.

Question 41

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

Question 42

A change in input prices has no impact on the budget line.

Question 43

Economies of scale are also called increasing returns to scale.

Question 44

Economies of scale lead to declining long-run average cost curves.

Question 45

Cost curves in the long run differ from cost curves in the short run.

Question 46

Production indifference curves generally have a positive slope.

Question 47

The firm's average cost curve is the result of cost minimization in the use of fixed inputs.

Question 48

The law of diminishing marginal returns is the same as increasing returns to scale.

Question 49

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Question 50

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

Question 51

The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.

Question 52

Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.

Question 53

A production indifference curve shows all combinations of input quantities capable of producing a given quantity of output.

Question 54

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Question 55

For most industries, average costs decrease indefinitely as output expands.

Question 56

A change in input prices will change the location of the budget line.

Question 57

Higher production indifference curves correspond to larger amounts of one input in relation to a second input.

Question 58

The different points on a cost curve represent alternative production possibilities in the same time period.

Question 59

The principal determinants of total and average cost curves are the firm's technology and the prices of its inputs.

Question 60

Production indifference curves show the combination of inputs that produce a given output.

Question 61

Which of the following experiments will yield observations that would allow one to calculate the marginal physical product of labor?

A) increase the number of lumberjacks with chain saws and observe the change in output of cut trees
B) increase the number of workers on an assembly line and record the change in output
C) Both a and b are correct.
D) Neither a nor b are correct.

Question 62

The marginal physical product of an input is the

A) addition to output from using one more unit of an input.
B) extra amount of an input needed to produce one additional unit of output.
C) change in average physical product, given a change in the quantity of an input.
D) slope of the production indifference curve for an output made using the input.

Question 63

In which zone does the total physical product reach it maximum value?

A) Increasing marginal return
B) Negative marginal return
C) Diminishing marginal return
D) Decreasing total physical product

Question 64

In the long run,

A) all of the firm's input quantities are variable.
B) the firm can vary the quantities of some but not all inputs.
C) managers become less efficient.
D) the total cost of producing any given level of output is greater than or equal to the short-run total cost of producing that level of output.

Question 65

A change in one input price will cause the slope of the budget line to change.

Question 66

The short run is the time period during which

A) all of the firm's costs are fixed.
B) the value of the firm's assets starts to decay.
C) the firm can adjust all inputs freely.
D) some of the firm's input decisions are constrained by previous commitments.

Question 67

Table 7-2
$\begin{array}{lccc} \text { Plastic (in pounds) } &5 & 6 & 7 \\\hline \text { Widgets} &14 & 17 & 19\end{array}$

-Table 7-2 contains information on widget production.The average physical product of the seventh pound of plastic is calculated as ____.

A) 9/25
B) 2
C) 25/9
D) 19/7

Question 68

The total physical product of an input is the same thing as its

A) total revenue product.
B) marginal physical product times output.
C) output.
D) total consumer's surplus.

Question 69

Table 7-2
$\begin{array}{lccc} \text { Plastic (in pounds) } &5 & 6 & 7 \\\hline \text { Widgets} &14 & 17 & 19\end{array}$

-Table 7-2 contains information on widget production.The marginal physical product of the sixth pound of plastic is ____.

A) (19/7) - (17/6)
B) 1/3
C) 2
D) 3

Question 70

Table 7-1
$\begin{array}{cc}\underline {\text { Warkers } }&\underline {\text { Tays }}\\1 & 5 \\2 & 12 \\3 & 22 \\4 & 30 \\5 & 35\end{array}$

-In Table 7-1, the marginal physical product of labor after the addition of the fourth worker is

A) 8.
B) 7.
C) 10.
D) 5.

Question 71

In the short run,

A) all of the firm's input quantities, including plant size, become adjustable.
B) firms are not constrained by past decisions.
C) firms have relatively little opportunity to change production processes.
D) all of the firm's current commitments come to an end.

Question 72

In which case will the transition from short run to long run involve the shortest chronological time?

A) a service that provides temporary secretaries to companies
B) an automobile factory
C) a farm
D) an electric utility

Question 73

A total product curve shows the

A) aggregate output of many firms in an industry.
B) amount of product consumers will take off the market.
C) maximum amount of product that it is technically possible to produce.
D) relationship between units of inputs and total output.

Question 74

Marginal physical product can tell a producer

A) at what point to stop adding inputs to the production process.
B) how much profit will be made at each level of production.
C) how much the last input added to the total amount of revenue.
D) how much the last input added to the total amount of production.

Question 75

Table 7-1
$\begin{array}{cc}\underline {\text { Warkers } }&\underline {\text { Tays }}\\1 & 5 \\2 & 12 \\3 & 22 \\4 & 30 \\5 & 35\end{array}$

-In Table 7-1, the marginal physical product begins to diminish with the addition of the

A) second worker.
B) third worker.
C) fourth worker.
D)Marginal returns never diminish in Table 7-1.

Question 76

Which of the following observations is true?

A) In the long run, more costs become variable.
B) Fixed costs can be completely varied if the time period is sufficient.
C) Fixed costs arise when some types of inputs can be bought only in big batches.
D) Variable costs arise when inputs have a large productive capacity.

Question 77

The case of production with a single variable input is analogous to

A) changing the use of land, labor, and capital in production by a constant absolute amount.
B) a controlled laboratory experiment in which the scientist permits one variable to change at a time.
C) changing the use of land, labor, and capital in production by a constant percentage.
D) specialization in one particular product by a company.

Question 78

John Amaker owns orange groves and hires pickers for a two-week period as shown in Table 7-3.
Table 7-3
$\begin{array}{cc}\underline {\text { Pickers } } &\underline {\text { Oranges Picked }} \\1 & 1,000 \\2 & 2,000 \\3 & 3,000 \\4 & 3,900 \\5 & 4,700 \\6 & 5,400 \\7 & 6,000 \\8 & 6,200 \\9 & 6,000\end{array}$

-In Table 7-3, diminishing returns set in with picker

A) 3.
B) 4.
C) 5.
D) 6.
E) 9.

Question 79

Some costs cannot be varied no matter how long the period in question.These are called

A) overheads.
B) total costs.
C) fixed costs.
D) variable costs.

Question 80

Table 7-1
$\begin{array}{cc}\underline {\text { Warkers } }&\underline {\text { Tays }}\\1 & 5 \\2 & 12 \\3 & 22 \\4 & 30 \\5 & 35\end{array}$

-In Table 7-1, the average physical product after five workers are hired is

A) 5.
B) 6.
C) 7.
D) 8.