Deck 7: Appendix: a Closer Look at Production and Cost

Question 1

A production function

A) shows the functions of production such as income, consumption, and employment
B) shows the relationship between quantities of inputs used and quantity of output produced
C) quantifies the amounts of variable inputs needed to produce fixed inputs
D) is the quota a firm manager expects the workers to meet
E) is a theoretical concept having no relevance to real-world production

Answer 1

B

Question 2

Which of the following is not a characteristic of isoquants?

A) They slope downward.
B) They do not intersect.
C) Their slope represents the ratio of the input prices.
D) They represent efficient combinations of two resources.
E) Isoquants further from the origin represent higher output levels.

Answer 2

C

Question 3

The marginal rate of technical substitution is the rate at which

A) one product can be substituted for another without affecting total production cost
B) one product can be substituted for another without affecting total expenditure by the buyer
C) one product can be substituted for another without affecting total utility
D) one input can be substituted for another without affecting total production cost
E) one input can be substituted for another without affecting total output

Answer 3

E

Question 4

Exhibit 7-16
Which combination of capital and labor illustrated in Exhibit 7-16 will maximize the producers revenue?

A) a
B) b
C) c
D) e
E) cannot tell from information given

Question 5

Exhibit 7-16
Which combination of capital and labor illustrated in Exhibit 7-16 will be the least costly?

A) a
B) b
C) c
D) e
E) cannot tell from information given

Question 6

Which of the following is not true of isoquants?

A) They slope down and to the right.
B) They are convex to the origin.
C) Their slope equals the marginal rate of technical substitution.
D) Output rises as you move along a specific isoquant.
E) Isoquants closer to the origin represent lower output levels.

Question 7

All combinations of inputs along an isoquant line represent the same profit.

Question 8

Technological efficiency means that

A) technology is constantly improving in this industry
B) there are economies of scale in this industry
C) the same inputs could not be purchased at a lower cost
D) the same output could not be produced with fewer resources
E) the same output could not be produced at a lower cost

Question 9

An isoquant is negatively sloped because

A) labor is productive and capital is not
B) both labor and capital are costly
C) labor and capital can replace each other in production
D) labor and capital can replace each other in expenditure
E) the ratio of marginal productivities rises, then falls

Question 10

An isoquant shows the possible combinations of two

A) products that yield the same social utility
B) products that can be produced after an improvement in technology
C) products that can be produced using the constant amount of resources available
D) resources that involve an identical total cost
E) resources that produce an identical quantity of the product

Question 11

Which of the following is true of point a in Exhibit 7-17?

A) The MRTS of labor for capital is equal to the ratio of the wage rate to the price of capital.
B) The MRTS of labor for capital is less than the ratio of the wage rate to the price of capital.
C) The firm would be producing its output at the lowest possible cost.
D) The MRTS of labor for capital is greater than the ratio of the wage rate to the price of capital.
E) The ratio of the marginal product of labor to the price of capital is equal to the ratio of the wage rate to the price of capital.

Question 12

Isoquants map combinations of inputs and outputs that yield equal profit.

Question 13

The marginal rate of technical substitution between labor (L) and capital (C) equals

A) MU_L/MU_C
B) AVC
C) MP_L/MP_C
D) the capital-labor ratio
E) the labor-capital ratio

Question 14

Exhibit 7-16
In terms of output produced, which of the following expresses the relationships illustrated in Exhibit 7-16?

A) a > b > c
B) a = b > c
C) b > c > a
D) c > b = a
E) c > b > a

Question 15

Which of the following is not true of isoquants?

A) isoquants farther from the origin represent greater output
B) isoquants slope downward to the right
C) isoquants never intersect one another
D) isoquants shift leftward when input prices increase
E) isoquants tend to be convex to the origin (bowed toward the origin)

Question 16

A firm can increase output by moving along a given isoquant.

Question 17

The slope of an isoquant is equal to

A) the marginal rate of substitution
B) the marginal rate of technical substitution
C) the rate of diminishing marginal utility
D) the rate of diminishing marginal returns
E) economies of scale

Question 18

At each point on an isoquant, the marginal rate of technical substitution (MRTS) of labor for capital is equal to the marginal product of labor divided by the marginal product of capital.

Question 19

All combinations of inputs along an isoquant line represent the same cost.

Question 20

All combinations of inputs along an isoquant line represent the same total output.

Question 21

Which of the following is true of point c in Exhibit 7-17?

A) The MRTS of labor for capital is equal to the ratio of the wage rate to the price of capital.
B) The MRTS of labor for capital is less than the ratio of the wage rate to the price of capital.
C) The firm would be producing its output at the lowest possible cost.
D) The MRTS of labor for capital is greater than the ratio of the wage rate to the price of capital.
E) The ratio of the marginal product of labor to the price of capital is equal to the ratio of the wage rate to the price of capital.

Question 22

Exhibit 7-19
In Exhibit 7-19, the rotation from AC to AB reflects a(n)

A) increase in the price of labor
B) increase in the price of land
C) decrease in the price of labor
D) decrease in the price of land
E) increase in the amount the producer can spend

Question 23

The slope of the isocost line is constant.

Question 24

The slope of an isocost line equals the absolute value of the input prices ratio.

Question 25

Which of the following points in Exhibit 7-17 represent capital-labor combinations that cost the firm the same amount?

A) a, b, and c
B) d, e, and f
C) a, e, and c
D) d, b, and f
E) b and e

Question 26

Exhibit 7-19
In Exhibit 7-19, the rotation from AB to AC reflects a(n)

A) increase in the price of labor
B) increase in the price of land
C) decrease in the price of labor
D) decrease in the price of land
E) increase in the amount the producer can spend

Question 27

A reduction in a firm's operating budget is represented as a shift of its isocost line inward to a parallel position.

Question 28

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. If the price of labor is $15 per hour, how many hours of labor can the firm hire if it spends nothing on machines?

A) 3/4 hour
B) 75 hours
C) 2,667 hours
D) 20,000 hours
E) 300,000 hours

Question 29

From the firm's perspective, point e in Exhibit 7-17 is preferable to which other point?

A) Point a because e represents the same output at lower cost.
B) Point a because e represents higher output at the same cost.
C) Point b because e represents the same output at lower cost.
D) Point b because e represents higher output at the same cost.
E) Point b because e represents higher output at lower cost.

Question 30

A change in the slope of the isocost line indicates a change in the price of one of the inputs.

Question 31

At point b in Exhibit 7-17, output is

A) higher than at points a and c, but cost is the same
B) the same as at points a and c, but cost is lower
C) the same as at points a and c, but cost is higher
D) lower than at points a and c and so is cost
E) higher than at point a

Question 32

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. The firm can operate its copy machine for 2,000 hours if it hires no labor. What is the cost of operating a copy machine for one hour?

A) 12.5 cents
B) $1.25
C) $12
D) $20
E) It is impossible to tell from the information given.

Question 33

When a firm has the option of using two different inputs and it elects to use only one (e.g., labor), it will be at the vertical or horizontal intercept of its isocost line.

Question 34

Exhibit 7-20
In Exhibit 7-20, the movement from AB to CD might reflect a(n)

A) increase in the prices of both labor and land
B) decrease in the prices of both labor and land
C) increase in the price of labor and a decrease in the price of land
D) decrease in the price of labor and an increase in the price of land
E) increase in the amount the producer can spend

Question 35

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. If the price of labor is $4 per hour and the firm can afford to operate its copy machine for 2,000 hours if no labor is hired, how many additional hours of labor could the firm hire if it gave up one hour of copy machine time?

A) 5/8
B) 2
C) 1/5
D) 5
E) 1/4

Question 36

Exhibit 7-18
Consider Exhibit 7-18. The rotation from AB to AC reflects a(n)

A) increase in the price of labor
B) increase in the price of land
C) decrease in the price of labor
D) decrease in the price of land
E) increase in the amount the producer can spend

Question 37

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. The firm can operate its copy machine for 2,000 hours if it doesn't hire any labor. What is the hourly wage the firm must pay?

A) $1.25
B) $2.50
C) $5
D) $8
E) It is impossible to tell from the information given.

Question 38

Exhibit 7-18
In Exhibit 7-18, the rotation from AC to AB reflects a(n)

A) increase in the price of labor
B) increase in the price of land
C) decrease in the price of labor
D) decrease in the price of land
E) increase in the amount the producer can spend

Question 39

In Exhibit 7-17, the firm would prefer producing at point b to

A) points a and c only because b represents the same output at lower cost
B) points a and c only because b represents higher output at the same cost
C) points a and c only because b represents higher output at lower cost
D) point e only because b represents lower cost
E) all other points on the graph

Question 40

All combinations of inputs along an isocost line represent the same total output.

Question 41

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million, and the vertical (robot) intercept is 5 million. If Manny Motors' operating budget became $120 million, the horizontal intercept would become

A) 6 million robot hours
B) 20 million robot hours
C) 6 million labor hours
D) 20 million labor hours
E) $120 million

Question 42

If labor is measured along the horizontal axis, capital is measured along the vertical axis, W equals the wage rate, and R equals the cost of capital, the slope of an isocost line is

A) W + R
B) W - R
C) -W/R
D) -R/W
E) R - W

Question 43

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. Giving up one hour of labor makes it possible for Manny Motors to afford

A) 4 fewer robot hours
B) 3/5 more robot hours
C) 1-2/3 more robot hours
D) 3 million more robot hours
E) 5 million more robot hours

Question 44

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if the price of robot hours decreased?

A) It would shift to the right.
B) It would rotate outward along the horizontal axis.
C) It would rotate inward along the horizontal axis.
D) It would rotate outward along the vertical axis.
E) It would rotate inward along the vertical axis.

Question 45

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept of the isocost line is 5 million. Manny Motors' operating budget must be

A) $4.5 million
B) $8 million
C) $60 million
D) $80 million
E) $120 million

Question 46

The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if Manny Motors' operating budget decreased?

A) It would shift rightward to a parallel position.
B) It would shift rightward to a nonparallel position.
C) It would shift leftward to a parallel position.
D) It would shift leftward to a nonparallel position.
E) Nothing.

Question 47

The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if the wage increased?

A) It would shift to the right.
B) It would rotate outward along the horizontal axis.
C) It would rotate inward along the horizontal axis.
D) It would rotate outward along the vertical axis.
E) It would rotate inward along the vertical axis.

Question 48

The statement that firms minimize cost means all of the following except that

A) they produce the most output they can with each given level of resources
B) the output they produce could not be produced using fewer resources
C) firms maximize revenues
D) firms are technologically efficient
E) each level of output is produced in the least expensive manner

Question 49

Exhibit 7-20
In Exhibit 7-20, the movement from CD to AB might reflect a(n)

A) increase in the prices of both labor and land
B) decrease in the amount the producer can spend
C) increase in the price of labor and a decrease in the price of land
D) decrease in the price of labor and an increase in the price of land
E) increase in the amount the producer can spend

Question 50

Upon opening a printing and copy shop, a firm budgets $30,000 for copy machines and labor. The firm can operate its copy machine for 2,000 hours if it buys no labor. What is the vertical intercept of the isocost line when labor is measured on the horizontal axis?

A) 15 hours of labor
B) 500 hours of labor
C) 15 hours of copy machine operation
D) 2,000 hours of copy machine operation
E) $960,000

Question 51

The point of tangency between the isocost line and an isoquant illustrates the maximum cost of producing a specific level of output.

Question 52

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million and the vertical (robot) intercept isocost line is 5 million. If Manny Motors' operating budget became $120 million, the vertical intercept would become

A) 6 million labor hours
B) 20 million labor hours
C) 10 million robot hours
D) 20 million robot hours
E) $120 million

Question 53

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. The horizontal (labor) intercept of the isocost line is 3 million, and the vertical (robot) intercept is 5 million. The slope of the isocost line is

A) -6.67
B) -2.4
C) -1.67
D) -60
E) -5.3

Question 54

Upon opening a printing and copy shop, a firm budgets $40,000 for copy machines and labor. If the price of labor is $5 per hour and the firm can afford to operate its copy machine for 5,000 hours if it hires no labor, the slope of an isocost line when labor is measured on the horizontal axis is

A) -5/8
B) -8/5
C) -1/5
D) -5
E) -1/4

Question 55

The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if Manny Motors' operating budget increased?

A) It would shift rightward to a parallel position.
B) It would shift rightward to a nonparallel position.
C) It would shift leftward to a parallel position.
D) It would shift leftward to a nonparallel position.
E) Nothing.

Question 56

The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if auto workers' wages decreased?

A) It would shift to the left.
B) It would rotate outward along the horizontal axis.
C) It would rotate inward along the horizontal axis.
D) It would rotate outward along the vertical axis.
E) It would rotate inward along the vertical axis.

Question 57

Upon opening a printing and copy shop, a firm budgets $30,000 for copy machines and labor. If the price of labor is $30 per hour, what is the vertical intercept of the isocost line when labor is measured on the horizontal axis?

A) 75 hours
B) 1,000 hours
C) 90,000 hours
D) 300,000 hours
E) It is impossible to tell from the information given.

Question 58

Manny Motors, Inc., can hire auto workers for $20 per hour, whereas robot arms cost $12 per hour to operate. Giving up one hour of robot operation makes it possible for Manny Motors to afford

A) 4 fewer labor hours
B) 3/5 of an additional labor hour
C) 4 more labor hours
D) 3 million more labor hours
E) 5 million more labor hours

Question 59

Upon opening a printing and copy shop, a firm budgets $30,000 for copy machines and labor. If the price of labor is $30 per hour, what is the horizontal intercept of the isocost line when labor is measured on the horizontal axis?

A) 75 hours
B) 1,000 hours
C) 90,000 hours
D) 300,000 hours
E) It is impossible to tell from the information given.

Question 60

The horizontal (labor) intercept of Manny Motors' isocost line is 3 million, and the vertical (robot) intercept is 5 million. Which of the following best describes what would happen to the isocost line if the price of robot hours increased?

A) It would shift to the right.
B) It would rotate outward along the horizontal axis.
C) It would rotate inward along the horizontal axis.
D) It would rotate outward along the vertical axis.
E) It would rotate inward along the vertical axis.

Question 61

If W equals the price of labor and R equals the price of capital, then at the optimal input combination, the marginal rate of technical substitution equals

A) W $\times$ R
B) W - R
C) W + R
D) W - 1
E) -W/R

Question 62

If a firm is currently minimizing per-unit costs of producing 1,000 units of output, a movement along the current isocost line will

A) increase total cost
B) reduce total cost
C) increase output
D) reduce output
E) keep output constant

Question 63

Two graphs that represent alternative ways of portraying costs in the long run, given resources and technology, are

A) the expansion path and the total fixed cost curve
B) marginal cost and the long-run average cost curve
C) the expansion path and the long-run average cost curve
D) average variable cost and marginal cost
E) the expansion path and marginal product

Question 64

Exhibit 7-23 Production Isoquants ans Isocosts
In terms of output produced, which of the following expresses the relationships illustrated in Exhibit 7-23?

A) A > B > C
B) A = B > C
C) B > C > A
D) A = B = C
E) B' > C = A

Question 65

A firm that produces where the isocost line is tangent to an isoquant line must be

A) maximizing profit
B) maximizing revenues
C) minimizing the total cost of producing that output level
D) minimizing output for a given total cost
E) paying the same prices for capital and labor

Question 66

Exhibit 7-21
For the three isocost lines shown in Exhibit 7-21 which of the following is true:

A) the ratio of the price of labor to the price of capital increases as the isocost lines get farther from the origin
B) the ratio of the price of labor to the price of capital gets smaller as the isocost lines ge farther from the origin
C) the ratio of the price of labor to the price of capital is the same
D) the wage rate gets larger as the isocost lines get farther from the origin
E) the price of capital gets larger as the isocost lines get farther from the origin

Question 67

Exhibit 7-23 Production Isoquants ans Isocosts
In terms of output produced, which of the following expresses the relationships illustrated in Exhibit 7-23?

A) A > B > C
B) A = B > C
C) B > C > A
D) A = B = C
E) C > B > A

Question 68

At the point of tangency between an isoquant and an isocost line,

A) the firm is minimizing the cost of producing a given amount of output
B) the firm is maximizing the cost of producing a given amount of output
C) the household is maximizing its total utility given its income
D) the society is maximizing the social value of output, given its resources and technology
E) none of the above

Question 69

The expansion path

A) is always a straight line that slopes upward
B) shows the least-cost input combinations for producing each level of output, if input prices are constant
C) shows the utility-maximizing combinations of products that society can produce, given resources and technology
D) shows the economic growth made possible when technology improves
E) shows the firm's profit-maximizing quantity of output at various product prices

Question 70

Exhibit 7-21
For the three isocost lines shown in Exhibit 7-21 which of the following is true:

A) the expenditure on inputs does not change as the isocost lines get farther from the origin
B) the amount of output produced gets smaller the farther the isocost lines get from the origin
C) the amount of output produced gets larger the farther the isocost lines get from the origin
D) the expenditure on inputs required by the firm gets smaller the farther the isocost lines get from the origin
E) the expenditure on inputs required by the firm gets larger the farther the isocost lines get from the origin

Question 71

Exhibit 7-22
In Exhibit 7-22, which input combination shows the minimum cost of producing output Q₁?

A) A
B) B
C) C
D) either B or C
E) cannot tell from information presented

Question 72

Isoquants do not intersect except when a firm doubles the amounts of resources employed.

Question 73

Exhibit 7-21
If the isocost line in Exhibit 7-21 is AB, the firm's optimal combination of inputs is shown at point

A) g
B) j
C) i
D) l
E) h

Question 74

Just as the marginal product of labor first rises and then declines so does the

A) average variable cost
B) marginal cost
C) marginal capital of product
D) production function
E) marginal product of capital

Question 75

A firm that maximizes output for a given total cost must be producing where the isocost line is

A) above the highest isoquant
B) tangent to the highest isoquant
C) intersected by the lowest isoquant
D) intersected by two isocost lines
E) perfectly horizontal

Question 76

Exhibit 7-21
Connecting points g, h, and i in Exhibit 7-21 yields the firm's

A) marginal rate of substitution
B) isocost line
C) marginal cost curve
D) expansion path
E) total revenue line

Question 77

Starting from a point of tangency between an isoquant and an isocost line, a movement along the isoquant will

A) increase output but have no effect on cost
B) decrease output but have no effect on cost
C) increase both output and cost
D) have no effect on output but increase cost
E) have no effect on output but decrease cost

Question 78

Exhibit 7-21
If the isocost line in Exhibit 7-21 is AB, the optimal quantity of labor is shown at point

A) n
B) p
C) q
D) r
E) s