Question 1

The standard long-run model assumes that:
A) technology improves at an increasing rate over time.
B) technological advance is impossible.
C) technology is fixed.
D) costs of production are fixed.

Accepted Answer

The standard long-run model assumes that technology is fixed, meaning it does not change over the period being considered.

Question 2

If technological innovation occurs when a firm is experiencing diseconomies of scale:
A) the long-run average total cost curve will shift down but will still rise as output expands.
B) long-run average total costs will remain the same as output expands.
C) short-run average total costs will fall as output expands.
D) product prices will rise, leading to inflation.

Accepted Answer

Technological innovation typically reduces costs, shifting the long-run average total cost curve downward, but if diseconomies of scale persist, costs will still rise with increased output.

Question 3

Suppose a factory that produces toasters experiences a decline in its average total cost with no change in its output level. This decline might be explained by:
A) economies of scale.
B) decreasing marginal utility.
C) increasing marginal productivity.
D) technological change.

Accepted Answer

Technological change can lead to a decline in average total cost by improving production processes or introducing more efficient technology, without changing the output level.

Question 4

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 1,000 units of output is: 
A) $100.
B) $150.
C) $300.
D) impossible to determine using the information given.

Accepted Answer

The answer of Refer to the graph shown. If labor...

Question 5

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 500 units of output is: 
A) $100.
B) $150.
C) $300.
D) impossible to determine using the information given.

Accepted Answer

The answer of Refer to the graph shown. If labor...

Question 6

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an accountant most likely would say that:
A) the machine's cost for each of its 20 years of existence is $2,500.
B) the machine's cost for each of its 20 years of existence is $3,000.
C) during the first year the machine had no cost; it provided a revenue to the firm.
D) the value of the machine will continue to increase 20 percent per year for the next 20 years.

Accepted Answer

The machine's cost is typically spread evenly over its useful life, which is $50,000/20 years = $2,500 per year.

Question 7

Suppose the average total cost of producing semiconductors in a factory of a particular size declines over time as more semiconductors are produced. This drop in average total cost might best be explained by:
A) economies of scale.
B) economies of scope.
C) learning by doing.
D) diminishing marginal productivity.

Accepted Answer

Learning by doing refers to the process where production efficiency improves as workers and managers gain experience over time, leading to a reduction in average total costs as more units are produced.

Question 8

Isoquants slope downward because:
A) average total costs decline.
B) as less of one input is used, more of another must be used if output is to remain constant.
C) as less of one input is used, more of another must be used if costs are to remain constant.
D) the marginal rate of substitution increases.

Accepted Answer

Isoquants slope downward because they represent combinations of inputs that produce the same level of output. As less of one input is used, more of another must be used to maintain the same level of output, reflecting the trade-off between inputs.

Question 9

Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm:
A) is technically efficient.
B) is economically efficient.
C) should substitute labor for machines if it wants to increase economic efficiency.
D) should substitute machines for labor if it wants to increase economic efficiency.

Accepted Answer

The firm should allocate more resources to labor, as it yields a higher marginal product per dollar spent compared to machines, thus increasing economic efficiency.

Question 10

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an economist most likely would say that:
A) the machine's cost for each of its 20 years of existence is $2,500.
B) the machine's cost for each of its 20 years of existence is $3,000.
C) during the first year the machine had no cost; it provides an implicit revenue of $10,000 to the firm.
D) the value of the machine will continue to increase 20 percent per year for the next 20 years.

Accepted Answer

The machine's value increased by $10,000 in the first year, which can be considered an implicit revenue rather than a cost.

Question 11

Refer to the graph shown. The cost of 5 units of labor and 6 2/3 units of machines is the same as the cost of: 
A) 7.5 units of labor and 5 units of machines.
B) 10 units of labor and 10 units of machines.
C) 5 units of labor and 10 units of machines.
D) 15 units of labor and 2 units of machines.

Accepted Answer

The answer of Refer to the graph shown. The cost...

Question 12

Refer to the graph shown. A firm can produce the same amount of output at points: 
A) A and B.
B) E and C.
C) B and C.
D) A and C.

Accepted Answer

The answer of Refer to the graph shown. A firm...

Question 13

An isocost line is a line that represents combinations of:
A) factors of production that produce equal amounts of output.
B) factors of production that cost the same amount.
C) output that can be produced from the same quantity of inputs.
D) output that can be produced at the same cost.

Accepted Answer

An isocost line represents combinations of factors of production that cost the same amount, showing different combinations of inputs that a firm can purchase for a given total cost.

Question 14

If a firm is operating at the point of tangency between an isoquant and an isocost line, its production is:
A) technically efficient but economically inefficient.
B) technically inefficient but economically efficient.
C) both technically and economically efficient.
D) both technically and economically inefficient.

Accepted Answer

At the point of tangency between an isoquant and an isocost line, the firm is producing the maximum output for the given cost, achieving both technical and economic efficiency.

Question 15

A new fertilizer has been discovered that significantly increases the corn crop yield per acre. As a result, the farmers':
A) average total cost curves become downward-sloping.
B) long-run average total cost curve becomes flatter.
C) average total cost curve shifts downward.
D) cost curves do not change their shape or position.

Accepted Answer

The new fertilizer increases crop yield, which means farmers can produce more corn with the same resources, effectively reducing the average total cost per unit of output, thus shifting the average total cost curve downward.

Question 16

Technological change:
A) reduces average total cost without changing production techniques.
B) reduces average total cost by changing production techniques.
C) does not reduce average total cost but does change production techniques.
D) reduces average total cost by expanding plant size.

Accepted Answer

Technological change typically involves improvements in production techniques, which can lead to a reduction in average total cost by making production more efficient.

Question 17

An isoquant is a curve that represents combinations of:
A) factors of production that produce equal amounts of output.
B) factors of production that cost the same amount.
C) output that can be produced from the same quantity of inputs.
D) output that can be produced at the same cost.

Accepted Answer

An isoquant represents combinations of different factors of production that yield the same level of output, illustrating the trade-offs between inputs while maintaining constant output.

Question 18

As you move down an isoquant:
A) more of all inputs must be used to keep output constant.
B) production remains technically efficient.
C) production remains economically efficient.
D) the marginal rate of substitution does not change.

Accepted Answer

The answer of As you move down an isoquant:
A) more...

Question 19

If labor costs $10 per unit and machines rent for $20 apiece, the slope of an isocost line might imply a substitution of:
A) one unit of labor for one unit of machinery.
B) one unit of labor for two units of machinery.
C) one unit of machinery for two units of labor.
D) two units of machinery for three units of labor.

Accepted Answer

The slope of an isocost line is determined by the ratio of the prices of labor and machinery. Here, labor costs $10 and machinery costs $20, so the slope is -10/20 = -1/2. This implies that one unit of machinery can be substituted for two units of labor.

Question 20

The marginal rate of substitution of an isoquant curve is the rate at which:
A) inputs must be substituted for one another to keep costs constant.
B) inputs are substituted for output.
C) inputs must be substituted for one another to keep output constant.
D) the marginal productivity of a factor declines.

Accepted Answer

The marginal rate of substitution on an isoquant curve represents the rate at which one input can be substituted for another while keeping the output level constant.

Quiz 12: Production and Cost Analysis II

The standard long-run model assumes that:

If technological innovation occurs when a firm is experiencing diseconomies of scale:

Suppose a factory that produces toasters experiences a decline in its average total cost with no change in its output level. This decline might be explained by:

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 1,000 units of output is:

Refer to the graph shown. If labor costs $10 per unit and machines cost $15 per unit, the economically efficient cost of producing 500 units of output is:

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an accountant most likely would say that:

Suppose the average total cost of producing semiconductors in a factory of a particular size declines over time as more semiconductors are produced. This drop in average total cost might best be explained by:

Isoquants slope downward because:

Suppose a firm finds that an additional dollar spent on labor increases output more than does an additional dollar spent on machines. Under these conditions, the firm:

If a machine cost $50,000 initially and is expected to last for 20 years but is worth $60,000 after one year because it is in short supply, an economist most likely would say that:

Refer to the graph shown. The cost of 5 units of labor and 6 2/3 units of machines is the same as the cost of:

Refer to the graph shown. A firm can produce the same amount of output at points:

An isocost line is a line that represents combinations of:

If a firm is operating at the point of tangency between an isoquant and an isocost line, its production is:

A new fertilizer has been discovered that significantly increases the corn crop yield per acre. As a result, the farmers':

Technological change:

An isoquant is a curve that represents combinations of:

As you move down an isoquant:

If labor costs $10 per unit and machines rent for $20 apiece, the slope of an isocost line might imply a substitution of:

The marginal rate of substitution of an isoquant curve is the rate at which: