Question 1

The following table depicts the production relationship between units of labor and output of pepper on Pietrov's Pepper Farm.
 $\begin{array}{cccc}
 \underline{\text { Labor }} &  \underline{\text { Peppers }} &   \underline{ \text { Labar } } &  \underline{\text { Peppers }} \
1 & 10 & 6 & 75 \
2 & 25 & 7 & 77 \
3 & 45 & 8 & 78 \
4 & 60 & 9 & 77 \
5 & 70 & 10 & 75
\end{array}$ 
Graphically show the three zones of production corresponding to increasing, decreasing, and negative marginal product, noting the point of diminishing returns.

Accepted Answer

The answer of The following table depicts the production relationship...

Question 2

How long is the long run?

Accepted Answer

The answer of How long is the long run?...

Question 3

Production indifference curves bow inward toward the graph's origin because of
A) the law of diminishing returns to a single input.
B) the law of diminishing marginal returns to scale.
C) constant returns to scale.
D) minimizing costs in the short run.

Accepted Answer

Production indifference curves bow inward toward the graph's origin because of the law of diminishing returns to a single input, meaning that as more and more units of one input are used, the marginal productivity of that input will eventually decrease, resulting in a decrease in total output.

Question 4

The major incentive for cost minimization is the
A) power of shareholders in the company.
B) fear of top management by workers.
C) discipline imposed by the market system.
D) impact on U.S.corporations of taxing by the government.

Accepted Answer

Cost minimization is driven by the discipline imposed by the market system, which requires companies to produce goods and services efficiently in order to remain competitive and profitable. Shareholder power, fear of top management, and government taxes may also influence cost minimization to some extent, but they are not the primary driving force.

Question 5

Production costs for a given output will be minimized when the
A) budget line and the product indifference curve meet in the vertical axis.
B) budget line crosses the product indifference curve.
C) budget line begins to bend back on itself.
D) product indifference curve and the budget line are tangent.

Accepted Answer

The point of tangency between the budget line and the product indifference curve represents the optimal production point where the producer is getting the most utility from their resources spent. At this point, the slope of the budget line (the ratio of the prices of the two goods being produced) is equal to the slope of the product indifference curve (the MRTS or the marginal rate of technical substitution), which means that the producer is producing the goods in the most efficient way possible, minimizing production costs.

Question 6

Figure 7-16
 
-In Figure 7-16, as we move from A to B,
A) the relative price of machines falls.
B) total cost falls.
C) output increases.
D) labor becomes less productive relative to capital.

Accepted Answer

Moving from A to B in Figure 7-16 represents an increase in output, as the quantity of machines increases while the quantity of labor remains constant. Therefore, output increases. There is no indication of any changes in the relative price of machines or the productivity of labor relative to capital, and total cost cannot be determined from this information.

Question 7

A cost curve drawn with years on the horizontal axis and costs per unit on the vertical axis would be a(n)
A) analytical cost curve.
B) long-run cost curve.
C) historical cost curve.
D) theoretical cost curve.

Accepted Answer

A cost curve that is drawn with years on the horizontal axis and costs per unit on the vertical axis would be a historical cost curve, which shows the past costs of producing a unit of output over time. This type of curve is useful for analyzing cost trends and identifying areas where cost savings could be achieved. Analytical cost curves and theoretical cost curves are typically drawn with different variables on the horizontal and vertical axes, and long-run cost curves are typically used to show how costs change as output levels change over the long term.

Question 8

An airline industry study recently reported, "Evidence is abundant that larger firms are not more efficient or less costly simply because they are larger.In fact, other things equal, the largest carriers tend to have a higher level of unit costs, possibly caused by the difficulties of managing an airline of large size." This means that
A) there are increasing returns to scale in the airline industry.
B) the airline industry has constant returns to scale.
C) the larger airlines are not profitable.
D) airlines are experiencing decreasing returns to scale.

Accepted Answer

This statement suggests that larger airlines are not more efficient in terms of cost, which is a characteristic of decreasing returns to scale. Therefore, Option D is the best choice.

Question 9

If on a given product indifference curve a firm is using an insufficient (nonoptimal) amount of one of its inputs
A) output will be below optimal.
B) the MRP of the input will be below its price.
C) costs will not be minimal.
D) relative input prices need to change.

Accepted Answer

When a firm is using an insufficient (nonoptimal) amount of one of its inputs on a given product indifference curve, it means that the firm is not operating at the lowest possible cost for a given level of output. This inefficiency leads to higher costs than necessary, indicating that costs will not be minimal.

Question 10

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

Accepted Answer

The answer of Graph typical total, average, and marginal cost...

Question 11

"If it were not for the law of diminishing marginal returns, the world's wheat could be grown in a flower pot." Explain.

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The answer of "If it were not for the law...

Question 12

Figure 7-17
 
-Which of the following statements must be true when a firm makes choices that put it at point A in Figure 7-17?
A) The firm is minimizing its cost of producing 100 units of output.
B) The ratio of the marginal physical products of labor and of land equals the ratio of the prices of labor and of land.
C) The firm first decided how much output to produce and then decided how to produce it.
D) All of the above are true.

Accepted Answer

The answer of Figure 7-17
 
-Which of the following statements...

Question 13

Cost minimization is the process of making optimal use of all of the inputs whose quantities are
A) set in the short run.
B) set in the intermediate run.
C) set in the long run.
D) variable in the short and long run.

Accepted Answer

Cost minimization involves making the best possible use of inputs, which can vary in both the short and long run, to achieve the lowest cost of production.

Question 14

"A producer wanting to employ optimal quantity of inputs should choose the point where diminishing returns sets in." True or false?

Accepted Answer

The correct rule is marginal revenue product = input price.It pays to go beyond diminishing returns so long as MRP is at least as great as input P, which normally requires going past the point of diminishing returns.

Question 15

What is the shape of average cost curve? Provide the reason for that particular shape.

Accepted Answer

The answer of What is the shape of average cost...

Question 16

Figure 7-15
 
-For a firm at equilibrium, at point A in Figure 7-15
A) the price of labor is high relative to the price of machines.
B) the MPP of labor is greater than the MPP of machines.
C) the MPP of labor is less than at point B.
D) output is higher than at point B.

Accepted Answer

At equilibrium, the marginal physical product (MPP) of labor at point A would be less than at any point where more labor is used (assuming diminishing returns), such as point B. This is because as more of a variable input (like labor) is used, its marginal product typically decreases due to the law of diminishing marginal returns.

Question 17

Differentiate between the short run and the long run.

Accepted Answer

The answer of Differentiate between the short run and the...

Question 18

Figure 7-15
 
-In Figure 7-15, we would expect a move of the budget line from A to B if
A) the price of machines falls.
B) the price of labor falls.
C) output falls.
D) the product price rises.

Accepted Answer

A move along the budget line occurs due to a change in the relative prices of the two inputs. If the price of one input falls (in this case, the price of machines), the budget line will shift outward, allowing the firm to buy more of that input for the same amount of money. This means the budget line will move from point A to point B. Therefore, the correct answer is A.

Question 19

Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients.One day, her landlord tripled her rent.What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?

Accepted Answer

The answer of Aunt Rose owned a dress shop on...

Question 20

A Detroit business advertises, "The more we sell, the lower the price, and the lower the price, the more we sell." This firm is experiencing
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) abnormal demand patterns.

Accepted Answer

This firm is experiencing increasing returns to scale because as they sell more, they are able to lower their prices which results in even higher demand and sales. This positive feedback loop leads to an overall increase in the scale of their operations and production.

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

How long is the long run?

Production indifference curves bow inward toward the graph's origin because of

The major incentive for cost minimization is the

Production costs for a given output will be minimized when the

Figure 7-16 -In Figure 7-16, as we move from A to B,

A cost curve drawn with years on the horizontal axis and costs per unit on the vertical axis would be a(n)

If on a given product indifference curve a firm is using an insufficient (nonoptimal) amount of one of its inputs

Graph typical total, average, and marginal cost curves and explain how their shapes are influenced by the law of diminishing returns.Graph TC on a separate graph, AC and MC on a second graph.

"If it were not for the law of diminishing marginal returns, the world's wheat could be grown in a flower pot." Explain.

Figure 7-17 -Which of the following statements must be true when a firm makes choices that put it at point A in Figure 7-17?

Cost minimization is the process of making optimal use of all of the inputs whose quantities are

"A producer wanting to employ optimal quantity of inputs should choose the point where diminishing returns sets in." True or false?

What is the shape of average cost curve? Provide the reason for that particular shape.

Figure 7-15 -For a firm at equilibrium, at point A in Figure 7-15

Differentiate between the short run and the long run.

Figure 7-15 -In Figure 7-15, we would expect a move of the budget line from A to B if

Aunt Rose owned a dress shop on 81st Street and Broadway in Manhattan, selling limited-edition dresses to wealthy clients.One day, her landlord tripled her rent.What effect would this have on her dress price in the short run, assuming she is following the rules of profit maximization?

A Detroit business advertises, "The more we sell, the lower the price, and the lower the price, the more we sell." This firm is experiencing