Question 1

If labor and capital are perfect complements in production,short run supply curves are vertical.

Accepted Answer

If capital cannot be varied,there is no way to increase production when output price rises.

Question 2

(Long run)average cost curves are U-shaped when the production technology has increasing returns to scale and the firm faces recurring fixed costs.

Accepted Answer

Both the increasing returns to scale and the recurring fixed costs give rise to downward sloping AC curves -- with nothing causing the upward slope in a U-shape.

Question 3

The fixed expense on a fixed level of capital in the short run becomes a fixed cost for the firm in the long run.

Accepted Answer

It becomes a variable cost in the long run.

Question 4

If the rental rate increases,we know for sure that the firm will produce less and will (in the long run)use less capital.

Accepted Answer

See Graph 13.9 in the text.

Question 5

Suppose the AC curve is U-shaped.Then an increase in a recurring fixed cost will cause the AC curve to shift up,with its lowest point shifting to the right.

Accepted Answer

The new AC curve will converge to the original one (as the increase in the FC becomes smaller and smaller on average)-- and this implies that the original AC curve shifts up,with the lowest point shifting to the right.

Question 6

The cross-price demand for capital (relative to the wage)may slope up or down.

Accepted Answer

See Graph 13.10.

Question 7

Long run marginal cost curves are increasing for decreasing returns to scale production technologies.

Accepted Answer

Decreasing returns to scale means it is getting harder and harder to produce more -- implying that each additional unit is costing more and more to produce.

Question 8

Short run economic costs must be lower than long run economic costs because long run economic costs include the cost of inputs that are fixed in the short run (and thus are not part of short run cost).

Accepted Answer

Most of the statement is true -- except for the first part.It is true that the expense on capital is not a cost in the short run.But suppose that capital was fixed at a relatively low level in the short run,and suppose that we considered the cost of producing a high level of output.It may be that the cost associated with all the labor that is needed (given the low level of capital)is higher than the long run cost of both labor and capital when capital can be adjusted to its optimal level (given the high level of output).

Question 9

The greater the degree of substitutability between capital and labor,the greater will be the downward shift in the cost curve when wage falls.

Accepted Answer

The more substitutable labor and capital are,the more the firm can respond to the decrease in wages by shifting away from capital and into labor.

Question 10

If the wage falls,we know for sure that the firm will produce more in the long run but we cannot be sure whether it will use more or less capital.

Accepted Answer

See Graph 13.9 in the text.

Question 11

The more substitutable capital and labor are in production,the more likely it is that the cross-price demand curve for capital (relative to the wage)is upward sloping.

Accepted Answer

See Graph 13.10 in the text.

Question 12

When output price rises,the long run increase in labor input will be larger than the short run increase in labor input.

Accepted Answer

The long run increase might be larger or smaller than the short run increase depending on the degree of substitutability between capital and labor.

Question 13

Short run average expenditure curves are tangent at their lowest point to the long run average cost curve.

Accepted Answer

They are tangent,but not usually at their lowest point.

Question 14

If the production technology has increasing returns to scale,short run marginal cost curves must be downward sloping.

Accepted Answer

Increasing returns to scale is consistent with either increasing or diminishing marginal product of capital -- which in turn determines whether the short run marginal costs slope up or down.

Question 15

(Long run)average cost curves are U-shaped when the production technology has decreasing returns to scale and the firm faces recurring fixed costs.

Accepted Answer

The recurring fixed costs are high on average for low levels of output but become small on average as output increases.The AC without the fixed costs is upward sloping when the technology has increasing returns to scale.Combined,these two facts give us the U-shape.

Question 16

Except for the output level for which short-run fixed capital is long run cost-minimizing,short-run average expenses incurred by the firm are higher than long run average costs.

Accepted Answer

The long run average cost curve is the lower envelope of short run average expenditure curves (corresponding to different levels of short run fixed capital).

Question 17

Conditional input demand curves always slope down,but unconditional input demand curves can slope up.

Accepted Answer

All input demand curves slope down.

Question 18

If the rental rate increases,we know that output and labor input will fall in the long run.

Accepted Answer

We know for sure that output will fall -- but labor input might fall or rise.(See Graph 13.9 in the text.)

Question 19

Long run average cost curves are downward sloping for increasing returns to scale production technologies.

Accepted Answer

It gets easier and easier to produce -- thus costing less and less on average.

Question 20

If the cross-price demand curve for capital (relative to the wage)is vertical,the short run response by a firm to an increase in the wage is the same as its long run response.

Accepted Answer