Question 1

-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.

Accepted Answer

The answer of 
-Which of the following is true of...

Question 2

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

Accepted Answer

The rotation from AC to AB reflects a decrease in the price of labor. This is because the slope of the line AB is steeper than the slope of the line AC, indicating that the relative price of labor has decreased in comparison to the relative price of land.

Question 3

The slope of the isocost line is constant.

Accepted Answer

The slope of an isocost line represents the ratio of the prices of the two inputs. Since prices are usually fixed in the short run, the slope of the isocost line remains constant.

Question 4

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

Accepted Answer

This is true because the slope of an isocost line represents the rate at which one input can be substituted for another while keeping total cost constant. Therefore, the absolute value of the input prices ratio (the ratio of the price of one input to the price of the other) determines how much of one input can be substituted for the other.

Question 5

-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

Accepted Answer

The answer of 
-Which of the following points in Exhibit...

Question 6

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

Accepted Answer

An increase in the price of labor would cause the isocost line to rotate inward from AB to AC, reflecting that the same budget now buys less labor.

Question 7

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

Accepted Answer

A reduction in a firm's operating budget means a decrease in the total amount of money available for inputs. This will lead to a parallel inward shift of the isocost line, reflecting the decreased budget constraints.

Question 8

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

Accepted Answer

Since $40,000 is allocated for copy machines and labor, we know that the entire $40,000 will be used for labor if nothing is spent on the machines. Therefore, we can divide $40,000 by the hourly rate of $15 per hour to find the number of hours of labor that can be hired:

$40,000 / $15 per hour = 2,667 hours

Therefore, the firm can hire 2,667 hours of labor if it spends nothing on machines.

Question 9

-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.

Accepted Answer

The answer of 
-From the firm's perspective, point e in...

Question 10

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

Accepted Answer

The slope of the isocost line represents the ratio of the prices of the two inputs. Therefore, if there is a change in the slope, it indicates a change in the price of one of the inputs.

Question 11

-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

Accepted Answer

At point b, the output is the same as at points a and c, but the cost is lower, indicating an optimal or efficient production level.

Question 12

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.

Accepted Answer

The answer of Upon opening a printing and copy shop,...

Question 13

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.

Accepted Answer

When a firm chooses to use only one input, its isocost line will intersect the axis corresponding to the unused input at its intercept. This intercept will be either the vertical or the horizontal axis, depending on which input is not being used.

Question 14

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

Accepted Answer

The answer of Exhibit 7-20 
-In Exhibit 7-20, the movement...

Question 15

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

Accepted Answer

The answer of Upon opening a printing and copy shop,...

Question 16

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

Accepted Answer

The answer of Exhibit 7-18 
-Consider Exhibit 7-18. The rotation...

Question 17

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.

Accepted Answer

The problem does not provide information on the cost of the copy machines or how the $40,000 budget is allocated between machines and labor, so it is impossible to determine the hourly wage.

Question 18

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

Accepted Answer

The answer of Exhibit 7-18 
-In Exhibit 7-18, the rotation...

Question 19

-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

Accepted Answer

The answer of 
-In Exhibit 7-17, the firm would prefer...

Question 20

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

Accepted Answer

An isocost line represents combinations of inputs that cost the same total amount, not the same total output.

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

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

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

The slope of the isocost line is constant.

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

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

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

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

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?

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

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

-At point b in Exhibit 7-17, output is

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?

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.

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

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

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?

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

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

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