Question 1

Cost minimization requires that the marginal product of labor equal the marginal product of capital.

Accepted Answer

Cost minimization requires that the ratio of the marginal product of labor to the wage rate equals the ratio of the marginal product of capital to the rental rate of capital, not simply that their marginal products are equal.

Question 2

When labor is the only variable input in the short run,average variable cost equals the wage rate times the average product of labor.

Accepted Answer

Average variable cost equals the wage rate divided by the average product of labor, not multiplied by it.

Question 3

All baskets of labor and capital capable of producing a given level of output are technologically efficient.

Accepted Answer

Technological efficiency refers to the maximum output that can be produced with a given set of inputs or resources. However, not all baskets of labor and capital are capable of producing a given level of output, as factors such as skill level, technology, and resource availability can affect production. Therefore, not all baskets of labor and capital are technically efficient in producing a given level of output.

Question 4

In the long run there is no distinction between average cost and average variable cost.

Accepted Answer

The answer of In the long run there is no...

Question 5

If marginal cost rises when output is increased,then the average cost of production is also rising.

Accepted Answer

Marginal cost rising when output is increased does not necessarily mean that the average cost of production is also rising. The average cost can still be decreasing if the marginal cost is below the average cost.

Question 6

Average Variable Cost can always be expressed as the ratio of the price of labor to the Average Product of Labor.

Accepted Answer

Average Variable Cost can be expressed as the ratio of Total Variable Cost to the quantity of output produced, but not as the ratio of the price of labor to the Average Product of Labor.

Question 7

The Marginal Rate of Technical Substitution can be expressed as the ratio of the Marginal Productivities of Labor and Capital.

Accepted Answer

The Marginal Rate of Technical Substitution (MRTS) measures the rate at which one factor of production can be substituted for another while keeping the level of output constant. It is often expressed as the ratio of the marginal productivities of labor and capital. Therefore, the statement is true.

Question 8

Marginal and average products can be plotted in the same graph as total product costs.

Accepted Answer

Marginal and average products are measures of productivity, typically plotted against quantity of output, while total product costs relate to the financial aspect of production, making them conceptually different and not directly comparable on the same graph.

Question 9

Moving down and to the right on an isoquant tells us how much quantity increases as inputs increase.

Accepted Answer

Moving down and to the right on an isoquant indicates an increase in both inputs, not just one input. The exact change in quantity produced depends on the slope of the isoquant at that point.

Question 10

Like a family,a firm faces a fixed level of expenditure and therefore must choose one point along a particular isocost line.

Accepted Answer

A firm can choose from multiple points along different isocost lines by adjusting its level of expenditure; it is not restricted to a fixed level of expenditure or a single isocost line.

Question 11

A point on the firm's expansion path both minimizes the cost of producing a given output level and maximizes the output obtained for a given expenditure level.

Accepted Answer

This is the definition of the expansion path.

Question 12

In deriving the marginal product of labor,we consider the increase in output of an additional worker using additional capital.

Accepted Answer

In deriving the marginal product of labor, we consider the increase in output from adding one more worker while keeping all other inputs, including capital, constant.

Question 13

The short run is any period of time less than one year,while the long run refers to a period of time one year or more in length.

Accepted Answer

The distinction between the short run and the long run in economics is not strictly defined by a specific duration of time, such as one year. Instead, the short run is characterized by at least one fixed input or factor of production, while in the long run, all factors of production are variable.

Question 14

A firm seeks to product at a point where an isocost is tangent to a isoquant.

Accepted Answer

This is true according to the principles of cost minimization in production theory. At the point of tangency, the slope of the isoquant (representing the marginal rate of technical substitution) equals the slope of the isocost (representing the marginal rate of substitution between inputs based on their prices). This occurs at the optimal combination of inputs that produces a certain level of output while minimizing costs.

Question 15

The marginal cost curve crosses average variable cost at the bottom of the average cost U.

Accepted Answer

This statement is true. The point where the marginal cost curve intersects the average variable cost curve is known as the minimum point of the average variable cost curve, or the bottom of the U-shaped average cost curve. This is where the average cost is at its lowest and the firm is producing at its most efficient level.

Question 16

Output is held fixed along an isocost.

Accepted Answer

An isocost line represents all combinations of inputs that cost the same total amount. Output is not held fixed along an isocost; instead, it varies as the combination of inputs changes.

Question 17

Inputs owned by the firm are included when calculating its costs.

Accepted Answer

Inputs owned by the firm, such as equipment, materials, and labor, are included in the calculation of its costs. This is important in determining the overall profitability of the firm and making informed business decisions.

Question 18

The production function describes how much output a firm can generate for various cost levels.

Accepted Answer

The production function describes the relationship between the quantity of inputs used in production and the quantity of output from production, not the relationship between cost levels and output.

Question 19

All points on the expansion path have the same marginal rate of technical substitution.

Accepted Answer

The expansion path shows the various combinations of inputs that a firm can use to produce a given level of output at different prices of factors of production. At each point on the expansion path, the ratio of the marginal products of the two inputs is equal to the ratio of their prices. This implies that the slope of the expansion path, which represents the rate at which the firm substitutes one input for another, is equal to the ratio of their marginal products or the marginal rate of technical substitution (MRTS). Therefore, all points on the expansion path have the same MRTS.

Question 20

In order to compute the total cost of production when labor is the only variable,we need only need to know the quantities of labor and the current wage rate.

Accepted Answer

To compute the total cost of production, even when labor is the only variable, we also need to know any fixed costs (such as rent, utilities, or equipment that does not change with the level of output) in addition to the variable costs of labor (quantities of labor and the current wage rate).

Quiz 6: Production and Costs