Question 1

Actual output will always equal the limit described in the production function.

Accepted Answer

The actual output will depend on various factors such as the efficiency of the production process, availability and utilization of resources, technological advancements, etc. The production function only describes the maximum output that can be produced with the given inputs.

Question 2

-Refer to Figure 21.5.Economies of scale occur in the following range of factory sizes

Accepted Answer

According to Figure 21.5, economies of scale occur from factory size #1 to #3. Beyond #3, diseconomies of scale occur. Therefore, the best choice is B as it includes the range where economies of scale occur.

Question 3

When a firm is able to achieve the output indicated by a production function,it is producing with technical efficiency.

Accepted Answer

Technical efficiency refers to the ability of a firm to achieve the maximum output for a given set of inputs, as indicated by the production function. Therefore, if the firm is able to achieve the output indicated by the production function, it is producing with technical efficiency.

Question 4

The productivity of any input is independent and is not affected by the other resources that are used.

Accepted Answer

The productivity of any input can be influenced by the other resources that are used. The interaction and compatibility between different resources can have an impact on the overall productivity. For example, the usage of outdated machinery may reduce the productivity of skilled labor.

Question 5

Which of the following is least likely to increase productivity?

Accepted Answer

While a higher wage rate may increase motivation in the short term, it does not guarantee an increase in productivity. Technological advances and increased managerial capabilities are more likely to lead to long-term productivity gains.

Question 6

- In Figure 20.4,a firm that produces over 800 units of output should choose a plant with which short-run average total cost function?

Accepted Answer

ATC₃ is the lowest cost curve for producing over 800 units, indicating it is the most efficient choice for higher output levels.

Question 7

Assuming labor is a variable input,an increase in labor productivity will result in

Accepted Answer

An increase in labor productivity means that more output can be produced with the same amount of labor input. This results in a decrease in the marginal cost (MC) curve as the cost to produce each additional unit of output decreases. Therefore, option B is the correct answer. Option A is incorrect as an increase in labor productivity would result in an upward shift in the MPP curve indicating that each unit of labor is now producing more output. Option C is also incorrect as an increase in productivity would typically lower the average total cost (ATC) curve as fixed costs are spread over more output.

Question 8

The In The News article "Ford Pumps $400 Million into Kansas City Plant" says that

Accepted Answer

The article states that the investment is part of Ford's long-term plan to increase production and that they hope to benefit from economies of scale. Therefore, this investment is a long-run production decision. It is not a short-run decision or a variable expense.

Question 9

-Refer to Figure 21.5.Diseconomies of scale begin to occur

Accepted Answer

The answer of  
-Refer to Figure 21.5.Diseconomies of scale...

Question 10

When the wage rate is $10 per hour and the MPP of a worker is 15 units per hour,the unit labor cost is

Accepted Answer

Unit labor cost is defined as the cost of labor per unit of output. It can be calculated by dividing wage rate by the MPP of labor. 
Unit labor cost = Wage rate / MPP 
In this case, 
Wage rate = $10 per hour 
MPP = 15 units per hour 
Therefore, 
Unit labor cost = 10/15 = $0.67 per unit

Question 11

Which of the following would cause a firm's production function to shift upward?

Accepted Answer

Increased training for the firm's workers would improve their efficiency and productivity, thereby shifting the firm's production function upward. Choices A and B would increase the level of production, but would not necessarily shift the production function itself.

Question 12

-In Figure 21.4,the long-run average total cost curve is given by the curved line segment

Accepted Answer

The long-run average total cost (LRATC) curve shows the lowest average total cost that a firm can achieve in the long run for each level of output. In Figure 21.4, the curved line segment ABFDGE represents the LRATC curve because it shows the minimum average total cost for all levels of output beyond a certain point. Points to the left of point A are not feasible for the firm to produce in the long run, while points to the right of point E are not yet optimal in terms of achieving the lowest average total cost. Therefore, the LRATC curve is represented by the curved line segment ABFDGE.

Question 13

The World View article titled "United States Gains Cost Advantage" says productivity advances have contributed to U.S.competitiveness in world markets.When improvements in productivity reduce costs,the production function shifts

Accepted Answer

When improvements in productivity reduce costs, the production function shifts upward, meaning that more output can be produced with the same amount of inputs. This leads to a decrease in the cost of production, shifting the cost curves downward. Therefore, the correct answer is B, upward shift in the production function and downward shift in the cost curves.

Question 14

Unit labor cost is equal to the

Accepted Answer

Unit labor cost is calculated by dividing the wage rate by the marginal physical product (MPP) of labor.

Question 15

One In the News article titled "Funeral Giant Moves In on Small Rivals" reports that profit for a Houston-based funeral giant is 31 cents on every dollar versus a profit of 12 cents for the funeral industry in general.Such profits are most likely the result of

Accepted Answer

The higher profit for the Houston-based funeral giant is most likely due to the economies of scale that they enjoy. By being a larger company, they can spread their fixed costs (such as equipment and facilities) across a larger number of services, resulting in lower average costs per service and, as a result, higher profits.

Question 16

Higher education levels and better management

Accepted Answer

Higher education levels and better management can lead to improved efficiency and productivity, resulting in a shift of the long-run average total cost (ATC) curve downward. This is because educated and skilled employees are able to produce more output with the same inputs, reducing the per-unit cost of production. Therefore, the economies of scale increase and result in a lower cost for the firm to produce goods or services.

Question 17

-In Figure 21.4,a firm that produces between 600 and 800 units per period should choose a plant with a short-run average total cost function of

Accepted Answer

The firm should choose the plant with the lowest short-run average total cost (ATC) for the given output range. If ATC2 is the lowest between 600 and 800 units, it is the optimal choice.

Question 18

Technological changes that increase productivity shift the

Accepted Answer

Technological changes that increase productivity would decrease average total cost curve because with increased productivity, fewer inputs are required to produce a given output, reducing the average cost of each unit produced. Therefore, the correct answer is B. The production function shows how inputs are transformed into output, therefore, it would not shift downward. The marginal cost curve is affected by changes in variable costs and not productivity. It would also not shift upward in this case.

Question 19

The creation of the World Wide Web has contributed to all of the following except

Accepted Answer

The creation of the World Wide Web has reduced information costs and transaction costs by making information more accessible and facilitating online transactions. It has not increased marginal costs; in fact, it has often led to reduced costs due to the increased efficiency and scale of online communication and commerce.

Question 20

According to the World View article titled "United States Gains Cost Advantage," during the last decade,unit labor costs in the United States declined

Accepted Answer

The article states that unit labor costs in the United States declined due to productivity advances being greater than wage increases. This means that the cost of producing goods or services decreased, making the United States more competitive in world markets.

Quiz 21: The Costs of Production