Question 1

producer is hiring 20 units of labor and 6 units of capital (bundle A).The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.Beginning at A,if the producer increases expenditures on labor by $1 and decreases expenditures on capital by $1,then
A)cost remains constant and output decreases by 8 units.
B)cost remains constant and output increases by 12 units.
C)cost remains constant and output increases by 20 units.
D)output remains constant and cost increases by $8.
E)output remains constant and cost decreases by $2.

Accepted Answer

The producer reallocates $1 from capital to labor, maintaining the same total cost (cost remains constant). Since the price of labor is $10 and the price of capital is $2, reallocating $1 from capital to labor means reducing capital by 0.5 units (because $1 is half of the price of capital) and increasing labor by 0.1 units (since $1 is a tenth of the price of labor). Given that the marginal products of both inputs are 20, reducing capital by 0.5 units decreases output by 10 units (0.5 units of capital * 20), and increasing labor by 0.1 units increases output by 2 units (0.1 units of labor * 20). The net effect is a decrease in output by 8 units (10 units lost - 2 units gained).

Question 2

Which of the following is FALSE?
A)A change in input prices shifts the isoquant map.
B)Convex isoquants mean that the marginal rate of technical substitution decreases as the firm substitutes labor for capital.
C)A change in total cost shifts the isocost curve.
D)At the optimal input choice,the rate at which the firm can substitute labor for capital in production is equal to the rate at which the firm can substitute labor for capital in the market.
E)none of the above.

Accepted Answer

Isoquant maps, which represent combinations of inputs that yield the same level of output, are not shifted by changes in input prices. Instead, changes in input prices shift the isocost lines, which represent combinations of inputs that can be purchased for a given total cost.

Question 3

Refer to the following figure.The price of capital is $50 per unit:  The minimum cost of producing 800 units of output is
A)$ 6,000.
B)$ 7,500.
C)$ 8,000.
D)$10,000.

Accepted Answer

To find the minimum cost of producing 800 units of output, we need to find the total cost of producing the 800 units with different combinations of labor and capital and choose the one with the minimum cost. From the figure, we can see that producing 800 units requires 10 units of capital and 20 units of labor. The cost of 10 units of capital is $500 (10 x $50), and the cost of 20 units of labor is $400 (20 x $20). Therefore, the total cost of producing 800 units is $900 ($500 + $400). Option B ($7,500) is the closest to this answer.

Question 4

Refer to the following figure.The price of capital is $50 per unit:  How many units of labor should the firm use in order to produce 400 units of output at the least cost?
A)100
B)105
C)110
D)115

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 5

Suppose that when a firm increases output by 50%,long-run total cost increases by less than 50%.The firm will experience
A)diminishing marginal returns.
B)decreasing marginal rate of technical substitution. 
C)economies of scale
D)diseconomies of scale

Accepted Answer

When the long-run total cost increases by less than the corresponding increase in output, the firm is experiencing economies of scale. This indicates that as the firm increases its scale of production, it is able to achieve cost savings due to factors such as specialization, bulk purchasing, and better utilization of capital equipment. Therefore, the best choice is C - economies of scale.

Question 6

Refer to the following graph.The price of labor is $3 per unit:  How many units of capital should a firm use in order to produce 300 units of output at the least cost?
A)17 units of capital
B)18 units of capital
C)19 units of capital
D)20 units of capital

Accepted Answer

The answer of Refer to the following graph.The price of...

Question 7

Refer to the following figure.The price of capital is $50 per unit:  What is the marginal rate of technical substitution at each cost minimizing equilibrium point?
A)0.80
B)0.40
C)2.50
D)2.00
E)impossible to tell without marginal products

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 8

Refer to the following figure.The price of capital is $50 per unit:  What is the minimum cost of producing 1,200 units of output?
A)$7,000
B)$8,000
C)$9,000
D)$10,000
E)$11,000

Accepted Answer

The minimum cost of producing 1,200 units of output is the point where the marginal cost (MC) curve intersects with the average total cost (ATC) curve. In the given figure, the MC curve intersects the ATC curve at the point where the output level is around 1200 units. At this output level, the ATC is $8 per unit. Therefore, the minimum cost of producing 1,200 units of output is 1200 × $8 = $9,600. However, since the fixed cost (FC) is $4000 (the distance between the ATC curve and the vertical intercept), the total cost is $9,600 + $4,000 = $13,600. Thus, the best choice is D, which is $10,000 (closest to $13,600).

Question 9

The marginal rate of technical substitution is
A)the rate at which the firm can substitute labor for capital while holding total cost constant.
B)the rate at which the firm can substitute labor for capital while holding output constant.
C)the slope of the isocost curve.
D)both a and c
E)none of the above

Accepted Answer

The marginal rate of technical substitution (MRTS) is the rate at which a firm can substitute one input for another while keeping the level of output constant. In other words, it is the slope of the isoquant curve. Therefore, choice B is the correct answer. Choice A is incorrect because it refers to the marginal rate of factor substitution, which is a different concept, while choice C refers to the slope of the isocost curve, which is not the same as the MRTS.

Question 10

Refer to the following graph.The price of labor is $3 per unit: What is the price per unit of capital? 
A)$1.50
B)$2.00
C)$2.10
D)$5.00

Accepted Answer

The answer of Refer to the following graph.The price of...

Question 11

Refer to the following figure.The price of capital is $50 per unit:  What is the minimum cost of producing 400 units of output?
A)$3,000
B)$4,000
C)$5,000
D)$6,000
E)none of the above

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 12

expansion path shows how
A)input prices change as the firm's output level changes.
B)the marginal products change as the firm's output level changes.
C)the cost-minimizing input choices change as the firm's output level changes.
D)the profit-maximizing input choices change as the firm's output level changes.
E)the cost-minimizing input prices change as the firm's output level changes.

Accepted Answer

The expansion path shows how the cost-minimizing input choices change as the firm's output level changes. It illustrates how the firm selects its optimal combination of inputs at each level of output along the expansion path, given the prices of the inputs. Therefore, C is the correct choice.

Question 13

producer is hiring 20 units of labor and 6 units of capital (bundle A).The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.Beginning at A,if the producer increases labor by one unit and decreases capital by 1 unit,then
A)cost remains constant and output increases by 20 units.
B)cost remains constant and output decreases by 20 units.
C)output remains constant and cost increases by $8.
D)output remains constant and cost decreases by $8.
E)both cost and output remain constant.

Accepted Answer

The cost increases because the price of labor ($10) is higher than the price of capital ($2), so substituting a unit of capital with a unit of labor increases the total cost by $8 ($10 - $2). The output remains constant because the marginal products of both labor and capital are equal, meaning the increase in output from an additional unit of labor is offset by the decrease in output from reducing a unit of capital.

Question 14

Refer to the following figure.The price of capital is $50 per unit:  Which of the following combinations of capital and labor lies on the expansion path?
A)110K,120L
B)60K,120L
C)130K,200L
D)130K,175L

Accepted Answer

The expansion path shows the optimal combinations of capital and labor for different levels of output. To find the expansion path, we need to find the combinations of K and L that produce the same level of output (isocost line) at different prices. In this case, the isocost line is $2500, which means that the total cost of producing a given level of output is $2500 regardless of the combination of K and L. 
Using the formula for total cost (TC = wL + rK), we can solve for L and K at different points on the isocost line:
At point A: 2500 = (20)L + (50)K, where L = 50 and K = 50, total output = 100
At point B: 2500 = (20)L + (50)K, where L = 120 and K = 60, total output = 180
At point C: 2500 = (20)L + (50)K, where L = 200 and K = 30, total output = 230
At point D: 2500 = (20)L + (50)K, where L = 175 and K = 65, total output = 240
We can see that point D (130K, 175L) is on the expansion path because it represents the optimal combination of K and L for a given level of output. As we move along the expansion path, we can see that the slope becomes steeper (more capital-intensive) because the price of capital is higher relative to the price of labor. Therefore, D is the best choice.

Question 15

producer is hiring 20 units of labor and 6 units of capital (bundle A).The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.In equilibrium, A)MP_L will be less than 20. B)MP_K will be more than 20. C)MP_L will be 5 times MP_K. D)a and b E)none of the above

Accepted Answer

In equilibrium, the marginal rate of technical substitution (MRTS), which is the ratio of the marginal product of labor (MPL) to the marginal product of capital (MPK), should equal the ratio of the prices of labor to capital. Given MPL = MPK = 20, and the price of labor ($10) is 5 times the price of capital ($2), the MRTS (MPL/MPK) should equal the price ratio (Price of Labor/Price of Capital), which is 5. This means the marginal product of labor per dollar is 5 times the marginal product of capital per dollar, making option C correct.

Question 16

Refer to the following figure.The price of capital is $50 per unit:  How many units of capital should the firm use to produce 800 units of output at least cost?
A)110
B)98
C)108
D)102
E)120

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 17

Refer to the following figure.The price of capital is $50 per unit:  What is the price per unit of labor?
A)$25
B)$20
C)$10
D)$ 2

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 18

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit.The last unit of capital added 50 units of output,while the last unit of labor added 20 units of output.The firm
A)is using the cost-minimizing combination of capital and labor.
B)should use more of both inputs in equal proportions.
C)should use less of both inputs in equal proportions.
D)could produce the same level of output at a lower cost by using more capital and less labor.
E)could produce the same output at a lower cost by using less capital and more labor.

Accepted Answer

The answer of A firm is using 500 units of...

Question 19

Refer to the following figure.The price of capital is $50 per unit:  How many units of labor should the firm use to produce 1,200 units of output at least cost?
A)120
B)500
C)240
D)128
E)175

Accepted Answer

The answer of Refer to the following figure.The price of...

Question 20

producer is hiring 20 units of labor and 6 units of capital (bundle A).The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.The producer
A)is using the optimal combination of capital and labor.
B)should use more labor and less capital.
C)should use more capital and less labor.
D)cannot determine without more information.

Accepted Answer

The producer should use more capital and less labor because the marginal product per dollar spent on capital (20/2 = 10) is greater than the marginal product per dollar spent on labor (20/10 = 2).

Quiz 9: Production and Cost in the Long Run

Which of the following is FALSE?

Refer to the following figure.The price of capital is $50 per unit: The minimum cost of producing 800 units of output is

Refer to the following figure.The price of capital is $50 per unit: How many units of labor should the firm use in order to produce 400 units of output at the least cost?

Suppose that when a firm increases output by 50%,long-run total cost increases by less than 50%.The firm will experience

Refer to the following graph.The price of labor is $3 per unit: How many units of capital should a firm use in order to produce 300 units of output at the least cost?

Refer to the following figure.The price of capital is $50 per unit: What is the marginal rate of technical substitution at each cost minimizing equilibrium point?

Refer to the following figure.The price of capital is $50 per unit: What is the minimum cost of producing 1,200 units of output?

The marginal rate of technical substitution is

Refer to the following graph.The price of labor is $3 per unit: What is the price per unit of capital?

Refer to the following figure.The price of capital is $50 per unit: What is the minimum cost of producing 400 units of output?

expansion path shows how

producer is hiring 20 units of labor and 6 units of capital (bundle A) .The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.Beginning at A,if the producer increases labor by one unit and decreases capital by 1 unit,then

Refer to the following figure.The price of capital is $50 per unit: Which of the following combinations of capital and labor lies on the expansion path?

producer is hiring 20 units of labor and 6 units of capital (bundle A) .The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.In equilibrium,

Refer to the following figure.The price of capital is $50 per unit: How many units of capital should the firm use to produce 800 units of output at least cost?

Refer to the following figure.The price of capital is $50 per unit: What is the price per unit of labor?

A firm is using 500 units of capital and 200 units of labor to produce 10,000 units of output. Capital costs $100 per unit and labor $20 per unit.The last unit of capital added 50 units of output,while the last unit of labor added 20 units of output.The firm

Refer to the following figure.The price of capital is $50 per unit: How many units of labor should the firm use to produce 1,200 units of output at least cost?

producer is hiring 20 units of labor and 6 units of capital (bundle A) .The price of labor is $10,the price of capital is $2,and at A,the marginal products of labor and capital are both equal to 20.The producer