Question 1

A cow will produce 8500 lbs.of milk if fed either 5000 lbs.of hay and 6200 lbs.of grain or 5600 lbs.of hay and 5400 lbs.of grain.Over this range,the marginal rate of technical substitution between hay and grain is
A)0.17.
B)0.75.
C)0.98.
D)1.02.
E)6.00.

Accepted Answer

The marginal rate of technical substitution (MRTS) is calculated as the change in the quantity of one input divided by the change in the quantity of another input, while keeping output constant. Here, the change in hay is 5600 - 5000 = 600 lbs, and the change in grain is 5400 - 6200 = -800 lbs. MRTS = -600 / -800 = 0.75.

Question 2

In the graph below,the price of capital is $500 per unit.Given a total cost of $50,000,the maximum amount of output possible is 
A)500 units of output.
B)1,100 units of output.
C)10,000 units of output.
D)50,000 units of output.
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Question 3

If a firm is producing the level of output at which short-run average cost equals long-run average cost,then
A)the firm has chosen the cost-minimizing combination of inputs to produce this level of output.
B)with a fixed amount of capital,short-run average cost is greater than long-run average cost at any other level of output.
C)the firm has chosen the profit-maximizing level of output.
D)both a and b
E)all of the above

Accepted Answer

When a firm's short-run average cost equals its long-run average cost, it indicates that the firm has chosen the cost-minimizing combination of inputs (A) and, given the fixed amount of capital in the short run, the short-run average cost would be greater than the long-run average cost at any other level of output (B). This does not necessarily mean the firm has chosen the profit-maximizing level of output (C), as profit maximization also depends on factors like market demand and price.

Question 4

In the above graph,the shift from I to II was due to
A)an increase in total cost.
B)an increase in the price of labor.
C)a decrease in the price of labor.
D)an increase in the price of capital.
E)a decrease in the price of capital.

Accepted Answer

The answer of  In the above graph,the shift from...

Question 5

In the graph below,the price of capital is $500 per unit.Between 30,000 and 50,000 units of output,how much does each additional unit of output add to long-run total cost?

A)$1.50 
B)$2.45
C)$300
D)$30,000
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Question 6

In the graph below,the price of capital is $500 per unit.How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost? 
A)300 units of labor
B)320 units of labor
C)500 units of labor
D)800 units of labor
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Question 7

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost,then
A)long-run marginal cost is at its minimum point.
B)long-run average cost is at its minimum point.
C)long-run total cost is at its minimum point.
D)both a and b
E)all of the above

Accepted Answer

When a firm is producing at a level where long-run average cost equals long-run marginal cost, it indicates that the firm is operating at the minimum point of its long-run average cost curve. This is a standard result in economic theory regarding the relationship between marginal cost and average cost.

Question 8

Following is a firm's expansion path.The price of capital is $5 per unit; the price of labor is $2 per unit.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Ontimal Input Choice }$
$\begin{array}{c}
\begin{array}{c}
\text {Units of Output}\
10\
20\
30
\end{array}
\begin{array}{c}
\text {Units of Capital}\
6\
8\
13
\end{array}
\begin{array}{c}
\text {Units of Labor}\
5\
10\
20
\end{array}
\end{array}$
 How much does the 10th unit of output add to long-run total cost?
A)zero
B)$3
C)$4
D)$40
E)none of the above

Accepted Answer

The 10th unit of output requires 6 units of capital and 5 units of labor. The cost is $6 \times 5 + 5 \times 2 = 30 + 10 = 40$. However, since the question asks for the additional cost of the 10th unit, we consider the marginal cost. The cost for 20 units is $60 (8 units of capital and 10 units of labor), so the cost for 10 units is $40. The marginal cost of the 10th unit is $4.

Question 9

Following is a firm's expansion path.The price of capital is $5 per unit; the price of labor is $2 per unit.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Ontimal Input Choice }$
$\begin{array}{c}
\begin{array}{c}
\text {Units of Output}\
10\
20\
30
\end{array}
\begin{array}{c}
\text {Units of Capital}\
6\
8\
13
\end{array}
\begin{array}{c}
\text {Units of Labor}\
5\
10\
20
\end{array}
\end{array}$

When output is 20 units,what is long-run average cost?
A)$2
B)$3.50
C)$4
D)$4.50
E)none of the above

Accepted Answer

To find the long-run average cost when output is 20 units, we first calculate the total cost of producing 20 units of output. The total cost includes the cost of capital and the cost of labor. Given the price of capital is $5 per unit and the price of labor is $2 per unit, for 20 units of output, the firm uses 8 units of capital and 10 units of labor. Thus, the total cost is (8 units of capital * $5 per unit) + (10 units of labor * $2 per unit) = $40 + $20 = $60. The long-run average cost is the total cost divided by the quantity of output, which is $60 / 20 units = $3. Therefore, the correct answer is not listed among the provided options.

Question 10

In the graph below,the price of capital is $500 per unit.Which of the following combinations of capital and labor lies on the expansion path? 
A)500L,100K
B)800L,160K
C)1100L,220K
D)both a and b
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Question 11

In the graph below,the price of capital is $500 per unit.When output is 10,000 units,what is long-run average cost? 
A)$0.20
B)$5
C)$20
D)$500
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Question 12

If the marginal rate of technical substitution of labor for capital is 6,the price of labor is $18,and the price of capital is $9,then the firm
A)can substitute one unit of capital for six units of labor and keep output unchanged.
B)should use more labor and less capital.
C)should use more capital and less labor.
D)both a and b
E)both a and c

Accepted Answer

The answer of If the marginal rate of technical substitution...

Question 13

Following is a firm's expansion path.The price of capital is $5 per unit; the price of labor is $2 per unit.  $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $$\text { Ontimal Input Choice }$
$\begin{array}{c}
\begin{array}{c}
\text {Units of Output}\
10\
20\
30
\end{array}
\begin{array}{c}
\text {Units of Capital}\
6\
8\
13
\end{array}
\begin{array}{c}
\text {Units of Labor}\
5\
10\
20
\end{array}
\end{array}$
 When output is 30 units,what is long-run total cost?
A)$60
B)$105
C)$150
D)$260
E)none of the above

Accepted Answer

Long-run total cost is the sum of the cost of capital and the cost of labor. When output is 30 units, the firm uses 13 units of capital and 20 units of labor. The cost of capital is $5 per unit, and the cost of labor is $2 per unit. Therefore, the long-run total cost is 13 * $5 + 20 * $2 = $105.

Question 14

In the above graph,as you move from point B to point C,
A)output is unchanged.
B)cost is unchanged.
C)the amount of capital increases and the amount of labor decreases.
D)both b and c
E)all of the above

Accepted Answer

The answer of  In the above graph,as you move...

Question 15

A firm is using 500 units of labor and 100 units of capital to produce 100 units of output.The price of labor is $5 per unit and the price of capital is $20 per unit.At these input levels,another unit of labor adds 50 units of output,while another unit of capital adds 400 units of output.The firm could increase output by
A)10 units by spending $1 more on capital and $1 less on labor.
B)10 units by spending $1 more on labor and $1 less on capital.
C)350 units by spending $1 more on capital and $1 less on labor.
D)350 units by spending $1 more on labor and $1 less on capital.
E)none of the above

Accepted Answer

The marginal product of labor is 50 units of output per unit of labor, and the marginal product of capital is 400 units of output per unit of capital. So, the firm could increase output by 10 units by spending $1 more on capital and $1 less on labor.

Question 16

Long-run total cost
A)represents the lowest possible total cost of producing a given level of output.
B)is always equal to or greater than short-run total cost.
C)is greater than short-run total cost when short-run total cost is at its minimum point.
D)both b and c
E)all of the above

Accepted Answer

Long-run total cost represents the lowest possible total cost of producing a given level of output because it allows all inputs to be varied, optimizing production efficiency.

Question 17

Diseconomies of scale
A)exist when fixed cost increases as output increases.
B)exist when long-run average cost increases as output increases.
C)result eventually as the firm uses more and more labor with a fixed capital stock.
D)both a and b
E)all of the above

Accepted Answer

Diseconomies of scale occur when the long-run average cost of a firm increases as its output increases. This is typically due to inefficiencies that arise from managing a larger operation, such as coordination and communication problems.

Question 18

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that
A)total cost decreases as more is produced.
B)long-run average cost decreases as more is produced.
C)marginal cost decreases as more is produced.
D)total fixed cost decreases as more is produced.

Accepted Answer

The statement is referencing economies of scale, which refers to the phenomenon where long-run average cost decreases as more is produced. This can result from spreading fixed costs over a larger output, or from other factors such as increased specialization or bargaining power with suppliers.

Question 19

In the above graph,what is the marginal rate of technical substitution at point D?
A)less than 1.5
B)less than 2.5
C)greater than 1.5
D)greater than 2.5

Accepted Answer

The answer of  In the above graph,what is the...

Question 20

In the graph below,the price of capital is $500 per unit.At point A,the firm can exchange 
A)1 unit of capital for 5 units of labor and keep output unchanged.
B)5 units of capital for 1 unit of labor and keep output unchanged.
C)5 units of capital for 1 unit of labor and keep cost unchanged.
D)both b and c
E)none of the above

Accepted Answer

The answer of In the graph below,the price of capital...

Quiz 9: Production and Cost in the Long Run

A cow will produce 8500 lbs.of milk if fed either 5000 lbs.of hay and 6200 lbs.of grain or 5600 lbs.of hay and 5400 lbs.of grain.Over this range,the marginal rate of technical substitution between hay and grain is

In the graph below,the price of capital is $500 per unit.Given a total cost of $50,000,the maximum amount of output possible is

If a firm is producing the level of output at which short-run average cost equals long-run average cost,then

In the above graph,the shift from I to II was due to

In the graph below,the price of capital is $500 per unit.Between 30,000 and 50,000 units of output,how much does each additional unit of output add to long-run total cost?

In the graph below,the price of capital is $500 per unit.How many units of labor should a firm use in order to produce 30,000 units of output at the lowest possible cost?

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost,then

In the graph below,the price of capital is $500 per unit.Which of the following combinations of capital and labor lies on the expansion path?

In the graph below,the price of capital is $500 per unit.When output is 10,000 units,what is long-run average cost?

If the marginal rate of technical substitution of labor for capital is 6,the price of labor is $18,and the price of capital is $9,then the firm

In the above graph,as you move from point B to point C,

Long-run total cost

Diseconomies of scale

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

In the above graph,what is the marginal rate of technical substitution at point D?

In the graph below,the price of capital is $500 per unit.At point A,the firm can exchange