Chapter 8

Production and Costs

1) AM08 \ A \\ Production \ 1 \\ Production is a process in which: (a) technology and human knowledge are used to apply energy to transform materials to make them more valuable. (b) capitalists create new types of goods and technologies. (c) natural resources are created by profit-seeking firms. (d) resources are transformed into inputs. 2) AM08 \ C \\ Production \ 1 \\ The process in which technology and human knowledge are used to apply energy to transform materials to make the materials more valuable is termed: (a) capitalism. (b) social overhead. (c) production. (d) profit-seeking. (e) construction. 3) AM08 \ B \\ Profits and Losses \ 2 \\ The theory of production and cost assumes that firms seek to maximize: (a) society's economic welfare. (b) sales revenues. (c) their own profits. (d) Gross National Product. (e) national income. 4) AM08 \ A \\ Analytic Time \ 2 \\ In the short run for production: (a) both fixed and variable costs exist. (b) productive capacity may be adjusted. (c) unprofitable firms shut down. (d) no new workers can be hired.

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5) AM08 \ D \\ Analytic Time \ 2 \\ In the theory of production and cost, the long run is a period: (a) of one year or longer. (b) of five years or longer. (c) in which we all are dead. (d) allowing capacity to fully adjust. 6) AM08 \ A \\ Analytic Time \ 2 \\ The long run in production theory is a period just long enough for: (a) firms to totally vary all resources. (b) profits to be maximized. (c) marginal costs curves to be decreasing. (d) technology to advance in response to profit opportunities. 7) AM08 \ B \\ Analytic Time \ 2 \\ If Dell hires 7,000 more assembly workers across a decade to build computers, this is a: (a) long-run adjustment. (b) short-run adjustment. (c) technological change. (d) strategy to exploit labor. 8) AM08 \ C \\ Analytic Time \ 1 \\ In production theory, the short run is a period: (a) generally less than three years. (b) sufficient to adopt new technology. (c) during which at least one resource is fixed. (d) when only labor can be varied. 9) AM08 \ D \\ Analytic Time \ 1 \\ The short run in production theory is a time period in which the firm operates with: (a) a fixed group of stockholders. (b) minimum annual profit targets. (c) no inputs that are fixed. (d) at least one fixed resource. 10) AM08 \ A \\ Production \ 2 \\ The relationship between a firms total output and the labor it employs, assuming that other resources are fixed, is shown in a: (a) total physical product curve for labor. (b) production function. (c) profit/loss statement. (d) production envelope curve.

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11) AM08 \ D \\ Production \ 1 \\ Intermediate products are used: (a) neither as inputs nor outputs. (b) and never kept as inventories. (c) only for very complicated products. (d) both as inputs and outputs. Figure A0812

12) AM08 \ C \ A0812 \ Production \ 3 \\ This curve depicts the: (a) average physical product of labor [APPL] in the long run. (b) marginal physical product of labor [MPPL] in a market period. (c) total physical product of labor [TPPL] in the short run. (d) revenue the poker chip company will receive from hiring various possible quantities of labor. 13) AM08 \ A \ A0812 \ Production \ 3 \\ The inflection point on this total physical product of labor (aka total output) curve in poker chip production occurs at: (a) point a, which is the maximum point for the marginal physical product of labor [MPPL]. (b) labor employment of Lb, where the average physical product of labor [APPL] is maximized. (c) output level Qc, where the marginal physical product of labor is zero. (d) labor employment of Lc, where the total physical product of labor [TPPL] is maximized. 14) AM08 \ B \ A0812 \ Diminishing Returns \ 3 \\ The average physical product [APPL] and marginal physical product of labor [MPPL] for this poker chip company can be inferred as: (a) both consistently increasing at all levels of labor hired less than Lc. (b) equal at point b. (c) both consistently decreasing between point a and point b. (d) both in excess of the total physical product of labor [TPPL] between 0 and La.
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15) AM08 \ C \ A0812 \ Profits and Losses \ 3 \\ This profit-maximizing poker chip producer would never hire labor beyond the amount of labor in this figure corresponding to point: (a) La. (b) Lb. (c) Lc. (d) Qa. (d) Qb. 16) AM08 \ B \ A0812 \ Costs \ 3 \\ This poker chip producers marginal cost is minimized at a labor input in this figure of: (a) La. (b) Lb. (c) Lc. (d) zero. 17) AM08 \ B \ A0812 \ Production \ 3 \\ Poker chips per worker (average physical product of labor, or APPL) in this figure are maximized at a labor input of: (a) La. (b) Lb. (c) Lc. (d) Qc. 18) AM08 \ A \ A0812 \ Production \ 3 \\ In this figure, the average physical product of labor [APPL] in producing poker chips is increasing but the marginal physical product of labor [MPPL] is decreasing: (a) from labor input La to level Lb. (b) from labor input Lb to level Lc. (c) at every level of labor input above La. (d) at every level of labor input above Lb. (e) at every level of labor input above Lc. 19) AM08 \ C \\ Marginal Product \ 2 \\ The marginal physical product of labor [MPPL] is: (a) always greater than its average physical product. (b) the rate of decline in total output per worker. (c) the extra output produced by each additional unit of labor. (d) computed by Q/L.

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20) AM08 \ A \\ Marginal Product \ 2 \\ The marginal physical production of labor [MPPL] is: (a) each additional workers contribution to total output. (b) each workers additional contribution to average output. (c) each workers additional contribution to marginal cost. (d) a function which constantly increases. 21) AM08 \ C \\ Marginal Product \ 1 \\ The additional output generated as an extra worker is added to a production process is labors: (a) average physical product [APPL]. (b) incremental output curve. (c) marginal physical product [MPPL]. (d) exploitation rate. 22) AM08 \ D \\ Marginal Product \ 3 \\ Suppose the Stradivaria Company produces 600 violins per week with 40 workers. If, when Stradivaria hires five more workers, weekly output rises to 630 violins, the marginal physical product of labor [MPPL] is, on average, roughly: (a) 30. (b) 15. (c) 14. (d) 6. 23) AM08 \ C \\ Marginal Product and Average Product \ 2 \\ Marginal product [MPPL] typically equals average product [APPL] when: (a) marginal product is at its maximum. (b) total output is at its maximum. (c) average product is at its maximum. (d) marginal cost equals average fixed cost. 24) AM08 \ C \\ Marginal Product and Diminishing Returns \ 2 \\ When diminishing marginal returns in a production process begin to be more powerful than the gains from specialization and the division of labor: (a) average physical product [APPL] is falling. (b) marginal physical [MPPL] product becomes negative. (c) total output grows at a decreasing rate as more of the variable resource is used. (d) it is time to shut down the plant.

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Contemporary Economics

Test Bank Three

142

25) AM08 \ B \\ Marginal Product and Diminishing Returns \ 2 \\ Labors marginal physical product [MPPL] ultimately declines as more workers are added to any production process because each new worker added: (a) decreases returns to scale. (b) works with relatively less capital and land. (c) is less skilled than previous workers. (d) experiences diminishing marginal utility. 26) AM08 \ C \\ Marginal Product and Diminishing Returns \ 2 \\ The fact that the total physical product curve relating output to labor becomes flatter as we move from left to right, after we have exploited most of the gains from a division of labor but before we exceed maximum output, implies that the marginal: (a) product of labor depends on the technology used. (b) product of capital is positive. (c) productivity of labor ultimately diminishes. (d) productivity of capital increases as more capital is employed. (e) propensity to consume declines as income grows. 27) AM08 \ E \\ Marginal Product and the Production Function \ 2 \\ The marginal physical product of labor [MPPL]: (a) equals zero when the total physical product is at its maximum. (b) equals labors average physical product when the APPL is maximized. (c) is maximized at the first inflection point on the total product curve. (d) is below the APPL when the APPL is falling. (e) All of the above. 28) AM08 \ D \\ Marginal Product and Total Product \ 2 \\ If the marginal physical product [MPP] of a resource is zero in the short run, the resource: (a) is being hired at minimum total cost. (b) efficiency of use is at a maximum. (c) also has zero MC. (d) is producing maximum total output. 29) AM08 \ C \\ Marginal Product and Total Product \ 2 \\ Where the marginal physical product of the variable resource [MPP] is zero, short run: (a) output is zero. (b) average physical product for the resource is also zero. (c) output is maximized. (d) total cost is minimized.

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30) AM08 \ B \\ Marginal Product and Total Product \ 2 \\ Negative marginal returns would be most likely when the amount of labor employed is very: (a) vulnerable to technological obsolescence. (b) large relative to fixed capital and land inputs. (c) unskilled, but militantly unionized. (d) small relative to fixed capital and labor inputs. 31) AM08 \ D \\ Total Costs \ 2 \\ Short-run total cost at any level of output is the sum of all: (a) rent, interest, and profit. (b) explicit overhead costs. (c) variable cost and total revenue. (d) fixed and variable costs. 32) AM08 \ A \\ Fixed Costs \ 2 \\ The implicit production costs of resources that owners provide for their firms tend to be: (a) fixed costs in the short run. (b) greater than variable costs. (c) opportunity costs only in the short run. (d) crucial accounting costs but not economic costs. (e) marginal costs in the long run. 33) AM08 \ B \\ Fixed Costs \ 2 \\ A curve that is irrelevant for short-run decisions is the: (a) average variable cost curve. (b) average fixed cost curve. (c) marginal cost curve. (d) total variable cost curve.

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Contemporary Economics

Test Bank Three

144

Figure A0834

34) AM08 \ C \ A0834 \ Costs \ 3 \\ Curve A in this figure is the yoghurt snack shops: (a) total variable cost curve. (b) total fixed cost curve. (c) short-run total cost curve. (d) short-run production function. 35) AM08 \ B \ A0834 \ Costs \ 3 \\ The total variable cost curve this yoghurt snack shop is: (a) curve A. (b) curve B. (c) line C. (d) line D. (e) none of the above. 36) AM08 \ C \ A0834 \ Costs \ 3 \\ At output Qf for this yoghurt snack shop there is an inflection point in lines A and B, so the: (a) marginal cost [MC] is at its maximum. (b) marginal physical product of labor [MPPL] of the variable resource is minimized. (c) marginal cost [MC] is at its minimum. (d) average physical product of labor [APPL] is maximized and average cost is minimized. 37) AM08 \ D \ A0834 \ Production \ 3 \\ This yoghurt snack shop experiences diminishing marginal returns at: (a) all of the output shown. (b) none of the outputs shown. (c) all outputs from 0 to Qf. (d) at all outputs exceeding Qf.
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38) AM08 \ C \ A0834 \ Production \ 3 \\ The output per yoghurt treat of the variable resource is at its maximum at: (a) output Qe. (b) output Qf. (c) output Qg. (d) output Qh (d) none of the above. 39) AM08 \ C \ A0834 \ Production \ 3 \\ This snack shop experiences increasing marginal returns in making yoghurt treats at: (a) all levels of output. (b) none of the outputs shown. (c) all outputs from 0 to Qf. (d) all outputs greater than Qf. 40) AM08 \ A \ A0834 \ Computations \ 3 \\ At point Qe, this yoghurt snack shops minimum short-run average total cost (ATC) is the quotient: (a) 0$E/0Qe. (b) 0$F/0Qf. (c) 0$G/0Qg. (d) 0$H/0Qf. (d) none of the above. 41) AM08 \ A \ A0834 \ Productive Efficiency \ 3 \\ This yoghurt snack shops lowest average total cost snack produced occurs at: (a) output Qe. (b) output Qf. (c) output Qg. (d) output Qh (d) none of the above. 42) AM08 \ E \ A0834 \ Costs \ 3 \\ If this firms only variable resource is labor, then when Qe yoghurt treats are produced: (a) marginal cost [MC] = average variable cost [AVC]. (b) average variable cost [AVC] is at its minimum value. (c) marginal cost [MC] is rising. (d) the average productivity of labor is maximized. (e) All of the above.

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Contemporary Economics

Test Bank Three

146

43) AM08 \ B \ A0834 \ Costs \ 3 \\ At output level Qe for this yoghurt snack shop, marginal cost [MC]: (a) is minimized. (b) equals average total cost [ATC]. (c) is the marginal physical product of labor [MPPL]. (d) equals average variable cost [AVC]. (e) All of the above. 44) AM08 \ D \\ Fixed Costs \ 1 \\ Total cost minus total variable cost equals total: (a) implicit cost. (b) accounting profit or loss. (c) explicit cost. (d) fixed cost. (e) economic profit or loss. 45) AM08 \ B \\ Fixed Costs \ 1 \\ Fixed costs are also sometimes called: (a) minimal costs. (b) overhead costs. (c) variable costs. (d) explicit costs. (e) marginal costs. 46) AM08 \ A \\ Fixed Costs \ 1 \\ Annual licensing fees paid by doctors, lawyers, and electrical contractors tend to be short run: (a) fixed costs. (b) variable costs. (c) marginal costs. (d) applied costs. 47) AM08 \ A \\ Fixed Costs \ 2 \\ Higher prices for a variable resource do NOT, in the short run, increase: (a) average fixed costs. (b) total variable costs. (c) short-run total costs. (d) marginal costs.

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48) AM08 \ A \\ Fixed Costs and Implicit Costs \ 3 \\ In the short run, implicit costs of any resources provided by a firms owner tend to be: (a) fixed costs. (b) subtracted from revenue to calculate taxable income. (c) variable costs. (d) investments in economic capital. (e) part of economic profit. 49) AM08 \ B \\ Sunk Costs and Rational Decisions\ 2 \\ After losing a big pot in a poker game when his flush was beat by a full house, John is most likely to be successful in subsequent hands if he: (a) become a lot more cautious about every decision. (b) views his losses as sunk costs and then bases the play of each hand on expectations about future gains or losses. (c) recognizes that luck comes in streaks, and that his lucky opponent is likely to continue to be lucky. (d) plays more aggressively to make up for the loss. 50) AM08 \ A \\ Average Fixed Cost \ 1 \\ The average fixed cost curve is a: (a) rectangular hyperbola. (b) straight horizontal line. (c) vertical line. (d) ray through the origin. 51) AM08 \ E \\ Average Fixed Costs \ 2 \\ Total fixed cost divided by quantity yields the: (a) explicit cost per unit of output. (b) average variable cost of output. (c) operating cost per unit of output. (d) marginal cost of output. (e) rectangularly hyperbolic AFC curve. 52) AM08 \ C \\ Average Fixed Costs \ 3 \\ The variable that is least relevant for a profit-maximizing firms pricing and output decisions would be: (a) total consumer demand for the firms products. (b) wages that must be paid to extra workers if it increases its output level. (c) the average fixed costs of production. (d) the sales taxes it must pay if it sells more output.

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Contemporary Economics

Test Bank Three

148

53) AM08 \ A \\ History and Rational Decisions \ 3 \\ Henry Ford ignored fixed costs when making production decisions and loudly asserted that History is bunk, but he would have agreed that: (a) historical analysis is relevant for decisions if it improves the accuracy of our forecasts. (b) total costs equal implicit costs plus historical costs. (c) implicit costs are more important than explicit costs. (d) economic profit usually exceeds accounting profit in a period of prosperity. (e) psychic income is a normal cost of doing business. AM08 \ E \\ Variable Costs \ 2 \\ Expanding production will always increase a firms: (a) total economic profit. (b) implicit costs. (c) total fixed costs. (d) overhead expenses. (e) total variable costs. 54) AM08 \ B \\ Variable Costs \ 2 \\ The most likely of the following expenses to be a variable cost in the short run would be: (a) business licenses and franchise fees. (b) wages paid in accord with wage rates specified in a union contract. (c) principal and interest on equipment purchased. (d) utility hookup charges. (e) rent for leased buildings and land. 55) AM08 \ D \\ Variable Costs \ 2 \\ Costs incurred only when a firm produces output are: (a) explicit costs. (b) fixed costs. (c) implicit costs. (d) variable costs. 56) AM08 \ B \\ Variable Costs \ 2 \\ Short-run variable costs are: (a) zero because all resources are fixed. (b) positively related to output. (c) synonymous with overhead costs. (d) the sum of fixed and marginal costs.

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Figure A0857

57) AM08 \ D \ A0857 \ Costs \ 3 \\ Curve A in this figure depicts this DVD manufacturers: (a) marginal costs. (b) average variable costs. (c) average total costs. (d) average fixed costs. 58) AM08 \ C \ A0857 \ Costs \ 3 \\ Curve B in this figure depicts this DVD manufacturers: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. (e) total sunk costs. 59) AM08 \ B \ A0857 \ Costs \ 3 \\ Curve C in this figure depicts this DVD manufacturers: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. 60) AM08 \ A \ A0857 \ Costs \ 3 \\ Curve D in this figure depicts this DVD manufacturers: (a) average variable costs. (b) average total costs. (c) marginal costs. (d) average fixed costs. (e) average implicit costs.
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61) AM08 \ B \ A0857 \ Costs \ 3 \\ If labor is the only variable input for this DVD player producer, at point x in this figure this firm would minimize its: (a) average variable costs and operate most efficiently. (b) marginal costs and maximize its workers marginal productivity. (c) average fixed costs. (d) total cost and maximize its profits. 62) AM08 \ C \ A0857 \ Costs \ 3 \\ If only labor is a variable input, at point z this DVD manufacturers average: (a) profit per unit is maximized. (b) variable costs are minimized. (c) total cost equals its marginal cost. (d) fixed costs are minimized. 63) AM08 \ A \ A0857 \ Costs \ 3 \\ If labor is the only variable input for this DVD player producer, at point y in this figure the firms: (a) average physical product of labor [APPL] is at its maximum and average variable costs [AVC] are at their minimum. (b) marginal physical productivity [MPPL] of workers is at its maximum. (c) labor costs per unit are too high to justify operating. (d) average total cost of production is at its minimum. (e) profits are maximized relative to production costs. 64) AM08 \ D \ A0857 \ Costs \ 3 \\ The vertical distances between curves C and D in this figure do NOT equal: (a) the vertical distance between the horizontal axis and curve A. (b) the DVD manufacturers overhead per unit of output. (c) average fixed costs. (d) operating costs per unit of output. (e) average total costs minus average variable costs. 65) AM08 \ E \\ Variable Costs \ 2 \\ If an extra unit of output raises short-run total cost by $30, the $30 represents: (a) a lost opportunity for economic profit. (b) added fixed cost. (c) a mix of higher fixed and variable costs. (d) an increase in implicit cost (e) added variable cost, which equals marginal cost in this case.

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Figure A0866

66) AM08 \ E \ A0866 \ Costs \ 3 \\ If labor is the only variable resource in the short run, then the curved line through points a, b, c, d, and e represents this strawberry farms: (a) long-run average cost curve. (b) short-run average cost curve. (c) total physical product of labor curve. (d) long-run total profit curve. (e) short-run total cost curve. 67) AM08 \ E \ A0866 \ Total Variable Costs \ 3 \\ If Qd strawberries are produced, total variable costs are equal to: (a) 0$A. (b) 0$B. (c) 0$C. (d) 0$D. (e) 0$D minus 0$A. 68) AM08 \ A \ A0866 \ Fixed Costs \ 3 \\ If Qd strawberries are produced, then fixed costs are represented by the line: (a) 0$A. (b) 0$B. (c) 0$C. (d) 0$D. (e) 0Qe.

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Contemporary Economics

Test Bank Three

152

69) AM08 \ C \ A0866 \ Marginal Product and Marginal Costs\ 3 \\ If labor is the only variable resource in the short run, then the marginal physical product of labor on this strawberry farm appears to be maximized at the amount of labor roughly corresponding to point. (a) point a. (b) point b. (c) point c. (d) point d. (e) point e. 70) AM08 \ E \ A0866 \ Diminishing and Negative Marginal Products\ 3 \\ The marginal physical product of labor in producing strawberries is most likely to be zero or less at: (a) point a. (b) point b. (c) point c. (d) point d. (e) a point to the right of point e. 71) AM08 \ D \ A0866 \ Average Product of Labor and Short Run Average Variable Costs\ 3 \\ If labor is the only variable resource in the short run, then short run average variable costs for strawberries are minimized at output: (a) zero ouptput. (b) output Qb. (c) output Qc. (d) output Qd. (e) output Qe. 72) AM08 \ E \\ Average Variable Cost \ 3 \\ If average variable costs of production fall as output grows: (a) marginal costs must also be declining. (b) fixed costs must also be declining. (c) total costs must be rising. (d) average total costs must be below average variable cost. (e) marginal costs must be below average variable cost. 73) AM08 \ B \\ Marginal Cost \ 2 \\ If labor is the only short-run variable input and the wage rate is constant, MC: (a) consistently exceeds average labor costs per unit of output. (b) equals: (change in total labor cost) / (change in output). (c) is less than average fixed cost per unit of output. (d) at first rises, but eventually falls as returns diminish.

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74) AM08 \ D \\ Marginal Cost \ 1 \\ The added cost from producing an extra unit of output is: (a) average variable cost. (b) average fixed cost. (c) short-run average cost. (d) marginal cost. 75) AM08 \ D \\ Marginal Cost and Average Costs \ 3 \\ If average variable cost exceeds marginal cost, average: (a) variable cost is rising. (b) physical product exceeds marginal product. (c) fixed cost is rising. (d) variable cost is falling. 76) AM08 \ A \\ Marginal Cost and Average Cost \ 2 \\ If marginal cost is below average total cost [ATC] but above average variable cost [AVC], then as output is increased slightly: (a) ATC will fall and AVC will rise. (b) ATC and AVC will both rise. (c) ATC and AVC will both fall. (d) ATC will rise and AVC will fall. 77) AM08 \ A \\ Production and Costs \ 3 \\ A firms total fixed costs plus its total variable costs are equal to the sum of its: (a) explicit costs plus its implicit costs. (b) sunk costs and its sales revenue. (c) accounting profit and its psychic income and its total revenue. (d) marginal costs and its opportunity costs. (e) total accounting costs and total accounting profit. 78) AM08 \ B \\ Production and Costs \ 3 \\ If the average product of the variable resource is rising: (a) average variable cost is rising. (b) average variable cost is falling. (c) marginal cost is rising. (d) marginal cost is falling. 79) AM08 \ B \\ Least Cost Production \ 2 \\ If capitals MPPK/r exceeds labors MPPL/w, a firm could reduce its total cost for current output by: (a) replacing capital with labor. (b) replacing labor with capital. (c) reducing output. (d) buying newer technology.
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Figure A0880

80) AM08 \ C \ A0880 \ Costs \ 3 \\ This curved line emanates from the origin and consequently, from these answers, could depict only the motorcycle firms: (a) long-run average cost. (b) short-run average cost. (c) long-run total cost. (d) short-run total cost. 81) AM08 \ C \ A0880 \ Efficiency \ 3 \\ The motorcycle firms lowest average total cost is experienced at output level: (a) quantity Qa. (b) quantity Qb. (c) quantity Qc. (d) quantity Qd. 82) AM08 \ C \ A0880 \ Production \ 3 \\ If this curve is the motorcycle firms long run total cost curve, the firm experiences diseconomies of scale beyond an output of: (a) Qa. (b) Qb. (c) Qc. (d) Qd. 83) AM08 \ B \ A0880 \ Costs \ 3 \\ If this curve is the long run total costs of the motorcycle firm, its costs consist of: (a) only fixed costs. (b) only variable costs. (c) a mix of fixed and variable cost. (d) explicit but not implicit costs.
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84) AM08 \ C \ A0880 \ Production \ 3 \\ If this curve is the long run total costs of the motorcycle firm, the firm experiences economies of scale over a range of outputs between: (a) 0 and Qa. (b) 0 and Qb. (c) 0 and Qc. (d) 0 and Qd. (d) all outputs shown. 85) AM08 \ B \ A0880 \ Costs \ 3 \\ The ray from the origin to this curve is tangent to the curve. If this motorcycle manufacturer operates at an output level of Qc, it will be operating at: (a) its most profitable level of output. (b) the minimum point of its long-run average cost [LRAC] curve. (c) minimum long-run total cost [LRTC]. (d) minimum short-run total cost [SRTC]. 86) AM08 \ C \ A0880 \ Costs \ 3 \\ For this firm to minimize its long-run average costs for motorcycles, it must produce: (a) Qa motorcycles per period. (b) Qb motorcycles per period. (c) Qc motorcycles per period. (d) Qd motorcycles per period. 87) AM08 \ D \\ Least Cost Production \ 3 \\ A firm that has adjusted the mix of resources employed to comply with the principle of equal marginal productivities per dollar has definitely accomplished: (a) maximum economic profit for its stockholders. (b) maximum total revenue given the amount of consumer demand for output. (c) the largest possible level of total product. (d) least cost production for the level of output being produced. (e) the maximum feasible rate of technological progress. 88) AM08 \ B \\ Least Cost Production \ 2 \\ Minimizing the long run average cost for the tractors it sells requires the John Deere Corporation to: (a) hire more workers per period than in the short run. (b) employ the optimal combination of resources. (c) minimize fixed costs in every short run period of production. (d) invest more heavily in research and development to foster greater rates of technological advance.

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Contemporary Economics

Test Bank Three

156

89) AM08 \ A \\ Long Run Average Costs \ 2 \\ An envelope curve under points reflecting plant sizes that yield the minimum short run average total cost of producing each possible output level yields the: (a) long run average cost curve. (b) economies of scale index. (c) industry supply curve. (d) total cost curve for the firm. (e) input/output matrix. 90) AM08 \ C \\ Least Cost Production \ 3 \\ If the wage rate = $200 and the price of capital = $100, minimizing the cost of any given level of output requires that: (a) MPPL = MPPK. (b) MPPL = MPPK/2. (c) MPPL = 2MPPK. (d) 100MPPL = 200MPPK. 91) AM08 \ D \\ Least Cost Production \ 3 \\ Economic efficiency in resource use depends on the relative: (a) productivity of resources. (b) prices of resources. (c) prices of the various goods. (d) All of the above. 92) AM08 \ B \\ Economies of Scale \ 2 \\ When a firms long run average costs decline as it increases the level of its production, the firm is: (a) in a decreasing cost industry. (b) experiencing economies of scale. (c) gaining because of comparative advantages in production. (d) less efficient. 93) AM08 \ D \\ Economies of Scale \ 2 \\ If a firm faces economies of scale, as output and capacity expands the firm becomes: (a) less profitable. (b) less efficient. (c) more vulnerable to competition. (d) more efficient.

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94) AM08 \ C \\ Economies of Scale \ 2 \\ Ludicrously Luxurious Landscapers has found that, the more lawns the company mows, the lower are its average total costs in the long run, prompting it to take on more contracts and mow more lawns. This action is an example of: (a) economies of scope. (b) capital deepening. (c) economies of scale. (d) financial insulation. 95) AM08 \ A \\ Economies of Scale \ 2 \\ Across a region is which a firm encounters economies of scale, the firms long-run average cost curve: (a) negatively sloped. (b) positively sloped. (c) horizontal. (d) vertical. 96) AM08 \ D \\ Economies and Diseconomies of Scale \ 2 \\ When constant returns to scale characterize production, a firms average costs: (a) rise as it gets larger. (b) fall as it gets larger. (c) fall if it buys more capital. (d) are unaffected by the firms size. 97) AM08 \ C \\ Economies and Diseconomies of Scale \ 2 \\ Long-run average cost curves are typically U-shaped because of: (a) the law of diminishing returns. (b) technological changes. (c) economies and then diseconomies of scale. (d) increasing, constant, and then decreasing costs. 98) AM08 \ D \\ Economies and Diseconomies of Scale \ 2 \\ U-shaped long-run average cost curves show that as firms get larger, they usually experience: (a) larger economic profits. (b) technological advances. (c) increasing red-tape because of bureaucracy. (d) economies of scale, constant returns to scale, and then diseconomies of scale, in that order. (e) conversion from entrepreneurial owner-operators to professional corporate management.

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Contemporary Economics

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99) AM08 \ C \\ Economies and Diseconomies of Scale \ 2 \\ Explaining why long-run average cost curves are typically U-shaped relies most on: (a) the sum of short-run diminishing marginal returns. (b) technological changes. (c) economies and then diseconomies of scale. (d) increasing, constant, and then decreasing costs. 100) AM08 \ D \\ Diseconomies of Scale \ 2 \\ When a firm is experiencing diseconomies of scale, its: (a) larger competitors will enjoy greater profits. (b) labor force should be expanded. (c) inputs should be increased to lower average costs. (d) average cost will decline if it shrinks its operations. (e) technology requires modernization. 101) AM08 \ A \\ Diseconomies of Scale \ 2 \\ When faced by diseconomies of scale, a firms long-run average cost curve is: (a) positively sloped. (b) negatively sloped. (c) horizontal. (d) vertical. 102) AM08 \ B \\ Diseconomies of Scale \ 2 \\ As output grows, in the long run marginal cost eventually must: (a) fall due to diminishing returns. (b) rise due to diminishing returns. (c) fall due to increasing returns. (d) rise due to increasing returns. 103) AM08 \ E \\ Diminishing Returns and Diseconomies of Scale \ 2 \\ The impossibility of simultaneously increasing all influences on production by the same proportions during some time interval ultimately leads to the: (a) principle of decreasing marginal cost. (b) technological advances that occur in the super-long run. (c) increasing monopolization of competitive industries. (d) Clark-Wicksteed product exhaustion theorem. (e) diminishing marginal returns encountered in the short run, and diseconomies of scale in the long run.

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104) AM08 \ D \\ Survival Principle \ 2 \\ The argument that a firm's success or failure may arise from managerial acumen, luck, or an industry's growth or decline instead of the firm's scale of operation is an attempt to refute the: (a) entrepreneurial hero hypothesis. (b) relative efficiency theory. (c) life-cycle of capitalism. (d) survival principle. (e) revenue maximization hypothesis.

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Contemporary Economics

Test Bank Three

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