True / False
1. The short run is that period during which there are no fixed commitments.
a.
True
b.
False
False
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
2. The long run is a period long enough so that one of the firm’s commitments ends.
a.
True
b.
False
False
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
3. In the short run, a firm has fixed costs but never any variable costs.
a.
True
b.
False
False
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
4. In the short run the firm has at least one fixed input.
a.
True
b.
False
True
DISC: Costs of production
United States – BPROG: Analytic
5. In the short run the firm has no more than one fixed input.
a.
True
b.
False
False
Easy
6. Fixed cost increases when output rises.
a.
True
b.
False
False
Moderate
7. Variable costs increase when output rises.
a.
True
b.
False
True
Easy
8. In the long run, more costs become fixed.
a.
True
b.
False
False
Moderate
9. In most businesses there is only one way to produce output.
a.
True
b.
False
False
Moderate
10. Total physical product shows what happens to the quantity of an output when the firm changes the quantity of an
input.
a.
True
b.
False
True
Easy
11. Marginal physical product measures the increase in total output that results from a one-unit increase in an input.
a.
True
b.
False
True
Easy
12. Average physical product measures the output per unit of input.
a.
True
b.
False
True
Easy
13. Average physical product measures the increase in total output that results from a one-unit increase in an input.
a.
True
b.
False
False
Easy
14. Total physical product is maximized if marginal physical product is zero.
a.
True
b.
False
True
Moderate
15. The “law” of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input
is increased.
a.
True
b.
False
True
Moderate
16. Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.
a.
True
b.
False
False
Moderate
17. The “law” of diminishing returns rests on the “law” of variable input proportions.
a.
True
b.
False
True
Easy
18. If MRP > P, a firm should use less of that input.
a.
True
b.
False
False
Moderate
19. Firms should use a resource up to a point where MRP = P.
a.
True
b.
False
True
Easy
20. When marginal revenue product of an input is less than its price, the producers should use less of the input.
a.
True
b.
False
True
Moderate
21. Production technology determines the relationship of total cost to outputs.
a.
True
b.
False
True
Moderate
22. Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.
a.
True
b.
False
False
Easy
23. A firm will tend to select the least costly input combination to produce its output.
a.
True
b.
False
True
Easy
24. Most firms have very little flexibility in their choice of input proportions.
a.
True
b.
False
False
Moderate
25. The least costly combination of inputs is influenced by the relative prices of inputs.
a.
True
b.
False
True
Moderate
26. The rule that states that the marginal revenue product equal to price does not hold when there are more than two
inputs.
a.
True
b.
False
False
Difficult
27. If a firm is using optimal input proportions, it is minimizing its costs.
a.
True
b.
False
True
Moderate
28. Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.
a.
True
b.
False
True
Difficult
29. If MPPa/Pa > MPPb/Pb, then the proportions of these two inputs is optimal.
a.
True
b.
False
False
Easy
30. A rise in the price of an input can be expected to lead to a rise in its marginal physical product.
a.
True
b.
False
True
Difficult
31. Input choices in the present are often affected by past decisions.
a.
True
b.
False
True
Difficult
32. Input proportions are usually fixed by technological conditions alone.
a.
True
b.
False
False
Difficult
33. If the price of one input changes, the firm will change its use of that input only.
a.
True
b.
False
False
Difficult
34. If the price of one input changes, generally the firm will change its use of both inputs.
a.
True
b.
False
True
Difficult
35. A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.
a.
True
b.
False
False
Easy
36. The marginal cost curve shows the per-unit cost associated with various levels of output.
a.
True
b.
False
False
Moderate
37. The average cost curve shows the total cost divided by quantity produced for various levels of output.
a.
True
b.
False
True
Easy
38. Total fixed cost falls as output expands.
a.
True
b.
False
False
Easy
39. The average fixed cost curve increases as output increases.
a.
True
b.
False
False
Easy
40. The average total cost curve of a firm is U-shaped.
a.
True
b.
False
True
Easy
41. The principal determinants of total and average cost curves are the firm’s technology and the prices of its inputs.
a.
True
b.
False
True
Moderate
42. The firm’s average cost curve is the result of cost minimization in the use of fixed inputs.
a.
True
b.
False
False
Difficult
43. For most industries, average costs decrease indefinitely as output expands.
a.
True
b.
False
False
Moderate
44. Cost curves in the long run differ from cost curves in the short run.
a.
True
b.
False
True
Easy
45. The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming
that all inputs are variable.
a.
True
b.
False
False
Easy
46. Economies of scale are also called increasing returns to scale.
a.
True
b.
False
True
Moderate
47. If significant economies of scale are present, large firms will be much more efficient producers than small firms.
a.
True
b.
False
True
Moderate
48. Economies of scale lead to declining long-run average cost curves.
a.
True
b.
False
True
Easy
49. The law of diminishing marginal returns is the same as increasing returns to scale.
a.
True
b.
False
False
Moderate
50. The different points on a cost curve represent alternative production possibilities in the same time period.
a.
True
b.
False
True
Moderate
51. The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.
a.
True
b.
False
True
Difficult
52. A production indifference curve shows all combinations of input quantities capable of producing a given quantity of
output.
a.
True
b.
False
True
Easy
53. Higher production indifference curves correspond to larger amounts of one input in relation to a second input.
a.
True
b.
False
False
Moderate
54. Production indifference curves generally have a positive slope.
a.
True
b.
False
False
Easy
55. Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.
a.
True
b.
False
True
Moderate
56. The expansion path of product indifference curves shows the cost-minimizing combination of inputs.
a.
True
b.
False
True
Moderate
57. Production indifference curves show the combination of inputs that produce a given output.
a.
True
b.
False
True
Easy
58. Firms choose the highest indifference curve they can obtain given the lowest possible budget line.
a.
True
b.
False
True
Easy
59. A change in input prices will change the location of the budget line.
a.
True
b.
False
True
Easy
60. A change in input prices has no impact on the budget line.
a.
True
b.
False
False
Moderate
61. A change in one input price will cause the slope of the budget line to change.
a.
True
b.
False
True
Moderate
Costs of production
Characteristics of the Production Indifference Curves, or Isoquants
62. A production indifference curve describes the input combinations that will produce a given output.
a.
True
b.
False
False
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
The Choice of Input Combinations
63. A budget line is the locus of all points representing every input combination of inputs that the producer can afford to
buy with a given amount of money and given input prices.
a.
True
b.
False
True
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
The Choice of Input Combinations
64. The least costly way to produce a given level of output is indicated by the point of tangency between a budget line and
the production indifference curve corresponding to that level of output.
a.
True
b.
False
True
Difficult
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
The Choice of Input Combinations
Multiple Choice
65. The short run is the time period during which
a.
all of the firm’s costs are fixed.
b.
the value of the firm’s assets starts to decay.
c.
the firm can adjust all inputs freely.
d.
some of the firm’s input decisions are constrained by previous commitments.
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
66. In the long run,
a.
all of the firm’s input quantities are variable.
b.
the firm can vary the quantities of some but not all inputs.
c.
managers become less efficient.
d.
the total cost of producing any given level of output is greater than or equal to the short-run total cost of
producing that level of output.
a
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
67. In the short run,
a.
all of the firm’s input quantities, including plant size, become adjustable.
b.
firms are not constrained by past decisions.
c.
firms have relatively little opportunity to change production processes.
d.
all of the firm’s current commitments come to an end.
c
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
68. Some costs cannot be varied no matter how long the period in question. These are called
a.
overheads.
b.
total costs.
c.
fixed costs.
d.
variable costs.
c
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
69. Which of the following observations is true?
a.
In the long run, more costs become variable.
b.
Fixed costs can be completely varied if the time period is sufficient.
c.
Fixed costs arise when some types of inputs can be bought only in big batches.
d.
Variable costs arise when inputs have a large productive capacity.
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
70. In which case will the transition from short run to long run involve the shortest chronological time?
a.
a service that provides temporary secretaries to companies
b.
an automobile factory
c.
a farm
d.
an electric utility
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Short-Run Vs. Long-Run Costs: What Makes an Input Variable?
71. The case of production with a single variable input is analogous to
a.
changing the use of land, labor, and capital in production by a constant absolute amount.
b.
a controlled laboratory experiment in which the scientist permits one variable to change at a time.
c.
changing the use of land, labor, and capital in production by a constant percentage.
d.
specialization in one particular product by a company.
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Production, Input Choice, and Cost with One Variable Input
72. The total physical product of an input is the same thing as its
a.
total revenue product.
b.
marginal physical product times output.
c.
output.
d.
total consumer’s surplus.
c
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Production, Input Choice, and Cost with One Variable Input
73. Which of the following experiments will yield observations that would allow one to calculate the marginal physical
product of labor?
a.
increase the number of lumberjacks with chain saws and observe the change in output of cut trees
b.
increase the number of workers on an assembly line and record the change in output
c.
Both a and b are correct.
d.
Neither a nor b are correct.
Moderate
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Production, Input Choice, and Cost with One Variable Input
74. Marginal physical product can tell a producer
a.
at what point to stop adding inputs to the production process.
b.
how much profit will be made at each level of production.
c.
how much the last input added to the total amount of revenue.
d.
how much the last input added to the total amount of production.
Easy
DISC: Costs of production
United States – BPROG: Analytic
Costs of production
Production, Input Choice, and Cost with One Variable Input