Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-58 In the following graph, the price of capital is $12 per unit. If the price of labor is $30 per unit, the
lowest possible cost of producing 200 units of output is
a. $1,200.
b. $2,400.
c. $3,000.
d. $4,000.
e. none of the above
9-59 In the following graph, the price of capital is $12 per unit. How many units of labor should the
firm use in order to produce 200 units of output at the least cost?
a. 12 units of labor
b. 18 units of labor
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
c. 30 units of labor
d. 40 units of labor
e. 22 units of labor
9-60 In the following graph, the price of capital is $12 per unit. If the price of labor increases to $40
per unit and total cost is unchanged, what is the maximum amount of output the firm can
produce?
a. 100 units of output
b. 200 units of output
c. 300 units of output
d. 400 units of output
e. none of the above
Learning Objective: 09-02
9-61 A firm is using 50 units of labor and 100 units of capital to produce 2,000 units of output. The
price of labor is $200 per unit and the price of capital is $100 per unit. At these input levels,
another unit of labor adds 400 units to output and another unit of capital adds 600 units to output.
The firm
a. is minimizing the cost of producing 2,000 units of output.
b. could produce 6 more units of output at the same cost by switching $1 from labor to
capital.
c. could produce 4 more units of output at the same cost by switching $1 from labor to
capital.
d. could keep output constant and reduce cost by using more capital and less labor.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
e. both c and d
9-62 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
9-63 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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-64 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
9-65 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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-66 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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-67 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
9-68 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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
d. $500
e. none of the above
9-69 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
9-70
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-71
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.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-72
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
9-73 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.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-74 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.
9-75 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
9-76 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
9-77 Long−run total cost
a. represents the lowest possible cost of producing a given level of output.
b. is always equal to or greater than short−run total cost.
c. is tangent to short−run total cost when short−run total cost is at its minimum point.
d. both a and b
e. all of the above
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-78 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
9-79 Following is a firm’s expansion path. The price of capital is $5 per unit; the price of labor is $2
per unit.
Optimal Input Choice
Units of Output
10
20
30
Units of Capital
6
8
13
Units of Labor
5
10
20
When output is 30 units, what is long−run total cost?
a. $60
b. $105
c. $150
d. $260
e. none of the above
9-80 Following is a firm’s expansion path. The price of capital is $5 per unit; the price of labor is $2
per unit.
Optimal Input Choice
Units of Output
10
20
30
Units of Capital
6
8
13
Units of Labor
5
10
20
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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-81 Following is a firm’s expansion path. The price of capital is $5 per unit; the price of labor is $2
per unit.
Optimal Input Choice
Units of Output
10
20
30
Units of Capital
6
8
13
Units of Labor
5
10
20
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
9-82 You read a story in the newspaper about the “economies of mass production.” This means that
a. total cost is less at larger levels of production.
b. long-run average cost is less at larger levels of production.
c. marginal cost is less at larger levels of production.
d. fixed cost is less at larger levels of production.
9-83 Economies of scale exist when
a. total cost decreases as output increases.
b. long-run average cost decreases as output increases.
c. marginal cost decreases as output increases.
d. fixed cost decreases as output increases.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-84 In the following graph, the price of capital is $100 per unit; the price of labor is $25 per unit.
When output is 30 units, what is TOTAL cost?
a. $1,000
b. $2,000
c. $10,000
d. $20,000
e. none of the above
9-85 In the following graph, the price of capital is $100 per unit; the price of labor is $25 per unit.
When output is 20 units, what is AVERAGE cost?
a. $350
b. $700
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
c. $3,500
d. $7,000
e. none of the above
9-86 In the following graph, the price of capital is $100 per unit; the price of labor is $25 per unit. How
much does the seventh unit of output add to total cost?
a. nothing
b. $400
c. $800
d. $4,000
e. $8,000
9-87 Economies of scale exist when
a. fixed cost decreases as output increases.
b. long-run average cost decreases as output increases.
c. long-run marginal cost is less than long-run average cost.
d. both a and b
e. both b and c
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-88 Economies of scope in the production of goods G and W exist if
a.
LTC(G,W)>LTC(G,0) –LTC(0,W)
b.
LTC(G,W)<LTC(G,0) +LTC(0,W)
c.
LTC(G,W)–LTC(G,0) <LTC(0,W)
d. both a and c
e. both b and c
9-89 If there are no fixed costs in the long run, how can it be said that economies of scale arise from
spreading fixed costs over more units of output?
a. Economies of scale is a short run phenomenon, and so diminishing returns is the root
cause of scale economies.
b. Costs of quasi-fixed inputs get spread over more units of output which drives down
average cost in the long run.
c. Average fixed costs decline continuously as output rises.
d. Long-run average cost falls because all fixed costs are sunk.
9-90 Learning economies differ from economies of scale because
a. the former involves rising average costs and the latter involves falling average costs as a
result of higher output levels.
b. the former involves output in a single period of production and the latter involves
cumulative output.
c. the former involves cumulative production and the latter involves rate of production per
period.
d. the first is a short-run phenomenon and the second is a long-run phenomenon.