Chapter 9: PRODUCTION AND COST IN THE LONG RUN
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
Multiple Choice
9-1 A 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.
9-2 A 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.
9-3 A 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.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-4 A 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. MPL will be less than 20.
b. MPK will be more than 20.
c. MPL will be 5 times MPK.
d. a and b
e. none of the above
9-5 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 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.
9-6 The 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.
9-7 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
What is the price per unit of labor?
a. $25
b. $20
c. $10
d. $ 2
9-8 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-9 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
The minimum cost of producing 800 units of output is
a. $ 6,000.
b. $ 7,500.
c. $ 8,000.
d. $10,000.
9-10 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-11 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
9-12 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-13 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-14 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-15 Refer to the following figure. The price of capital is $50 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
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
9-16 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
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-17 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.
9-18 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
9-19 Refer to the following graph. The price of labor is $3 per unit:
What is the price per unit of capital?
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
a. $1.50
b. $2.00
c. $2.10
d. $5.00
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-20 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
9-21 Refer to the following graph. The price of labor is $3 per unit:
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
What is the marginal rate of technical substitution at point B?
a. 0.6
b. 0.75
c. 1
d. 1.7
9-22 Refer to the following graph. The price of labor is $3 per unit:
What is the minimum cost of producing 100 units of output?
a. $150
b. $105
c. $ 75
d. $ 60
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-23 Refer to the following graph. The price of labor is $3 per unit:
How many units of labor should a firm use in order to produce 100 units of output at the least
cost?
a. 5 units of labor
b. 10 units of labor
c. 15 units of labor
d. 20 units of labor
9-24 Refer to the following graph. The price of capital (r) is $20.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
What is the price of labor (w)?
a. $20
b. $30
c. $25
d. $35
e. none of the above
9-25 Refer to the following graph. The price of capital (r) is $20.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
What combination of labor (L) and capital (K) can produce 5,000 units of output at lowest cost?
a. 90K, 60L
b. 110K, 10L
c. 42K, 52L
d. 60K, 20L
e. 10K, 110L
9-26 Refer to the following graph. The price of capital (r) is $20.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
What is the lowest possible cost of producing 5,000 units of output?
a. $1,800
b. $2,400
c. $2,600
d. $1,400
e. $3,000
9-27 Refer to the following graph. The price of capital (r) is $20.
Why wouldn’t the firm choose to produce 5,000 units of output with the combination at A?
a. At A, MRTS < 3/2.
b. At A, MPK / r > MPL / w.
c. At A, MPL > MPK.
d. both a and b
e. none of the above
9-28 Refer to the following graph. The price of capital (r) is $20.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
Why wouldn’t the firm choose to produce 5,000 units of output with the combination at B?
a. At B, MRTS < 3/2.
b. At B, MPK / r > MPL / w.
c. At B, MPL < MPK.
d. both a and b
e. none of the above
9-29 Refer to the following graph. The price of capital (r) is $20.
What is the lowest possible cost at which 14,000 units of output can be produced?
a. $8,600
b. $2,400
c. $3,600
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
d. $4,200
e. none of the above
9-30 Refer to the following graph. The price of capital (r) is $20.
What combination of K and L should the firm choose to produce 14,000 units of output at the
lowest cost?
a. 180K, 120L
b. 180K, 0L
c. 60K, 120L
d. 90K, 60L
e. none of the above
9-31 Refer to the following graph. The price of capital (r) is $20.