Chapter 9: PRODUCTION AND COST IN THE LONG RUN
At the optimal combination of inputs for producing 14,000 units of output, what is the marginal
rate of technical substitution?
a. 2.5
b. 0.67
c. 1.5
d. 0.80
e. impossible to tell from the graph
9-32 Refer to the following graph. The price of capital (r) is $20.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
If, at the optimal combination of inputs for producing 14,000 units of output, the marginal
product of capital is 40, what is the marginal product of labor?
a. 60
b. 40
c. 27.7
d. 80
e. impossible to tell from the graph
.
9-33 In the following graph, the price of labor is $15 per unit. The minimum cost of producing 1,000
units of output is:
a. $ 150
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
b. $ 450
c. $ 600
d. $1,800
e. none of the above
9-34 In the following graph, the price of labor is $15 per unit. How many units of labor should a firm
use to produce 2,000 units of output at the least cost?
a. 40
b. 50
c. 80
d. 100
e. none of the above
9-35 In the following graph, the price of labor is $15 per unit. Which of the following combinations of
capital and labor lies on the expansion path?
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
a. 15K, 40L
b. 18K, 40L
c. 30K, 100L
d. 21K, 60L
e. none of the above
9-36 A firm is using 500 units of labor and 100 units of capital to produce 100 units of output. Labor
costs $5 per unit and capital $20 per unit. At these input levels, another unit of labor adds 5 units
of output, while another unit of capital adds 40 units of output. If the firm uses 496 units of labor
and 101 units of capital instead, what will happen?
a. Cost will be unchanged, and output will increase by 20 units.
b. Cost will be unchanged, and output will increase by 35 units.
c. Output will be unchanged, and cost will decrease by $20.
d. Output will be unchanged, and cost will decrease by $40.
9-37 A publishing house is using 400 printers and 200 printing presses to produce books. The printers’
wage rate is $20 and the price of a printing press is $100. The last printer added 20 books to total
output, while the last printing press added 50 books to total output. The publishing house
a. is using the cost−minimizing combination of printers and printing presses.
b. should use more printers because they are cheaper than printing presses.
c. should use more printing presses because they are more productive than printers.
d. could produce the same number of books at a lower cost by using more printing presses
and fewer printers.
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
e. could produce the same number of books at a lower cost by using more printers and
fewer printing presses.
9-38 In the long run
a. all inputs are fixed.
b. a firm is making the optimal input choice when the marginal rate of technical substitution
is equal to the input price ratio.
c. the expansion path shows how the input marginal products change as the firm’s output
level changes.
d. both a and b
e. none of the above
9-39 Which of the following are characteristics of a typical isoquant?
a. All input combinations on the isoquant will produce the same level of output.
b. The marginal rate of technical substitution decreases as more labor is substituted for less
capital.
c. A change in input prices shifts the isoquant map.
d. both a and b
e. none of the above
9-40 A sofa manufacturer currently is using 50 workers and 30 machines to produce 5,000 sofas a day.
The wage rate is $200 and the rental rate for a machine is $1,000. At these input levels, another
worker adds 200 sofas, while another machine adds 500 sofas. If the firm uses 45 workers and 31
machines instead, then its
a. cost will be unchanged, and its output will decrease by 500 units.
b. cost will be unchanged, and its output will increase by 300 units.
c. cost will be unchanged, and its output will increase by 500 units.
d. output will be unchanged, and its cost will decrease by $800.
e. none of the above
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-41 In the following graph, the price of capital is $100 per unit. How many units of capital should a
firm use in order to produce 500 units of output at the least cost?
a. 10 units of capital
b. 12 units of capital
c. 14 units of capital
d. 20 units of capital
e. none of the above
9-42 In the following graph, the price of capital is $100 per unit. What is the marginal rate of technical
substitution at point C?
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
a. 0.14
b. 0.4
c. 1.4
d. 4
e. none of the above
9-43 In the following graph, the price of capital is $100 per unit. If a firm decides that total cost must
not exceed $3,500, what is the maximum amount of output it can produce?
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
a. 100
b. 500
c. 1,000
d. 1,500
e. none of the above
9-44 In the following graph, the price of capital is $100 per unit. Which of the following combinations
of capital and labor lies on the expansion path?
a. 20K, 60L
b. 35K, 140L
c. 50K, 200L
d. all of the above
e. none of the above
9-45 The slope of an isoquant is
a. −∆K/∆L.
b. MPL / MPK.
c. the marginal rate of technical substitution .
d. both a and b
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
e. all of the above
9-46 If the price of labor rises relative to the price of capital, the cost-minimizing ratio of capital usage
to labor usage (i.e., the ratio K/L) will
a. increase.
b. be unchanged.
c. decrease.
d. cannot determine without more information
9-47 Which of the following statements is true?
a. In the short run all inputs are fixed.
b. In the long run a firm is making the optimal input choice when the marginal rate of
technical substitution is equal to the input price ratio.
c. Diminishing returns to labor means that adding one more worker will decrease output.
d. all of the above
e. none of the above
9-48
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
Given the above graph, what is the marginal rate of technical substitution at point A?
a. 0.3
b. 1
c. 1.125
d. 1.67
e. none of the above
9-49
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
Given the above graph, as you move from point A to point B,
a. output is unchanged.
b. cost is unchanged.
c. the rate at which the firm can substitute labor for capital while holding output constant
decreases.
d. both a and b
e. both a and c
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-50
Given the above graph, if the firm continues to produce 45 units of output and moves from point
A to point B, it must be true that
a. the price of labor decreased relative to the price of capital.
b. the price of capital decreased relative to the price of labor.
c. the cost of producing 45 units decreased.
d. both b and c
e. none of these are true
9-51 If the price of labor is $5 and the price of capital is $10, what is the marginal rate of technical
substitution at the optimal input choice?
a. 0.5
b. 2
c. decreasing
d. increasing
e. none of the above
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-52 Which of the following is (are) characteristics of an isocost curve?
a. The slope shows the rate at which the firm can substitute labor for capital while holding
b. total cost constant.
b. The slope shows the rate at which the firm can substitute labor for capital in the market.
c. If the price of capital is unchanged and the price of labor increases, the intercept of the
isocost curve on the horizontal axis will decrease.
d. both a and c
e. all of the above
9-53 A dry cleaner currently has 10 workers and 4 machines. The workers’ wage rate is $300 per
worker and the rental rate for a machine is $500. The last worker added 600 units to total output
and the last machine also added 600 units to total output, and the last machine also added 600
units to total output. If the dry cleaner uses 11 workers and 3 machines instead, then
a. cost will be unchanged and output will increase by 300 units.
b. cost will be unchanged and output will decrease by 200 units.
c. output will be unchanged and cost will decrease by $500.
d. output will be unchanged and cost will decrease by $200.
e. none of the above
9-54 The expansion path
a. shows how the cost−minimizing input choices change as the firm’s output level changes.
b. shifts if the input price ratio changes.
c. is the collection of all input combinations at which the marginal rate of technical
substitution equals the input price ratio.
d. both a and c
e. all of the above
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-55
Given the above graph, as you move from input combination A to input combination C,
a. output is unchanged.
b. cost is unchanged.
c. the marginal rate of technical substitution increases.
d. both a and b
e. all of the above
Chapter 9: PRODUCTION AND COST IN THE LONG RUN
9-56
Given the above graph, the marginal rate of technical substitution at point A is
a. less than 0.25.
b. less than 4.0.
c. greater than 0.25.
d. greater than 4.0.
9-57 The marginal rate of technical substitution is
a. the market rate of exchange between labor and capital.
b. the rate at which the firm can substitute labor for capital while holding total cost constant.
c. the rate at which the firm can substitute labor for capital while holding output constant.
d. both a and b
e. both a and c