Chapter 22: The Firm: Cost and Output Determination

Economists generally define the short run as being that period of time in which at least one of the firm's inputs, usually plant size, is fixed. that period of time in which all inputs are variable. any period of time less than one year. any period of time less than six months. Answer: A

Which of the following is a short-run decision for a firm? downsizing the firm's manufacturing plant expanding the firm's distribution network of long-haul freight trucks and smaller delivery trucks. firing workers investing in a new addition to the firm's manufacturing plant Answer: C

Production functions indicate the relationship between factor costs and output prices. factor inputs and the quantity of output. the value of inputs and average costs. factor inputs and factor prices. Answer: B

Suppose that one worker can produce 15 cookies, two workers can produce 35 cookies together, and three workers can produce 65 cookies together. What is the marginal product of the third worker? 21.67 cookies 65 cookies 30 cookies 35 cookies Answer: C

Refer to the figure below. The curve reflects the law of diminishing marginal product in labor. the law of increasing marginal product in labor. the law of diminishing marginal product in capital. the law of increasing marginal product in capital. Answer: A

will be at its maximum value. As long as marginal product of labor exceeds the average product of labor, then average product of labor must fall. must rise. will stay unchanged. will be at its maximum value. Answer: B

The firm's short-run costs contain only variable costs. only fixed costs. both variable and fixed costs. only opportunity costs. Answer: C

Refer to the table below Refer to the table below. At an output of 4 units, average variable costs are $16. $22. $38.50. $44. Answer: A

Marginal cost begins to rise when diminishing marginal product begins. diminishing marginal product ends. average total cost falls. fixed cost falls. Answer: A

Which of the following statements is correct? Average variable costs always exceed average total costs. Average fixed costs are constant. Average variable cost reaches its minimum when average product equals its maximum. Average fixed costs are always less than average variable costs. Answer: C

marginal costs increase. marginal costs decrease. If the price of labor is constant and a firm experiences diminishing marginal product, then its marginal costs increase. marginal costs decrease. fixed costs increase. total costs decrease. Answer: A

In economics, the planning horizon is defined as 10 years for every firm. the longest time period over which the firm can make decisions. the period of time for which technology is fixed. the long run, during which all inputs are variable. Answer: D

The long-run average cost curve is always a downward-sloping, straight line. is a curve thatis tangent to each member of a set of short-run average cost curves. is identical to the marginal cost curve. should always be horizontal. Answer: B

minimum efficient time period. non-adjustment period. The long run is defined as a time period during which full adjustment can be made to any change in the economic environment. Thus in the long run, all factors of production are variable. Long-run curves are sometimes called planning curves, and the long run is sometimes called the foreseeable future. minimum efficient time period. non-adjustment period. planning horizon. Answer: D

the dimensional factor improved productive equipment depreciation Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale? specialization the dimensional factor improved productive equipment depreciation Answer: D

exploiting the economies of scale available to it. Suppose a firm doubles its output in the long run. At the same time the unit cost of production remains unchanged. We can conclude that the firm is exploiting the economies of scale available to it. facing constant returns to scale. facing diseconomies of scale. not using the available technology efficiently. Answer: B

diminishing marginal product. constant returns to scale. In the figure below, the long-run cost curve between points A and B illustrates diseconomies of scale. diminishing marginal product. constant returns to scale. economies of scale. Answer: D

In the figure below, point B is called the maximum efficient scale. the minimum efficient scale. the planning horizon. the point of diminishing marginal product. Answer: B

Minimum efficient scale is the point at which economies of scale begin for a particular firm. is the lowest rate of output per unit of time at which long-run average costs reach a minimum for a particular firm. applies only to firms with U-shaped long-run average cost curves. is the point at which diseconomies of scale begin for a particular firm. Answer: B

constant returns of scale. minimum efficient scale. The lowest rate of output per unit of time at which long-run average costs for a particular firm are at a minimum is economies of scale. diseconomies of scale. constant returns of scale. minimum efficient scale. Answer: D

maximum efficient scale. minimum efficient scale. The lowest rate of output per unit of time at which long-run average costs for a firm are at a minimum defines maximum efficient scale. minimum efficient scale. allowable efficient scale. short-run efficient scale. Answer: B