Deck 7: Production Inputs and Cost Building Blocks for Supply Analysis

Question 1

The "law" of diminishing returns asserts that marginal returns will ultimately diminish when the quantity of one input is increased.

Answer 1

True

Question 2

In the short run the firm has at least one fixed input.

Answer 2

True

Question 3

Average physical product measures the output per unit of input.

Answer 3

True

Question 4

Marginal physical product measures the increase in total output that results from a one-unit increase in an input.

Question 5

In the long run, more costs become fixed.

Question 6

Fixed cost increases when output rises.

Question 7

The long run is a period long enough so that one of the firm's commitments ends.

Question 8

The "law" of diminishing returns rests on the "law" of variable input proportions.

Question 9

If MRP > P, a firm should use less of that input.

Question 10

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Question 11

Average physical product measures the increase in total output that results from a one-unit increase in an input.

Question 12

Variable costs increase when output rises.

Question 13

Total physical product is maximized if marginal physical product is zero.

Question 14

Firms should use a resource up to a point where MRP = P.

Question 15

In most businesses there is only one way to produce output.

Question 16

In the short run the firm has no more than one fixed input.

Question 17

Total physical product shows what happens to the quantity of an output when the firm changes the quantity of an input.

Question 18

Marginal revenue product equals the marginal physical product multiplied by the quantity demanded.

Question 19

The short run is that period during which there are no fixed commitments.

Question 20

In the short run, a firm has fixed costs but never any variable costs.

Question 21

Input proportions are usually fixed by technological conditions alone.

Question 22

If the price of one input changes, generally the firm will change its use of both inputs.

Question 23

The rule that states that the marginal revenue product equal to price does not hold when there are more than two inputs.

Question 24

Most firms have very little flexibility in their choice of input proportions.

Question 25

The average total cost curve of a firm is U-shaped.

Question 26

The least costly combination of inputs is influenced by the relative prices of inputs.

Question 27

A firm will tend to select the least costly input combination to produce its output.

Question 28

A rise in the price of an input can be expected to lead to a rise in its marginal physical product.

Question 29

If the price of one input changes, the firm will change its use of that input only.

Question 30

Input choices in the present are often affected by past decisions.

Question 31

The marginal cost curve shows the per-unit cost associated with various levels of output.

Question 32

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

Question 33

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Question 34

A total cost curve shows the largest amount of a product a firm can produce with a minimum cost.

Question 35

If MPP_a/P_a > MPP_b/P_b, then the proportions of these two inputs is optimal.

Question 36

If a firm is using optimal input proportions, it is minimizing its costs.

Question 37

Production technology determines the relationship of total cost to outputs.

Question 38

Total fixed cost falls as output expands.

Question 39

The average cost curve shows the total cost divided by quantity produced for various levels of output.

Question 40

The average fixed cost curve increases as output increases.

Question 41

The behavior of historical cost curves says nothing about the cost advantages or disadvantages of a single large firm.

Question 42

If significant economies of scale are present, large firms will be much more efficient producers than small firms.

Question 43

Cost curves in the long run differ from cost curves in the short run.

Question 44

Higher production indifference curves correspond to larger amounts of one input in relation to a second input.

Question 45

For most industries, average costs decrease indefinitely as output expands.

Question 46

The firm's average cost curve is the result of cost minimization in the use of fixed inputs.

Question 47

Economies of scale lead to declining long-run average cost curves.

Question 48

The different points on a cost curve represent alternative production possibilities in the same time period.

Question 49

A production indifference curve shows all combinations of input quantities capable of producing a given quantity of output.

Question 50

Production indifference curves generally have a positive slope.

Question 51

Production indifference curves show the combination of inputs that produce a given output.

Question 52

Firms choose the highest indifference curve they can obtain given the lowest possible budget line.

Question 53

The short-run average cost curve shows the lowest possible average cost corresponding to each output level, assuming that all inputs are variable.

Question 54

A change in input prices will change the location of the budget line.

Question 55

The expansion path of product indifference curves shows the cost-minimizing combination of inputs.

Question 56

The principal determinants of total and average cost curves are the firm's technology and the prices of its inputs.

Question 57

Economies of scale are also called increasing returns to scale.

Question 58

Product indifference curves bow inward toward the origin because of diminishing returns to substitution of inputs.

Question 59

The law of diminishing marginal returns is the same as increasing returns to scale.

Question 60

A change in input prices has no impact on the budget line.

Question 61

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.

Question 62

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.

Question 63

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.

Question 64

Table 7-2

Table 7-2 contains information on widget production.The marginal physical product of the sixth pound of plastic is ____.

A)(19/7) − (17/6)
B)1/3
C)2
D)3

Question 65

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.

Question 66

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.

Question 67

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.

Question 68

Table 7-1

In Table 7-1, the marginal physical product of labor after the addition of the fourth worker is

A)8.
B)7.
C)10.
D)5.

Question 69

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.

Question 70

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.

Question 71

A production indifference curve describes the input combinations that will produce a given output.

Question 72

Table 7-2

Table 7-2 contains information on widget production.The average physical product of the seventh pound of plastic is calculated as ____.

A)9/25
B)2
C)25/9
D)19/7

Question 73

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

Question 74

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.

Question 75

Table 7-1

The marginal physical product of an input is the

A)addition to output from using one more unit of an input.
B)extra amount of an input needed to produce one additional unit of output.
C)change in average physical product, given a change in the quantity of an input.
D)slope of the production indifference curve for an output made using the input.

Question 76

A change in one input price will cause the slope of the budget line to change.

Question 77

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.

Question 78

Table 7-1

In which zone does the total physical product reach it maximum value?

A)Increasing marginal return
B)Negative marginal return
C)Diminishing marginal return
D)Decreasing total physical product

Question 79

Table 7-1

In Table 7-1, the average physical product after five workers are hired is

A)5.
B)6.
C)7.
D)8.

Question 80

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.