Question 1

Refer to the following:
Following is a firm's expansion path. The price of capital is $5 per unit; the price of labor is $2 per unit.

$\begin{array}{ccc}
&\text { Optimal Imput Choice }\
\text { Units of Output } & \text { Units of Capital }&\text { Units of Labor } \
10 & 6 &5 \
20 & 8 & 10 \
30 & 13 & 20 \
\end{array}$
-When output is 20 units, what is long-run average cost?

Accepted Answer

The answer of Refer to the following:
Following is a firm's...

Question 2

Refer to the following:
  The price of capital is $500 per unit.
-Which of the following combinations of capital and labor lies on the expansion path?

Accepted Answer

The answer of Refer to the following:
  The price...

Question 3

Refer to the following:
Following is a firm's expansion path. The price of capital is $5 per unit; the price of labor is $2 per unit.

$\begin{array}{ccc}
&\text { Optimal Imput Choice }\
\text { Units of Output } & \text { Units of Capital }&\text { Units of Labor } \
10 & 6 &5 \
20 & 8 & 10 \
30 & 13 & 20 \
\end{array}$
-How much does the 10th unit of output add to long-run total cost?

Accepted Answer

The 10th unit of output requires 6 units of capital and 5 units of labor. The cost is (6 * $5) + (5 * $2) = $30 + $10 = $40. The 20th unit requires 8 units of capital and 10 units of labor, costing (8 * $5) + (10 * $2) = $40 + $20 = $60. The additional cost for the 10th unit is $60 - $40 = $20. However, the question asks for the cost added by the 10th unit alone, which is the marginal cost of the first 10 units, not the difference between 10 and 20 units. Therefore, the cost of the 10th unit is $4, as it is the average cost per unit for the first 10 units ($40/10).

Question 4

Refer to the following:
  The price of capital is $500 per unit.
-At point A, the firm can exchange

Accepted Answer

At point A, the firm can exchange 1 unit of capital for 5 units of labor and keep output unchanged, indicating a trade-off in the production process while maintaining the same level of output.

Question 5

Refer to the following:
 
-The shift from I to II was due to

Accepted Answer

The answer of Refer to the following:
 
-The shift from...

Question 6

Refer to the following:
Following is a firm's expansion path. The price of capital is $5 per unit; the price of labor is $2 per unit.

$\begin{array}{ccc}
&\text { Optimal Imput Choice }\
\text { Units of Output } & \text { Units of Capital }&\text { Units of Labor } \
10 & 6 &5 \
20 & 8 & 10 \
30 & 13 & 20 \
\end{array}$
-When output is 30 units, what is long-run total cost?

Accepted Answer

The total cost is the sum of the cost of capital and the cost of labor. The cost of capital is $5 per unit, and the cost of labor is $2 per unit. When output is 30 units, the firm uses 13 units of capital and 20 units of labor. Therefore, the total cost is $5 * 13 + $2 * 20 = $105.

Question 7

Refer to the following:
  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?

Accepted Answer

The correct answer is A because the marginal cost is $1.50 per unit.

Question 8

Refer to the following:
  The price of capital is $500 per unit.
-Given a total cost of $50,000, the maximum amount of output possible is

Accepted Answer

The answer of Refer to the following:
  The price...

Question 9

Diseconomies of scale

Accepted Answer

Diseconomies of scale occur when the long-run average cost of a firm increases as its output increases. This is typically due to inefficiencies that arise from managing a larger operation, such as coordination and communication problems.

Question 10

Refer to the following:
 
-What is the marginal rate of technical substitution at point D ?

Accepted Answer

The answer of Refer to the following:
 
-What is the...

Question 11

Refer to the following:
  The price of capital is $500 per unit.
-When output is 10,000 units, what is long-run average cost?

Accepted Answer

The answer of Refer to the following:
  The price...

Question 12

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost, then

Accepted Answer

When long-run average cost equals long-run marginal cost, the long-run average cost is at its minimum point. This is because the marginal cost curve intersects the average cost curve at its lowest point.

Question 13

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

Accepted Answer

Spending $1 more on capital and $1 less on labor will increase output by 10 units.

Question 14

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

Accepted Answer

The answer of If the marginal rate of technical substitution...

Question 15

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

Accepted Answer

The statement mentions "economies associated with bigness," which refers to economies of scale. Economies of scale refer to the concept that as a company grows in size and produces more goods, its long-run average cost (LRAC) decreases due to factors such as better utilization of resources, specialization of labor, and higher bargaining power. Therefore, the correct option is B - long-run average cost decreases as more is produced.

Question 16

Long-run total cost

Accepted Answer

The answer of Long-run total cost
...

Question 17

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

Accepted Answer

The marginal rate of technical substitution (MRTS) is calculated as the ratio of the change in grain to the change in hay. Here, the change in hay is 600 lbs (5600 - 5000) and the change in grain is 800 lbs (6200 - 5400). MRTS = 800/600 = 0.75.

Question 18

Refer to the following:
 
-As you move from point B to point C,

Accepted Answer

The answer of Refer to the following:
 
-As you move...

Question 19

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then

Accepted Answer

The answer of If a firm is producing the level...

Question 20

Refer to the following:
  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?

Accepted Answer

The correct answer is A because the firm should use 300 units of labor to produce 30,000 units of output at the lowest possible cost.

Quiz 9: Production and Cost in the Long Run

Refer to the following: The price of capital is $500 per unit. -Which of the following combinations of capital and labor lies on the expansion path?

Refer to the following: The price of capital is $500 per unit. -At point A, the firm can exchange

Refer to the following: -The shift from I to II was due to

Refer to the following: 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?

Refer to the following: The price of capital is $500 per unit. -Given a total cost of $50,000, the maximum amount of output possible is

Diseconomies of scale

Refer to the following: -What is the marginal rate of technical substitution at point D ?

Refer to the following: The price of capital is $500 per unit. -When output is 10,000 units, what is long-run average cost?

If a firm is producing the level of output at which long-run average cost equals long-run marginal cost, then

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

You overhear a businessman say: "We want to be big because there are economies associated with bigness." What he means is that

Long-run total cost

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

Refer to the following: -As you move from point B to point C,

If a firm is producing the level of output at which short-run average cost equals long-run average cost, then

Refer to the following: 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?