Principles of Microeconomics, 7E (Case/Fair)

Principles of Microeconomics, 8e (Case/Fair) Chapter 7: The Production Process: The Behavior of Profit-Maximizing Firms

The Behavior of Profit Maximizing Firms

Multiple Choice Refer to the information provided in Figure 7.1 below to answer the questions that follow.

Figure 7.1

147 Refer to 7.1. Panel _____ represents the demand curve facing a perfectly competitive producer of wheat. Figure A)

148 A B)

149 B C)

150 C D)

151 D Answer:

152 B Diff: 2 Type: A

153 Jerry sno-cones along the boardwalk in New Jersey. During the summer this is a perfectly sells competitive business, and Jerry faces a perfectly elastic demand curve. If he wants to try to cherry increase revenues he should A)

154 raise the price of his sno-cones to make more per sale. B)

155 lower the price of his sno-cones to try to sell more. C)

156 keep the price the same but produce more to increase sales. D)

157 do nothing; there is nothing he can do to increase revenue. Answer:

158 C Diff: 3 Type: C

159 A firm in a perfectly competitive market has no control over price because A)

160 the imposes price ceilings on the products produced in perfectly competitive industries. government B)

161 there is free entry and exit from the industry. C)

162 every firm's product is a perfect substitute for every other firm's product. D)

163 the market demand for products produced in perfectly competitive industries is perfectly elastic. Answer:

164 C Diff: 1 Type: F

165 The closest example of a perfectly competitive industry is A)

166 fast foods. B)

167 beer. C)

168 gasoline stations. D)

169 soybeans. Answer:

170 D Diff: 3 Type: C

171 Total revenue minus total cost is equal to A)

172 the rate of return. B)

173 marginal revenue. C)

174 profit. D)

175 net cost. Answer:

Refer to the information provided in Figure 7.2 below to answer the following questions.

Figure 7.2

177 6)

178 Refer to 7.2. This corn producer produces 100 bushels of corn and sells each bushel at $5. The cost of Figure producing each unit bushel is $2. This corn producer's total revenue is A)

179 $20. B)

180 $200. C)

181 $300. D)

182 $500. Answer:

183 D Diff: 2 Type: A

184 Refer to 7.2. This corn producer earns a total revenue of $900. Each bushel of corn is sold for $5. This Figure corn producer must be selling ______bushels of corn. A)

185 180 B)

186 450 C)

187 900 D)

188 4,500 Answer:

189 A Diff: 2 Type: A

190 The Wax sells 400 candles at a price of $10 per candle. The Wax Works' total costs for producing 400 Works candles are $500. The Wax Works' economic profit is A)

191 $100. B)

192 $3,500. C)

193 $4,500. D)

194 indeterminate from this information. Answer:

196 Economi c costs A)

197 include both a normal rate of return on investment and the opportunity cost of each factor of production. B)

198 are equal to the direct costs of hiring all factors of production. C)

199 are the cost of each factor of production minus any interest charges paid on borrowed funds. opportunity D)

200 are equal to total revenue minus accounting profit. Answer:

201 A Diff: 2 Type: D

202 10)

203 The Success Bakery sells 400 cakes at a price of $10 per cake. Its total costs for producing 400 cakes Sweet are $500. The Sweet Success Bakery's economic profits are A)

204 $100. B)

205 $3,500. C)

206 $4,500. D)

209 The Oh Humble Bakery sells 300 muffins at a price of $1 per muffin. Its explicit costs for producing 300 So muffins are $250. The Oh So Humble Bakery's economic profits are A)

210 $35. B)

211 $50. C)

212 $250. D)

215 If economic profit is zero, a firm A)

216 earns a negative rate of return. B)

217 will leave the industry. C)

218 earns a positive but below normal rate of return. D)

219 earns exactly a normal rate of return. Answer:

220 D Diff: 2 Type: D

221 You own that has four possible uses: a cafe, a craft store, a hardware store, and a bookstore. The value of a the building in each use is $2,000; $3,000; $4,000; and $5,000, respectively. You decide to open a building hardware store. The opportunity cost of using this building for a hardware store is A)

222 $2,000, the value if the building is used as a cafe. B)

223 $3,000, the value if the building is used as a craft store. C)

224 $10,000, the sum of the values if the building is used for a cafe, a craft store, or a bookstore. D)

225 $5,000, the value if the building is used for a bookstore. Answer:

Refer to the information provided in Scenario 1 below to answer the questions that follow.

SCENARIO 1: You are the owner and only employee of a company that writes computer software that is used by gamblers to collect sports data. Last year you earned a total revenue of $90,000. Your costs for equipment, rent, and supplies were $60,000. To start this business you invested an amount of your own capital that could pay you a return of $40,000 a year.

227 Refer to Scenario 1. During the year your economic costs were A)

228 $40,000. B)

229 $60,000. C)

230 $100,000. D)

231 $130,000. Answer:

232 C Diff: 2 Type: A

233 Refer to Scenario 1. A yearly normal rate of return for your computer software firm would be A)

234 $20,000. B)

235 $40,000. C)

236 $60,000. D)

237 $100,000. Answer:

239 Refer to Scenario 1. Your accounting profit last year was A)

240 $10,000. B)

241 $30,000. C)

242 $50,000. D)

243 $60,000. Answer:

245 Refer to Scenario 1. Your economic profit last year was A)

246 -$40,000. B)

247 -$10,000. C)

248 $10,000. D)

249 $30,000. Answer:

Refer to the information provided in Scenario 2 below to answer the questions that follow.

SCENARIO 2: You are the owner and only employee of a company that sets odds for sporting events. Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a return of $20,000 a year.

251 18)

252 Refer to Scenario 2. During the year your economic costs were A)

253 $70,000. B)

254 $60,000. C)

255 $50,000. D)

256 $20,000. Answer:

258 Refer to Scenario 2. A yearly normal profit for your company is A)

259 $20,000. B)

260 $40,000. C)

261 $60,000. D)

262 $100,000. Answer:

264 Refer to Scenario 2. Your accounting profit last year was A)

265 $10,000. B)

266 $30,000. C)

267 $50,000. D)

268 $60,000. Answer:

270 Refer to Scenario 2. Your economic profit last year was A)

271 -$40,000. B)

272 -$10,000. C)

273 $10,000. D)

274 $30,000. Answer:

276 There in Atlanta. An economist studying the pricing behavior of dog kennels tells you that she is are 100 limiting her analysis to a time period that does not allow for any new dog kennels to enter the dog industry or for any established dog kennels to leave the industry. The time period this kennels economist referred to is the A)

277 market period. B)

278 industry run. C)

279 long run. D)

280 short run. Answer:

282 23)

283 In the long run, A)

284 a firm can shut down, but it cannot exit the industry. B)

285 there are no fixed factors of production. C)

286 a firm can vary all inputs, but it cannot change the mix of inputs it uses. D)

287 all firms must make economic profits. Answer:

288 B Diff: 3 Type: C

Refer to the information provided in the figure below to answer the questions that follow.

289 Refer to figure above. Assuming wool is a perfectly competitive industry, the demand curve faced by the each wool producer is ______starting at $3.00 per pound. A)

290 downward sloping B)

291 upward sloping C)

292 vertical D)

293 horizontal Answer:

294 D Diff: 1 Type: F

Refer to the information provided in the figure below to answer the questions that follow.

295 25)

296 Refer to above. The demand curve faced by each coffee producer is ______starting at $4.00 per figure pound. A)

297 downward sloping. B)

298 upward sloping. C)

299 vertical. D)

300 horizontal. Answer:

302 A market demand curve is ______. A)

303 downward sloping B)

304 upward sloping C)

305 perfectly elastic D)

306 perfectly inelastic Answer:

308 If a firm in a perfectly competitive industry raises price above market price, A)

309 total revenue for the firm will increase. B)

310 profit will increase. C)

311 sales will drop to zero. D)

312 demand curves will become downward sloping. Answer:

314 A perfectly elastic demand curve implies that, ceteris paribus, A)

315 a firm can sell more by lowering its price. B)

316 if a firm raises its price above the market price, quantity demanded will equal zero. C)

317 the price a firm charges is irrelevant, as it will sell the same amount regardless of the price charged. D)

318 a firm can raise its price and not lose all its customers. Answer:

319 B Diff: 1 Type: F

320 Assume industry is perfectly competitive. Why is it difficult for a wool producer to make excess profits? the wool A)

321 The fact that wool producers are "price takers." B)

322 The assumption that wool producers in the industry do not "differentiate" their products. C)

323 The fact that the demand curve facing each wool producer is perfectly elastic. D)

324 There is free entry into the wool industry. Answer:

326 Assume industry is perfectly competitive. The market demand curve for wool is ______and each the wool individual wool producer's demand curve is ______. A)

327 downward sloping; horizontal B)

328 horizontal; downward sloping C)

329 horizontal; horizontal D)

330 downward sloping; downward sloping Answer:

331 A Diff: 3 Type: C

332 Free entry implies that A)

333 a perfectly competitive firm can never earn a profit. B)

334 if firms in an industry are making excessively high profits, new firms are likely to enter the industry. C)

335 the government regulates the number of firms that are allowed in an industry. D)

336 firms will always earn a profit, as new firms can enter the industry at any time they like. Answer:

337 B Diff: 2 Type: D

338 The fast- food industry is not considered perfectly competitive because: A)

339 entry and exit are strictly regulated by the government. B)

340 the firm's products are not homogeneous. C)

341 firms spend a large amount of money on advertising. D)

342 there are a very large number of firms. Answer:

True/False 1)

344 Perfectly competitive industries are characterized by a homogeneous product. Answer:

345 TRUE Diff: 1 Type: F

346 Demand for the product of an industry in perfect competition is assumed to be inelastic. Answer:

347 FALSE Diff: 1 Type: F

348 If Harold grocery store and is making a normal rate of return, we can infer that he is also making an runs a economic profit. Answer:

349 FALSE Diff: 2 Type: D

350 4)

351 If a firm makes an economic profit, it is making at least a normal rate of return. Answer:

352 TRUE Diff: 2 Type: D

353 In the short run, firms can enter an industry but not exit an industry. Answer:

355 For economic analysis, the short run is considered less than one year. Answer:

356 FALSE Diff: 2 Type: D

357 Deciding to invest in capital is a short-run decision. Answer:

The Production Process

Multiple Choice 1)

359 The optimal method of production is the one that A)

360 maximizes output regardless of cost. B)

361 maximizes inputs. C)

362 minimizes cost. D)

363 minimizes the normal rate of return. Answer:

365 An act of production, as economists use the term, is demonstrated by which of the following? A)

366 A worker placing money in a pension fund B)

367 A local nonprofessional theater company performing a play C)

368 An individual buying municipal bonds to avoid taxes D)

369 All of the above Answer:

371 Use the information provided in Table 7.1 below to answer the questions that follow.

Table 7.1 Inputs Required to Produce a Product Using Alternative Technologies

372 Refer to Table 7.1 above. Which technology is the most labor intensive? A)

373 A B)

374 B C)

375 C D)

376 D Answer:

378 Refer to 7.1. If the hourly wage rate is $7 and the hourly price of capital is $10, which production Table technology should be selected? A)

379 A B)

380 B C)

381 C D)

382 D Answer:

Use the information provided in Table 7.2 below to answer the questions that follow.

Table 7.2 Inputs Required to Produce a Product Using Alternative Technologies

384 Refer to Table 7.2. Which technology is the most capital intensive? A)

385 A B)

386 B C)

387 C D)

388 D Answer:

390 6)

391 Refer to 7.2. If the hourly wage rate is $10 and the hourly price of capital is $50, which production Table technology should be selected? A)

392 A B)

393 B C)

394 C D)

395 D Answer:

397 Refer to 7.2. If the hourly price of labor is $10 and the hourly price of capital is $1, which production Table technology should be selected? A)

398 A B)

399 B C)

400 C D)

401 D Answer:

403 Refer to Table 7.2. Which technology is the most labor intensive? A)

404 A B)

405 B C)

406 C D)

407 D Answer:

Refer to the information provided in Figure 7.3 below to answer the questions that follow.

Figure 7.3

409 9)

410 Refer to Figure 7.3. The marginal product of the second worker is ______lawns moved. A)

411 4 B)

412 5 C)

413 5.5 D)

414 11 Answer:

416 Refer to Figure 7.3. The average product of the second worker is ______lawns moved. A)

417 4 B)

418 5 C)

419 5.5 D)

420 11 Answer:

Figure 7.4

422 Refer to Figure 7.4. The marginal product of the second worker is ______yards raked. A)

423 2 B)

424 13.5 C)

425 17 D)

426 27 Answer:

428 12)

429 Refer to Figure 7.4. The average product of the second worker is ______yards raked. A)

430 4 B)

431 13.5 C)

432 14 D)

433 27 Answer:

435 When hires one worker, 20 customers can be served in an hour. When Burger Barn hires two workers, Burger 50 customers can be served in an hour. The marginal product of the second worker is Barn ______customers served per hour. A)

436 15 B)

437 30 C)

438 40 D)

439 67.5 Answer:

441 At the d Pet Salon the marginal products of the first, second, and third workers are 20, 16, and 10 dogs Pampere washed, respectively. The total product (number of dogs washed) of the three worker is A)

442 15.33. B)

443 30. C)

444 46. D)

445 138. Answer:

447 At the the marginal products of the first, second, and third salesclerks are 20, 17, and 11 customers Larson served, respectively. The total product (number of customers served) of the three salesclerks is Bakery A)

448 11. B)

449 40. C)

450 46. D)

451 48. Answer:

453 Refer to the information provided in Figure 7.5 below to answer the questions that follow.

Figure 7.5

454 Refer to Figure 7.5. The marginal product of the second worker is A)

455 10. B)

456 16. C)

457 20. D)

458 32. Answer:

460 Refer to Figure 7.5. The marginal product of the fourth worker is A)

461 8. B)

462 12.5. C)

463 48. D)

464 92. Answer:

466 Refer to Figure 7.5. The marginal product of the sixth worker is A)

467 -50. B)

468 -5. C)

469 5. D)

470 8.33. Answer:

472 19)

473 Refer to Figure 7.5. The average product of the third worker is A)

474 10. B)

475 14. C)

476 30. D)

477 126. Answer:

479 Refer to Figure 7.5. The average product of the fifth worker is A)

480 1. B)

481 2.5. C)

482 5. D)

483 11. Answer:

485 Refer to Figure 7.5. The average product of the sixth worker is A)

486 -8.33. B)

487 -5. C)

488 5. D)

489 8.33. Answer:

491 Refer to Figure 7.5. Diminishing marginal returns begin when the ______worker is hired. A)

492 first B)

493 second C)

494 third D)

495 fifth Answer:

497 If marginal returns have already set in for The Picture Perfect Framing Store and the marginal diminish product of the fifth picture framer is 20, then the marginal product of the sixth picture framer ing must be A)

498 negative. B)

499 zero. C)

500 less than 20. D)

501 greater than 20. Answer:

502 C Diff: 2 Type: D

503 24)

504 If labor variable input in production, the law of diminishing marginal returns implies that in the short is a run A)

505 labor's marginal product is constant. B)

506 labor's marginal product decreases after a certain point. C)

507 total product is negative. D)

508 total product is negative after a certain point has been reached. Answer:

Figure 7.6

510 Refer to Figure 7.6. Diminishing marginal returns set in after the ______worker is hired. A)

511 first B)

512 fifth C)

513 eighth D)

514 sixteenth Answer:

516 If the marginal product of labor is less than the average product of labor, then the A)

517 marginal product must be increasing. B)

518 average product must be decreasing. C)

519 marginal product must be decreasing. D)

520 Both B and C Answer:

522 27)

523 The version of the law of diminishing returns that applies to production A)

524 implies that as we add more workers our output decreases. B)

525 applies only in the short run. C)

526 is true only when all inputs are variable. D)

527 applies in the short and long run. Answer:

529 Suppose with labor input in the following manner: output varies, ceteris paribus, After how many units of labor do diminishing returns set in? A)

530 3 B)

531 4 C)

532 5 D)

533 They do not set in Answer:

535 When total product is maximized, marginal product A)

536 and average product are zero. B)

537 is positive but average product is zero. C)

538 is zero but average product is positive. D)

539 and average product are positive. Answer:

541 At the point where total product is maximized, marginal product A)

542 is zero, but average product is still positive. B)

543 and average product are negative. C)

544 is positive, but average product is negative. D)

545 and average product are positive. Answer:

546 A Diff: 1 Type: F

547 If marginal product is greater than average product, then A)

548 average product must be decreasing. B)

549 marginal product must be decreasing. C)

550 marginal product must be increasing. D)

551 marginal product could either be increasing or decreasing. Answer:

553 If we assume that labor is the only variable input, the slope of the total product curve in the short run A)

554 has no economic significance. B)

555 measures the average product of labor. C)

556 measures the marginal product of labor. D)

557 measures both the marginal and average product depending where on the total product curve we are. Answer:

559 You own business that answers telephone calls for physicians after their offices close. You have an a incentive to substitute capital for labor if the A)

560 price of capital increases. B)

561 price of labor decreases. C)

562 price of labor increases. D)

563 marginal product of labor increases. Answer:

565 Firms have an incentive to substitute labor for capital as the A)

566 price of capital increases. B)

567 price of capital decreases. C)

568 price of labor increases. D)

569 marginal product of labor decreases. Answer:

571 The specific technology chosen by a profit-maximizing clothing manufacturer depends on A)

572 input prices. B)

573 output prices. C)

574 demand for the output. D)

575 supply of the output. Answer:

577 Refer to the information provided in Figure 7.7 below to answer the questions that follow.

Figure 7.7

578 Refer to 7.7. If this shoe manufacturer increases labor from 15 to 20, the marginal product of the 20th Figure worker A)

579 is zero, as the total number of shoes produced remains at 50. B)

580 is 8.5, as capital can be reduced by 8.5 units when the 20th worker is hired. C)

581 cannot be determined because output remains constant. D)

582 cannot be determined because both capital and labor have been increased. Answer:

584 Refer to 7.7. If the price of capital is $10 and the price of labor is $20, the optimal product technique is Figure A)

585 A. B)

586 B. C)

587 C. D)

588 D. Answer:

590 Assume labor and capital have remained the same, but that the average educational level of workers that the has increased and therefore the productivity of labor has increased. This would lead a firm to price of A)

591 use a more capital-intensive production technology. B)

592 use a more labor-intensive technology. C)

593 not change its production technology, but to produce fewer units of output. D)

594 use only labor to produce the product. Answer:

596 39)

597 Assume capital and labor are complementary inputs. If the firm increases the amount of capital it that employs, this would A)

598 cause the firm to move down along the MP schedule for labor. B)

599 cause the firm to move up along its MP schedule for labor. C)

600 shift the firm's MP schedule for labor to the left. D)

601 shift the firm's MP schedule for labor to the right. Answer:

603 The cost minimizing equilibrium condition can be written as A)

604 MPL = MPK. B)

605 PL = PK. C)

606 (MPL)(PL) = (MPK)(PK). D)

607 MPL/PL = MPK/PK. Answer:

609 If the derived from the last dollar spent on labor is greater than the product derived from the last product dollar spent on capital, then the firm A)

610 is minimizing costs. B)

611 should use more labor and less capital to minimize costs. C)

612 should use less labor and more capital to minimize costs. D)

613 should increase the price paid to labor and decrease the price paid to capital to minimize costs. Answer:

615 If the derived from the last dollar spent on labor is less than the product derived from the last dollar product spent on capital, then the firm A)

616 is minimizing costs. B)

617 should use more labor and less capital to minimize costs. C)

618 should use less labor and more capital to minimize costs. D)

619 should increase the price paid to labor and decrease the price paid to capital to minimize costs. Answer:

621 43)

622 If t is earning a rate of return greater than the return necessary for the business to continue Microsof operations in the long run, then A)

623 total costs exceed total revenue. B)

624 total costs exceed a normal rate of return. C)

625 the normal rate of return is zero. D)

626 the firm is earning an economic profit. Answer:

628 If is earning a rate of return less than necessary for the business to continue operations, then Pets.com A)

629 total revenue exceeds economic costs. B)

630 economic costs exceed total revenue. C)

631 normal profit is zero. D)

632 economic profit is zero. Answer:

634 You are normal rate of return is 18% for the computer industry. What do you expect for a normal rate of certain return in the computer software industry, which is considered to be much riskier than the that a computer industry? A)

635 18% B)

636 Less than 18% C)

637 Above 18% D)

638 The rate on government bonds Answer:

640 The formula for the marginal product of labor is A)

641 L/q. B)

642 (ΔL)(Δq). C)

643 q/L. D)

644 Δq/ΔL. Answer:

646 47)

647 Assume of two workers is 100 and the total product of three workers is 120. The average product of the the total third worker is ______, and the marginal product of the third worker is ______. product A)

648 40; 20 B)

649 20; 40 C)

650 13.33; 6.67 D)

651 120; 100 Answer:

653 Assume of two workers is 130 and the total product of three workers is 150. The average product of the the total third worker is ______, and the marginal product of the third worker is ______. product A)

654 40; 10 B)

655 50; 20 C)

656 13.33; 6.67 D)

657 120; 100 Answer:

659 Assume product of two workers is 80 and the total product of three workers is 90. The average product the total of the third worker is ______, and the marginal product of the third worker is ______. A)

660 10; 30 B)

661 30; 10 C)

662 10; 13.33 D)

663 160; 270 Answer:

665 Assume of three workers is 120 and the total product of four workers is 160. The average product of the the total third worker is ______, and the marginal product of the fourth worker is ______. product A)

666 10; 30 B)

667 30; 10 C)

668 40; 40 D)

669 160; 40 Answer:

671 51)

672 When Salsa House hires one worker, 30 customers can be served in an hour. When Burning Bob's Burning Salsa House hires two workers, 50 customers can be served in an hour. The marginal product Bob's of the second worker is ______customers served per hour. A)

673 20 B)

674 30 C)

675 50 D)

676 67.5 Answer:

678 Write out the formula for the average product of labor. A)

679 Δq/ΔL B)

680 ΔL/Δq C)

681 q/L D)

682 L/q Answer:

684 If the marginal product of labor equals the average product of labor, then the A)

685 average product is maximized. B)

686 marginal product is maximized. C)

687 marginal product is still increasing. D)

688 average product is still increasing. Answer:

690 As a firm's expenditures for capital and labor increase, its isocost line A)

691 shifts out parallel to the original isocost line. B)

692 shifts in parallel to the original isocost line. C)

693 rotates outward on the Y-intercept. D)

694 rotates outward on the X-intercept. Answer:

696 As a firm's expenditures for capital and labor decrease, its isocost line A)

697 shifts out parallel to the original isocost line. B)

698 shifts in parallel to the original isocost line. C)

699 rotates outward on the Y-intercept. D)

700 rotates outward on the X-intercept. Answer:

702 True/False 1)

703 If the produces five custom picture frames a day, and the second worker produces five additional first custom picture frames a day, it is clear that diminishing marginal returns have not yet set in. worker Answer:

705 One produces 5 rocking chairs. To produce 10 rocking chairs it will be necessary to hire more than worker two workers, if diminishing returns have set in. Answer:

707 A on function shows the least amount that a firm will produce given the amount of labor input. producti Answer:

Choice of Technology

Multiple Choice 1)

709 Costs of production are determined A)

710 only by the technologies that are available. B)

711 only by the input prices that are available. C)

712 by the technologies that are available and by input prices. D)

713 by the technologies that are available and by the demand for the output. Answer:

Appendix

Multiple Choice 1)

715 A graph all the combinations of capital and labor that can be used to produce a given amount of output showing is a(n) A)

716 indifference curve. B)

717 isoquant. C)

718 isocost line. D)

719 production function. Answer:

721 Use the information provided in the Figure 7.8 below to answer the questions that follow.

Figure 7.8 2)

722 Refer to 7.8 above. If Roller Skates Unlimited moves from isoquant A to isoquant B, the number of roller Figure skates produced A)

723 decreases. B)

724 increases. C)

725 remains constant, but Roller Skates Unlimited uses more capital and more labor. D)

726 remains constant, but input prices have risen. Answer:

Use the information provided in the Figure 7.9 below to answer the questions that follow.

Figure 7.9

728 Refer to 7.9 above. If Roller Skates Unlimited moves from isoquant B to isoquant A, the number of roller Figure skates produced A)

729 decreases. B)

730 increases. C)

731 remains constant, but Roller Skates Unlimited uses more capital and more labor. D)

732 remains constant, but input prices have risen. Answer:

734 4)

735 Isoquant s are downward sloping because A)

736 as more units of an input are used to produce a product, total cost increases. B)

737 as more units of an input are used to produce a product, the firm's marginal productivity increases. C)

738 if more of one input is used, then less of the other input must be used to keep output constant. D)

739 Both B and C Answer:

741 A graph showing all the combinations of capital and labor available for a given total cost is the A)

742 isocost line. B)

743 isoquant. C)

744 budget constraint. D)

745 expenditure set. Answer:

Figure 7.10

747 Refer to Figure 7.10. If the price of capital is $20, then along isocost line AB total cost is A)

748 $300. B)

749 $1200. C)

750 $2400. D)

751 indeterminate from this information, as the price of labor is not given. Answer:

753 7)

754 Refer to 7.10. The firm is currently along isocost CD. If the price of capital is $20, then the price of labor Figure is A)

755 $4. B)

756 $20. C)

757 $80. D)

760 Refer to Figure 7.10. The firm's isocost line would shift from CD to CE if A)

761 the price of capital fell. B)

762 the firm's total expenditure on inputs increased. C)

763 the price of labor fell. D)

764 either the price of labor fell or the firm's total expenditure on inputs increased. Answer:

766 Refer to Figure 7.10. The slope of isocost AB is A)

767 -1. B)

768 0. C)

769 1. D)

770 indeterminate from this information, as the prices of capital and labor are not given. Answer:

772 Refer to Figure 7.10 The firm's isocost line could shift from CD to AB if A)

773 the price of capital increased. B)

774 the firm's total expenditures increased by 25%. C)

775 the price of capital and labor each increased by 25%. D)

776 the firm's total expenditures decreased by 25% or the price of capital and labor each increased by 33%. Answer:

778 Refer to Figure 7.10. The general formula for the slope of any of the isocost lines is A)

779 -PK/PL. B)

780 -PL/PK. C)

781 TC/PL. D)

782 TC/PK. Answer:

784 12)

785 Refer to Figure 7.10. If the price of capital is $40, then along isocost line AB total cost is A)

786 $300. B)

787 $1,200. C)

788 $2,400. D)

789 indeterminate from this information, as the price of labor is not given. Answer:

Figure 7.11

791 Refer to 7.11. The firm is currently along isocost CD. If the price of capital is $30, then the price of labor Figure is A)

792 $4. B)

793 $30. C)

794 $180. D)

797 Refer to Figure 7.11. The firm's isocost line would shift from CE to CD if A)

798 the price of capital rises. B)

799 the firm's total expenditure on inputs decreased. C)

800 the price of labor rises. D)

801 either the price of labor fell or the firm's total expenditure on inputs decreased. Answer:

803 15)

804 Refer to Figure 7.11. The slope of isocost AB is A)

805 -1. B)

806 0. C)

807 1. D)

808 indeterminate from this information, as the prices of capital and labor are not given. Answer:

810 Refer to Figure 7.11. The firm's isocost line could shift from AB to CD if A)

811 the price of capital decreased. B)

812 the firm's total expenditures increased by 50%. C)

813 the price of capital and labor each decreased by 50%. D)

814 Either B or C Answer:

Figure 7.12

816 Refer to 7.12. If this firm's cost of capital is $20 per unit and its cost of labor is $10 per unit, the isocost Figure line represents a total cost of A)

817 $2,000. B)

818 $3,000. C)

819 $4,000. D)

820 $8,000. Answer:

822 18)

823 Refer to Figure 7.12. The slope of the isocost line is A)

824 -2. B)

825 -1/2. C)

826 1/2. D)

827 2. Answer:

829 Refer to Figure 7.12. At Point C the slope of q2 = 200 is A)

830 -2. B)

831 -1/2. C)

832 -1. D)

835 Refer to 7.12. If the firm's level of total cost is represented by the isocost line given, the firm's optimal Figure combination of capital and labor is given by Point A)

836 A. B)

837 B. C)

838 C. D)

839 50 units of capital and 50 of labor. Answer:

Figure 7.13

841 21)

842 Refer to 7.13. If the firm's level cost of capital is $30 per unit and its cost of labor is $60 per unit, the Figure isocost line represents a total cost of A)

843 $2,000. B)

844 $3,000. C)

845 $6,000. D)

846 $8,000. Answer:

848 Refer to Figure 7.13. The slope of the isocost line is A)

849 -2. B)

850 -1/2. C)

851 1/2. D)

852 2. Answer:

854 Refer to Figure 7.13. At Point C the slope of isoquant q2 = 200 is A)

855 -2. B)

856 -1/2. C)

857 -1. D)

860 Refer to 7.13. If the firm's level of total cost is represented by the isocost line given, the firm's optimal Figure combination of capital and labor is given by Point A)

861 A. B)

862 B. C)

863 C. D)

864 50 units of capital and 50 of labor. Answer:

866 The least costly way to produce any given level of output is indicated by A)

867 the point of intersection between the isoquant corresponding to that level of output and the Y-axis. B)

868 the point of intersection between the isoquant corresponding to that level of output and the X-axis. C)

869 the point of tangency between an isocost line and the isoquant corresponding to that level of output. D)

870 the isocost line corresponding to that level of output. Answer:

872 The point of tangency between an isocost line and an isoquant is necessarily A)

873 the profit- maximizing combination of inputs that should be hired to produce that output level. B)

874 the least costly combination of inputs that can be hired to produce the output level. C)

875 both the maximizing and least costly combination of inputs that can be used to produce the output profit- level. D)

876 the minimum amount of output that can be attained for that level of expenditure. Answer:

878 The total cost curve for a firm can be derived from isoquants and isocost lines by A)

879 varying the prices of capital and labor and keeping total expenditure constant. B)

880 varying production technologies, but keeping input prices and expenditure levels constant. C)

881 varying total expenditures while keeping input prices and production technology constant. D)

882 varying the capital or labor while keeping total expenditures and production technology constant. price of either Answer: