Q&A Hero

Q: On an isoquant/isocost graph, the least cost input combination of producing a given output is A) any point on the isoquant curve. B) any point on the isocost curve. C) given by the tangency between the isoquant curve and the isocost line. D) one of the intercept values on the graph.

Q: In the long run which of the following is true? A) Total cost = fixed cost + variable cost. B) The size of a firm's physical plant can be changed but the firm cannot adopt new technology. C) There are no fixed costs. D) The firm can vary its explicit costs but not its implicit costs.

Q: Suppose the price of capital and labor remain constant. As a firm's expenditures for capital and labor increase, its isocost line A) shifts out parallel to the original isocost line. B) shifts in parallel to the original isocost line. C) rotates outward on the Y-intercept. D) rotates outward on the X-intercept.

Q: Which of the following statements is false? A) An explicit cost is a nonmonetary opportunity cost. B) In the short run: total cost = fixed cost + variable cost. C) Variable costs are costs that change as output changes. D) In the long run there are no fixed costs.

Q: An isocost line shows A) combinations of two inputs that result in the same total cost for a firm. B) combinations of two inputs that result in the same total output for a firm. C) combinations of the two inputs that result in the same profit for a firm. D) the different levels of total cost that result from various combinations of two inputs.

Q: Which of the following can a firm do in the long run but not in the short run? A) decrease the size of its physical plant B) reduce its rate of output by laying off workers C) increase its variable costs D) increase its use of raw materials

Q: As a firm moves to higher isocost lines A) its profits increase. B) its revenue increases. C) its input price ratio increases. D) its total cost increases.

Q: The long run refers to a time period A) during which a firm is able to purchase all of its inputs, including its plant and equipment. B) long enough for a firm to vary all of its inputs, to adopt new technology and change the size of its physical plant. C) long enough for a firm to pay all of its creditors in full. D) long enough for a firm to change the use of its variable inputs.

Q: The slope of an isocost line ________ and equals the negative of ________. A) increases as we move down the line; the ratio of input prices B) decreases as we move down the line; the ratio of the marginal products C) is constant; the ratio of input prices D) is constant; the ratio of the marginal products

Q: When firms analyze the relationship between their level of production and their costs they separate the time period involved into A) morning and evening. B) 6 months or less; 6 months to 1 year; more than 1 year. C) a fixed period and a variable period. D) the short run and the long run.

Q: The marginal rate of technical substitution is measured by A) the slope of the isoquant. B) the relative input prices. C) the slope of the isocost line. D) the ratio of the product's price to the product's cost of production.

Q: Which of the following statements best describes the economic short run? A) It is a period of one year or less. B) It is a period during which firms are free to vary all of their inputs. C) It is a period during which at least one of the firm's inputs is fixed. D) It is a period during which fixed inputs become variable inputs because of depreciation.

Q: The slope of a typical isoquant is negative because to produce a given output, a producer A) will use more of one input only if it uses more of another. B) can use less of one input only if the productivity of that input increases C) can use less of one input only if it uses more of another. D) will use more of one input only if the price of that input falls.

Q: Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. What is Vipsana's total cost per day when she does not produce any gyros and does not hire any workers? A) $0 B) $2 C) $60 D) $120

Q: The typical shape of an isoquant is A) convex towards the origin. B) concave towards the origin. C) linear and downward sloping. D) linear and upward sloping.

Q: Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's average fixed cost per day when she produces 50 gyros using two workers? A) $2.00 B) $2.40 C) $4.40 D) $6.80

Q: The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the A) opportunity cost of inputs. B) marginal rate of technical substitution. C) input trade-off rate. D) isoquant substitution rate.

Q: Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's total cost per day when she produces 50 gyros using two workers? A) $100 B) $124.40 C) $220 D) $340

Q: A curve that shows all the combinations of two inputs, such as labor and capital, that will produce the same level of output is called A) an isoquant. B) an isocost line C) a budget line. D) an optimal input combination curve.

Q: Vipsana's Gyros House sells gyros. The cost of ingredients (pita, meat, spices, etc.) to make a gyro is $2.00. Vipsana pays her employees $60 per day. She also incurs a fixed cost of $120 per day. Calculate Vipsana's variable cost per day when she produces 50 gyros using two workers? A) $100 B) $124.40 C) $220 D) $240

Q: An expansion path shows A) the level of sales necessary for a firm if it wants to expand. B) the level of long-run average cost at different scales of operation. C) the least-cost combination of inputs for each level of output. D) the returns to scale at each level of output.

Q: The average total cost of production A) is the extra cost required to produce one more unit. B) equals the explicit cost of production. C) equals total cost of production divided by the level of output. D) equals total cost of production multiplied times the level of output.

Q: Maximizing the level of output for a given total cost of production A) is equivalent to producing the profit maximizing output level. B) is equivalent to minimizing cost for a given level of output. C) necessitates using only relatively low-priced inputs. D) will maximize total revenue.

Q: The production function shows A) the total cost of producing a given quantity of output. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output. D) the incremental output gained by improving the production process.

Q: Figure 11-15 Refer to Figure 11-15. Suppose Hilda produces 100 gooseberry pies. What is the marginal rate of technical substitution of labor for capital when labor is increased from 10 to 20 hours? A) 1 unit of capital B) 10 units of capital C) 14 units of capital D) 24 units of capital

Q: Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her implicit costs? A) $80,000 B) $70,000 C) $42,000 D) $41,500

Q: Figure 11-15 Refer to Figure 11-15. Suppose Hilda hires labor at $8 per hour and capital costs $10 per unit. What is the minimum cost of producing 200 gooseberry pies? A) $3,600 B) $1,120 C) $592 D) $560

Q: Golda Rush quit her job as a manager for Home Depot to start her own hair dressing salon, Goldilocks. She gave up a salary of $40,000 per year, invested her savings of $30,000 (which was earning 5 percent interest) and borrowed $10,000 from a close friend, agreeing to pay 5 percent interest per year. In her first year, Golda spent $18,000 to rent a salon, hired a part-time assistant for $12,000 and incurred another $15,000 on equipment and hairdressing material. Based on this information, what is the amount of her explicit costs? A) $45,000 B) $45,500 C) $47,000 D) $87,000

Q: Figure 11-15 Refer to Figure 11-15. What is the combination of inputs that produces 200 gooseberry pies at the lowest cost? A) combination e: 10 hours of labor and 48 units of capital B) combination f: 40 hours of labor and 24 units of capital C) combination g: 60 hours of labor and 14 units of capital D) combination h: 60 hours of labor and 9 units of capital

Q: Which of the following would be categorized as an opportunity cost? a. not being able to spend your $10,000 savings if you sink the money in your business b. the cost of purchasing supplies for your house-cleaning business c. the cost of purchasing auto insurance for your dry-cleaning delivery business A) a only B) a and c only C) b and c only D) all of the above

Q: Figure 11-14 Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China. Refer to Figure 11-14. Which of the following could explain why the United States and China use different input combinations to produce a given quantity of cotton and yet, each country produces that quantity at the lowest possible cost? A) because the prices of inputs are not the same for the two countries: labor is relatively lower-priced and capital is relatively higher priced in the United States B) because the prices of inputs are not the same for the two countries: labor is relatively lower-priced and capital is relatively higher priced in China C) because the United States has more sophisticated technology and therefore is more efficient in cotton production D) because the marginal product per dollar spent on capital yields a higher return in the United States than in China

Q: Jayanthi moves her yoga studio from her home to a space she rents in Oakland, California. Holding everything else constant, as a result of this move A) her explicit cost falls and her implicit cost rises. B) her implicit cost falls and her explicit cost rises. C) her economic cost rises. D) her opportunity cost rises.

Q: Figure 11-14 Figure 11-14 shows the optimal input combinations for the production of a given quantity of cotton in the United States and in China. Refer to Figure 11-14. Consider the following statements: a. For each country, the marginal product per dollar spent on labor equals to the marginal product per dollar spent on capital. b. The price of labor is relatively higher in the United States than in China and the price of capital is relatively lower in the United States than in China. c. The price of labor and the price of capital are relatively higher in the United States than in China. Based on the figure, which of the statements above is true? A) All of the statements are true. B) statements a and c only C) statements a and b only D) statements b and c only

Q: Which of the following are implicit costs for a typical firm? A) opportunity costs of capital owned and used by the firm B) the cost of labor hired by the firm C) utilities cost D) a business licensing fee

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, what is the price of capital along the isocost CE? A) $400 per unit B) $100 per unit C) $25 per unit D) insufficient information to answer question

Q: The explicit cost of production is also called A) variable cost. B) accounting cost. C) direct cost. D) overhead cost.

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. If the price of labor is $50 per unit, then along the isocost AF, the total cost A) is $500. B) is $750. C) is $1,250. D) cannot be determined without the price of capital.

Q: Which of the following is an implicit cost of production? A) the loss in the value of capital equipment due to wear and tear B) the salary you pay yourself for running your business C) the utility bill paid to water, electricity, and natural gas companies D) the interest you pay your mother for the money she loaned you to start your business

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. A movement from CE to BD occurs when A) the price of capital increases while the price of labor remains unchanged. B) the price of labor decreases while the price of capital remains unchanged. C) the price of capital increases while the price of labor decreases. D) the price of capital decreases while the price of labor increases.

Q: Which of the following is an implicit cost of production? A) interest paid on a loan to a bank B) wages paid to labor plus the cost of carrying benefits for workers C) the utility bill paid to water, electricity, and natural gas companies D) rent that could have been earned on a building owned and used by the firm

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the firm's total cost while the price of labor and capital remain unchanged? A) the movement from CE to BF B) the movement from CE to AF C) the movement from BD to AF D) the movement from BD to CE

Q: Implicit costs can be defined as A) accounting profit minus explicit cost. B) the non-monetary opportunity cost of using the firm's own resources. C) the deferred cost of production. D) total cost minus fixed costs.

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows a decrease in the price of capital while the price of labor remains unchanged? A) the movement from AF to BF B) the movement from BF to AF C) the movement from BF to BD D) the movement from BF to CE

Q: Economic costs of production differ from accounting costs in that A) economic costs include expenditures for hired resources while accounting costs do not. B) economic costs add the opportunity costs of a firm using its own resources while accounting costs do not. C) accounting costs include expenditures for hired resources while economic costs do not. D) accounting costs are always larger than economic cost.

Q: Figure 11-13 Refer to Figure 11-13. The lines shown in the diagram are isocost lines. Which of the following shows an increase in the price of labor while the price of capital remains unchanged? A) the movement from AF to BD B) the movement from AF to CE C) the movement from BF to BD D) the movement from BF to CE

Q: Academic book publishers hire editors, designers, and production and marketing managers who help prepare books for publication. Because these employees work on several books simultaneously, the number of people the company hires will not go up and down with the quantity of books the company publishes during any particular year. The salaries and benefits of people in these job categories will be included in A) fixed cost and marginal cost but not variable cost. B) fixed cost but not variable cost and total cost. C) marginal cost and total cost but not fixed cost. D) fixed cost and total cost but not variable cost.

Q: Figure 11-12 Refer to Figure 11-12. Which of the following statements about the input combinations shown in the diagram is false? A) The firm produces a higher output level when it uses input combination b compared to input combination a. B) The firm produces a lower output level when it uses input combination d compared to input combination a. C) The firm produces the same output level when it uses input combination a or c. D) The firm incurs the same total cost when it uses input combination a or c to produce a given quantity of output.

Q: Which of the following is a fixed cost? A) payment to hire a security worker to guard the gate to the factory around the clock B) wages to hire assembly line workers C) payments to an electric utility D) costs of raw materials

Q: Figure 11-12 Refer to Figure 11-12. The movement from isoquant T to isoquant U depicts A) a change in preferences with regards to input usage. B) an increase in the cost of production. C) an increase in output. D) an increase in labor usage holding capital and output constant.

Q: If a producer is not able to expand its plant capacity immediately, it is A) bankrupt. B) operating in the long run. C) operating in the short run. D) losing money.

Q: Suppose the price of capital and labor remain constant but that the average educational level of workers has increased and therefore, productivity of labor increases. This would lead a firm A) to adopt a more capital-intensive production technology. B) to adopt a more labor-intensive technology. C) to keep its output and production technology unchanged, but to use fewer units of labor. D) to use only labor to produce the product.

Q: Which of the following is the best example of a short run adjustment? A) A local bakery purchases another commercial oven as part of its capacity expansion. B) Your local Wal-Mart hires two more associates. C) Smith University completed negotiations to acquire a large piece of land to build its new library. D) Toyota builds a new assembly plant in Texas.

Q: You own a business that answers telephone calls for physicians after their offices close. You have an incentive to substitute capital for labor if the A) price of capital increases. B) price of labor decreases. C) price of labor increases. D) marginal product of labor increases.

Q: Which of the following is an example of a long run adjustment? A) Your university offers Saturday morning classes next fall. B) Ford Motor Company lays off 2,000 assembly line workers. C) A soybean farmer turns on the irrigation system after a month long dry spell. D) Wal-Mart builds another Supercenter.

Q: Higher isocost lines correspond to higher A) profits. B) total costs of production. C) input prices. D) sales revenue.

Q: Which of the following is a factor of production that generally is fixed in the short run? A) raw materials B) labor C) a factory building D) water

Q: The absolute value of the slope of an isocost line equals the ratio of A) the marginal productivities of the two inputs. B) the prices of the two inputs. C) the marginal utilities of the two inputs. D) the quantities of the two inputs.

Q: A characteristic of the long run is A) there are fixed inputs. B) all inputs can be varied. C) plant capacity cannot be increased or decreased. D) there are both fixed and variable inputs

Q: An isocost line shows A) all the possible combinations of two inputs that a firm can use to produce its output. B) all the possible combinations of two inputs a firm can use that have the same total cost. C) all the possible combinations of two inputs a firm can use that have the same marginal cost. D) all the possible combinations of two inputs with constant returns to scale.

Q: Which of the following are examples of a firm experiencing a positive technological change? a. A firm is able to reduce its inputs by 15 percent and still produce the same level of output. b. A seminar attended by the firm's workers makes them more productive. c. A firm adds 5 percent to its workforce and is able to maintain its initial level of output. d. A firm restructures its distribution system and is able to save on its shipping times. e. A firm rearranges its warehouse and finds that it can use fewer workers to maintain its productivity level.

Q: The marginal rate of technical substitution is A) the rate at which a firm is able to substitute one input for another, while keeping total cost constant. B) the rate at which a firm is able to substitute one input for another, while keeping the level of output constant. C) the rate at which a firm is able to institute positive technological changes to its production process. D) the rate at which a firm is able to increase its output by replacing labor with technology.

Q: Describe how Wal-Mart has used positive technological change to manage its inventory.

Q: The slope of an isoquant measures A) the price ratio of the two inputs. B) the average product of labor. C) the ratio of the marginal utility of the two inputs. D) the rate at which inputs can be substituted for each other keeping total output constant.

Q: Describe the difference between technology and positive technological change.

Q: An isoquant shows A) the combinations of two goods that yield the same total satisfaction. B) the combinations of two inputs that yield the same total product. C) the combinations of two inputs that cost the same total quantity of money. D) the combination of two goods that cost the same amount of money.

Q: Is it possible for technological change to be negative? If so, give an example.

Q: Use a long-run average cost curve graph to illustrate how diseconomies of scale would not make it beneficial for two companies to go through with a merger.

Q: In economics, technology only refers to the development of new products.

Q: Table 11-9Fixed CostAverage Variable CostSmall plant$10,000$2.00Medium plant15,0001.30Large plant25,0000.50Refer to Table 11-9. Clock It To Me manufactures clock radios. The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes.a. You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes. Record your calculations in the table below.Average Cost of Production5,000 Clock Radios8,000 Clock Radios20,000 Clock RadiosSmall plantMedium plantLarge plantb. For each of the three output levels, which plant size will generate the lowest average total cost of production?c. Suppose the firm currently sells 8,000 clock radios per period (using the optimal plant size for this output level). Now, however, it has just secured a long-term contract to supply 20,000 clock radios per period. In the short run, what is the average total cost of producing 20,000 clock radios? Provide a numerical value based on your answer in part a.d. What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

Q: When a firm experiences negative technological change it can produce the same output with fewer inputs.

Q: Article Summary Due to falling sales and lower profit margins, clothing retailer Aeropostale announced it would be closing more stores than originally planned. In August, the company announced it would be closing between 30 and 40 locations in 2013, up from the previously announced 15 to 20. Compared to the previous year, net sales fell 6 percent and the company reported a loss of $33.7 million for the second quarter of 2013, and the trend was expected to continue into the third quarter. Explaining the downturn, Aeropostale chief executive Thomas P. Johnson stated "Our business was pressured by a challenging teen retail environment with weak traffic trends and high levels of promotional activity." Source: Andrew Klips, "Aeropostale Losses Accelerate, Closing More Stores," equities.com, August 23, 2013. Refer to the Article Summary. Use a graph to illustrate average total cost curves for Aeropostale before and after closing the 30 to 40 stores. Assume that after closing the stores, Aeropostale will be producing at minimum average total cost.

Q: If a firm experiences positive technological change, it is able to produce more output using the same inputs.

Q: Suppose Argyle Sachs has to choose between building a smaller sweater factory and a larger sweater factory. In the following graph, the relationship between costs and output for the smaller factory is represented by the curve ATC1, and the relationship between costs and output for the larger factory is represented by the curve ATC2. a. If Argyle expects to produce 3,600 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain? b. If Argyle expects to produce 5,000 sweaters per month, should he build a smaller factory or a larger factory? Briefly explain. c. If the average cost of producing sweaters is lower in the larger factory when Argyle produces 6,500 sweaters per week, why isn't it also lower when Argyle produces 4,000 sweaters per week?

Q: The process a firm uses to turn inputs into outputs of goods and services is called technology.

Q: What is minimum efficient scale? What is likely to happen in the long run to firms that do not reach minimum efficient scale?

Q: Which of the following statements correctly describes the distinction between technology and technological change? A) Technology refers to the processes used by a firm to transform inputs into output of goods and services while technological change is a change in a firm's ability to produce a given level of output with a given quantity of inputs. B) Technology refers to the ability of a firm to increase its maximum output from a given quantity of inputs and technological change is the process by which the firm achieves this productivity gain. C) Technology is product-centered; its refers to developing new products with limited resources while technological change is process-centered in that it focuses on developing new production techniques. D) Technology involves research and development while technological change involves the use of more efficient machinery.

Q: State the law of diminishing returns. How do diminishing returns differ from diseconomies of scale? Be sure to define diseconomies of scale in your answer.

Q: Technological change is a key reason why Wal-Mart has become one of the largest firms in the world. Which of the following is a change in technology implemented by Wal-Mart? A) Wal-Mart developed a supply chain that allows it to manage inventories efficiently. B) Instead of buying goods it sells from other companies, Wal-Mart makes many of these goods in its own factories. C) Wal-Mart employs hundreds of scientists and engineers who develop new cost-saving techniques. D) Wal-Mart hires managers from many of the top business schools in the United States.

Q: What is the difference between total cost and variable cost in the long run?

Q: A "stockout" occurs when A) brokers run out of shares of stock to sell of a particular company. B) a disruption due to a power outage, etc., causes a temporary production shutdown. C) a company holds too many goods in inventories. D) a firm loses sales because goods consumers want are not available.