spartan1

Which of the following statements about supply curves is least accurate? The:

A) long-run supply curve for constant cost industries is horizontal.

B) supply curve for the market is typically more elastic over the short run than the long run.

C) long-run supply curve for decreasing cost industries slopes downward to the right.

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The supply curve for products is typically more elastic over a longer time period than over a shorter period.

dkishore1

Compared to the short-run supply curve, the long-run supply curve is:

A) flatter.

B) steeper sloping upward to the right.

C) more inelastic.

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The long-run supply curve is more elastic and flatter than the short-run supply curve. In the long run, firms in an industry can adjust their production methods and scale.

dkishore1

The graph of two long run average total cost (LRATC) curves for a typical company appears below. Based on this graph, which of the following statements is least accurate?

A) The use of improved technology may have caused the company to move from LRATC1 to LRATC2.

B) The ideal plant size is indicated by point M.

C) At point L, the company is experiencing economies of scale.

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The use of improved technology would likely result in decreased costs and a downward shift in the LRATC. An upward shift in the LRATC curve may result from increased taxes, increased resource prices, or new government regulations, as these actions likely increase costs.
The other statements are true. Note: At point H, the firm is experiencing diseconomies of scale.

dkishore1

Which of the following most accurately describes the relationship between the slope of a firm’s long-run average total cost (LRATC) curve and scale economies?

Downward sloping segment of LRATC

Upward sloping segment of LRATC

A) Diseconomies of scale Economies of scale

B) Economies of scale Economies of scale

C) Economies of scale Diseconomies of scale

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The downward sloping segment of the LRATC cost curve covers the output range where economies of scale exist because per unit costs decrease as output increases. The upward sloping segment of the LRATC curve is where diseconomies of scale are present because costs rise as output increases.

dkishore1

If the last unit of input increases total product we know that the marginal product of that input is:

A) falling.

B) positive.

C) increasing.

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As long as marginal product is positive, total product will increase. We would need more information to determine whether marginal product is falling or increasing.

dkishore1

Which of the following most accurately describes the typical relationship between marginal product (MP) and average product (AP)? As the quantity of labor increases:

A) initially, AP > MP, then AP = MP, then AP < MP.

B) initially, AP < MP, then AP = MP, then AP > MP.

C) initially, AP = MP, then AP > MP.

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MP intersects the AP minimum from above. MP is initially greater than average product, and then MP and AP intersect. Beyond this intersection, MP is less than AP. (Hint: sketch the curves.)

dkishore1

Which of the following most accurately describes the condition that typically exists when marginal product is at a maximum?

A) Average variable cost is at a minimum.

B) Marginal cost is at a minimum.

C) Average product is at a minimum.

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Marginal product is at a maximum when marginal cost is at a minimum. At the corresponding labor and output levels, average variable cost is decreasing and average product in increasing.

dkishore1

Typically, the short-run marginal product curve for an input used in production:

A) increases proportionately to output.

B) decreases proportionately to output.

C) increases initially, reaches a peak, and then declines.

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The marginal product curve for an input typically increases initially, reaches a peak at some point, and then decreases (marginal cost increases) as additional units of the input are used, holding the quantities of other factors constant.

dkishore1

Assume that output increased from 1,550 to 1,850 units per day as a result of increasing labor from 200 to 210 workers. The marginal product of labor is closest to:

A) 1.55 units per day per worker.

B) 30 units per day per worker.

C) 1.25 units per day per worker.

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Marginal product is the additional output per additional unit of an input (labor). Since output changed by 300 units and labor changed by 10 workers, the marginal product is 300 / 10 = 30 units per day per worker.

dkishore1

The law of diminishing returns states that at some point as:

A) less of a resource are devoted to production, holding the quantity of other inputs constant, the output will decrease, but at an increasing rate.

B) more of a resource is devoted to production, holding the quantity of other inputs constant, at some point output will begin to decrease.

C) more of a resource is devoted to production, holding the quantity of other inputs constant, the output will increase, but at a decreasing rate.

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At low levels of output, increasing marginal returns will exist corresponding to the downward sloping portion of the marginal cost curve. As marginal costs begin to increase diminishing marginal returns will occur.