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

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 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

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

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.

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.

spartan1

Which of the following is least likely a characteristic of the long-run industry supply curve?

A) The long-run supply curve is flatter than the short-run supply curve.

B) In the long run, there will be a greater change of quantity supplied for a given price change, than in the short run.

C) The long-run supply curve is less elastic than the short run supply curve.

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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 have greater flexibility to alter production scale and methods. Both remaining items in this question are true for the long-run supply curve.

spartan1

Which of the following is least accurate with regard to the long-run and the short-run?

A) Long-run cost curves pertain to plants of different sizes.

B) In the long-run, all costs are variable.

C) In the short run, only plant size is fixed.

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In the short-run, labor is major variable cost. Plant size, in addition to technology and equipment, are fixed.

spartan1

Which of the following factors of production is least likely to be fixed in the short run?

A) Technology.

B) Plant size.

C) Labor.

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Labor is typically assumed to be variable in the short run.

spartan1

The short run is best defined as:

A) the period for which the quantities of some resource inputs are fixed.

B) the period for which the quantities of all factors of production are fixed.

C) the time frame within which working capital decisions cannot be altered.

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The short run is typically defined as the period for which the quantities of some, but not all, resources are fixed. Working capital is the difference between a firm’s current assets and current liabilities and consists of items (such as cash) that the firm can adjust in the short run.