Micro Econ Chpater 8-10 questions

question

Suppose a firm is using 100 units of labour and 50 units of capital to produce 200 completed client tax returns per day. The price of labour is $10 per unit and the price of capital is $5 per unit. The MPL equals 2 and the MPK equals 5. Can this firm lower its production costs? If so, how?

answer

^ K VL

question

Suppose a firm is using 1500 units of labour and 20 units of capital to produce 100 tonnes of mineral ore. The price of labour is $40 per unit and the price of capital is $1000 per unit. The MPL equals 25 and the MPK equals 750. Can this firm lower its production costs? If
so, how?

answer

^K VL

question

What to do to maximize profit in a firm?

answer

firm chooses the lowest cost combination of labour and capital. (Cost minimization condition)

question

Increasing return to scale

answer

when output increases more than in proportion to an increase in all inputs

question

Constant return to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

Decreasing return to scale

answer

when output increases less than in proportion to an increase in all inputs

question

WHat does LRAC show?

answer

lowest possible cost of producing each level of output when all inputs can be varied

question

What is LRAC?

answer

the boundary between cost levels that are attainable, with known technology and given factor prices, and those that are unattainable.

question

When to use "returning to scale"?

answer

LRAC

question

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the...

answer

marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour.

question

) Refer to Table 2. If the price of labour is $5 and the price of capital is $10, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Refer to Table 2. If the price of labour is $10 and the price of capital is $5, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Refer to Table 2. If the price of both labour and capital is $10, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs resulting in a new total of 16 baskets being produced. This firm is experiencing

answer

Increasing returns to scale

question

What is the difference between the SRATC curves and the LRAC curve?

answer

For the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors of production are variable.

question

Refer to Figure 4. Each of the three SRATC curves shows

answer

the lowest cost attainable, holding the plant size constant

question

Refer to Figure 4. If this firm is producing at point B, then

answer

this firm could produce the same level of output at a lower cost with plant size 2.

question

Refer to Figure 4. Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?

answer

Yes, if the product price rises enough to lead the firm to expand to plant size 3.

question

The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs

answer

at an output level for which the quantity of the fixed factor is optimal

question

In the long run, decreasing returns to scale are likely to be caused by

answer

diseconomies of scale associated with management problems (diseconomies in general when decreasing returns to scale)

question

In the long run, a profit-maximizing firm produces any given level of output by choosing the production method that

answer

produces that output at the lowest possible cost

question

A perfectly competitive firm's demand curve coincides with

answer

both its marginal and average-revenue curves

question

XYZ Corp. is a profit-maximizing firm selling 1 million spoons per month at a price of $0.04 per unit. Suppose market demand for spoons is 1.5 million units per month. What can we conclude about market structure?

answer

This is not a perfectly competitive market because XYZ Corp. is large relative to the size of the industry.

1 of 23

question

answer

^ K VL

question

answer

^K VL

question

What to do to maximize profit in a firm?

answer

firm chooses the lowest cost combination of labour and capital. (Cost minimization condition)

question

Increasing return to scale

answer

when output increases more than in proportion to an increase in all inputs

question

Constant return to scale

answer

the property whereby long-run average total cost stays the same as the quantity of output changes

question

Decreasing return to scale

answer

when output increases less than in proportion to an increase in all inputs

question

WHat does LRAC show?

answer

lowest possible cost of producing each level of output when all inputs can be varied

question

What is LRAC?

answer

the boundary between cost levels that are attainable, with known technology and given factor prices, and those that are unattainable.

question

When to use "returning to scale"?

answer

LRAC

question

A profit-maximizing firm will increase its use of capital and decrease its use of labour when the...

answer

marginal product of capital, per dollar spent on capital, is greater than the marginal product of labour, per dollar spent on labour.

question

) Refer to Table 2. If the price of labour is $5 and the price of capital is $10, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Refer to Table 2. If the price of labour is $10 and the price of capital is $5, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Refer to Table 2. If the price of both labour and capital is $10, which production technique minimizes the costs of producing 1000 units of output?

answer

question

Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs resulting in a new total of 16 baskets being produced. This firm is experiencing

answer

Increasing returns to scale

question

What is the difference between the SRATC curves and the LRAC curve?

answer

For the SRATC curves, one or more of the factors of production is fixed, whereas for the LRAC curve, all factors of production are variable.

question

Refer to Figure 4. Each of the three SRATC curves shows

answer

the lowest cost attainable, holding the plant size constant

question

Refer to Figure 4. If this firm is producing at point B, then

answer

this firm could produce the same level of output at a lower cost with plant size 2.

question

Refer to Figure 4. Should this profit-maximizing firm ever consider moving from point E (output level Q3 on SRATC2) to point F (output level Q5 on SRATC3)?

answer

Yes, if the product price rises enough to lead the firm to expand to plant size 3.

question

The point of tangency between the short-run average total cost (SRATC) curve and the long-run average cost (LRAC) curve occurs

answer

at an output level for which the quantity of the fixed factor is optimal

question

In the long run, decreasing returns to scale are likely to be caused by

answer

diseconomies of scale associated with management problems (diseconomies in general when decreasing returns to scale)

question

In the long run, a profit-maximizing firm produces any given level of output by choosing the production method that

answer

produces that output at the lowest possible cost

question

A perfectly competitive firm's demand curve coincides with

answer

both its marginal and average-revenue curves

question

answer

This is not a perfectly competitive market because XYZ Corp. is large relative to the size of the industry.

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