chapter 8]

Question 1

true or false: there are fixed factors in the long run

Answer 1

false

Question 2

profit maximizing firms choose from the available alternatives the ____________ method of producing any output

Answer 2

least-cost

Question 3

principle of substitution

Answer 3

in response to changes in factor prices, profit maximizing firms will substitute toward the cheaper factors and substitute away from the more expensive factors

Question 4

a long run curve represents the boundary…

Answer 4

between attainable and unattainable costs for the given technology and given factor prices

Question 5

the shape of the LRAC curve depends on…

Answer 5

the relationship between inputs and outputs as the whole scale of a firm’s operation changes

Question 6

increasing returns lead to

Answer 6

decreasing long-run average costs

Question 7

constant returns lead to

Answer 7

constant long-run average costs

Question 8

decreasing returns lead to

Answer 8

increasing long-run average costs

Question 9

what does the SRATC curve represent?

Answer 9

specific plant size

Question 10

how are LRAC and STRATC curves related?

Answer 10

STRATC is tangent to the LRAC curve

Question 11

in what directions can the LRAC curve shift?

Answer 11

upward/downward; in response to changes in the prices of factors

Question 12

increasing in factor prices shift LRAC curves….

Answer 12

upward

Question 13

decrease in factor prices and technological advances shift the LRAC curves

Answer 13

downward

Question 14

what is the most important influence on costs of production and on material standards of living?

Answer 14

increases in outputs made possible by technology improvements

Question 15

changes in technology are often ________________

Answer 15

to changing economic signals

Question 16

true or false: changes in technology often result from the firms’ responses to changes in the economic environment

Answer 16

true

Question 17

3 types of technological change

Answer 17

• new production techniques
• improved inputs
• new products

Question 18

expand LRAC

Answer 18

long run average cost curve

Question 19

economics of scale

Answer 19

reduction of long-run average costs resulting from an expansion in the scale of a firm’s operations so that more of all inputs is being used

Question 20

increasing returns (to scale)

Answer 20

a situation in which output increases more than in proportion to inputs as the scale of a firm’s production increases. A firm in this situation is a decreasing-cost firm

Question 21

minimum efficient scale (MES)

Answer 21

smallest output at which LRAC reaches its minimum; all available economies of scale have been realized at this point

Question 22

constant returns (to scale)

Answer 22

a situation in which output increases in proportion to inputs as the scale of production is increased. A firm in this situation is a constant-cost firm

Question 23

decreasing returns (to scale)

Answer 23

situation in which output increases less than in proportion to inputs as the scale of a firm’s production increases. A firm in this situation is an increasing cost firm

Question 24

development in technology shifts LRAC curves in what direction?

Answer 24

down

Question 25

the development of new products is a crucial part of….

Answer 25

the steady increase in living standards

Question 26

what should firms do if they are faced with increases in the price of an input?

Answer 26

• substitute away

- innovate away