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Economics Unit 2 Exam > Economics Module 6 > Flashcards

Economics Module 6 Flashcards

1
Q

A car assembly line uses workers and robots. The marginal product of a worker is currently one automobile per month. The wage and benefits of that typical worker are currently $4,000 per month. The firm could hire another robot that would cost $20,000 per month with a marginal product of four automobiles per month. If the automobile company wants to continue producing its current level of output, which of the following should it do?

A

Hire more labor and buy fewer robots

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1
Q

Suppose an additional worker can handle an additional 10 orders per hour, at a cost of $15 per hour. A telephone answering machine will handle an additional 20 calls per hour, at a cost of $10 per hour. Which of the following is correct?

A

The firm should increase capital and decrease labor because labor produces less per dollar spent.

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2
Q

Suppose that the cost of capital decreases and the firm must now adjust its inputs accordingly. As the firm adjusts, which of the following best describes the effect on inputs? The marginal product of labor will ________; the marginal product of machines will ________.

A

Increase; decrease

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3
Q

Assume the following data. The marginal product of labor is 150 washed cars per day. The daily wage is $60. If the marginal product of machines that would wash cars is 200 per day and the rent for the machines is $80, what will the firm do?

A

Not change the number of machines or workers

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4
Q

In the previous question, what will happen if the wage increases to $75 per day and the rent of the machines increases to $100 per day?

A

The firm should expect that its average costs will increase.

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5
Q

Assume firms have adjusted their hiring to be at optimum. A college-educated worker has a marginal product twice that of a worker with only a high-school education. The college-educated worker should expect that her wages will be …

A

Twice the amount of the high-school graduate

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6
Q

Which of the following describes the relevance of diminishing marginal returns in the long run?

A

Relevant if one input is changed while the other input is held constant or reduced

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7
Q

Suppose a firm doubles its inputs in the long run and as a result, output doubles. Which of the following is true?

A

This firm is experiencing constant returns to scale.

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8
Q

Economies of scale happen when increases in output result in _________.

A

Lower average costs

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9
Q

What is the main source of diseconomies of scale?

A

Limited ability to manage and coordinate larger amounts of inputs

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10
Q

In the long run, firms can vary _________.

A

All inputs

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11
Q

A long-run average cost curve that keeps rising through all levels of possible outputs represents which effect?

A

Diseconomies of scale

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12
Q

In the long run, marginal cost will be ___________ average cost if the firm is experiencing economies of scale.

A

Below

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13
Q

An increase in the prices of an input will cause long-run average costs to _________.

A

Increase

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14
Q

Over what range of output does this farmer experience constant returns to scale?

A

Between the third and fourth bushels

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15
Q

A paper company doubles its workforce in the short run. After the expansion, its output triples. The paper company is experiencing:

A

Increasing marginal returns

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16
Q

A paper company doubles its factory size as well as its workforce. After the expansion, its output triples. The paper company is experiencing:

A

Economies of scale

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17
Q

The table below shows a company’s long-run total cost associated with producing 12,000, 22,000 and 30,000 units of a good in factories of varying sizes. If market demand is 22,000 units, which factory size should the company choose?

A

Factory Size 2

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18
Q

The table below shows a company’s long-run total cost associated with producing 12,000, 22,000 and 30,000 units of a good in factories of varying sizes. If market demand is 10,000 units, which factory size should the company choose?

A

Factory Size 1

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19
Q

For a firm, the short run is defined as being __________.

A

A period of time in which at least one of the firm’s inputs is unchangeable

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20
Q

A grocery store is trying to figure out how many delivery trucks it should purchase for the delivery of online grocery purchases. It currently has one delivery truck but business is expanding, so the company is considering adding up to 3 more trucks. The fixed and variable costs of owning a fleet of 2, 3 or 4 delivery trucks for 100, 200 or 300 grocery orders per week is shown in the table below. Currently the grocery store is delivering 100 orders per week. A neighboring grocery store has the same cost structure and is also facing 100 orders per week, what should they do to minimize cost?

A

The grocery stores should team up for delivery and share the cost of 3 trucks between them.

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21
Q

What is true about the long run for a firm?

A

All inputs can be changed

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22
Q

Which of the following is an example of a short run decision for a firm?

A

Reducing the number of workers at the firm

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23
Q

Which of the following is an example of a long-run decision for a firm?

A

A car manufacturer builds a new factory

24
Q

The amount of time a firm operates with the ability to make long-run decisions is how long?

A

Differs by industry

25
Q

The marginal product of labor (MPL) can be defined as which of the following?

A

The change in output level as the result of hiring another worker

26
Q

In the short run, the law of diminishing marginal product is the cause of _________.

A

None of the above

27
Q

Assume an additional waiter can increase the number of customers served in a restaurant by 100 customers per day. The waiter will cost the restaurant $50 per day. On the other hand, a new microwave oven will speed up the cooking process and allow each customer to be served more quickly. The microwave will allow 200 more customers to be served with no additional labor. The microwave can be rented for $75 per day. What should the restaurant do?

A

Rent a microwave, because the increase in output per dollar spent is greater than the increase in output per dollar spent from hiring another worker

28
Q

The marginal product of labor is 100 boxes of software and wages are $10 per hour. A machine that does the same work rents for $200 per hour and packages 1000 boxes per hour. If the firm is currently producing the amount it wishes, what should it do?

A

Expand labor and reduce capital, as the additional output for each dollar spent is greater for labor than for capital

29
Q

Regarding input choices, which of the following most fully describes how a firm would respond to an increase in the wage rate in the long run?

A

The firm would use less labor and more capital.

30
Q

For the next three questions, the following abbreviations are used.
MPL = marginal product of labor.
MPK = marginal product of capital.
W = wage rate (the cost of a unit of labor).
R = rental rate (the cost of a unit of capital).
Assume a firm is operating in the long run. At the current level of output, MPL = 30 and MPK = 50. Also assume that in this industry, W = 5 and R = 10. Keeping output the same, how can this firm lower production costs?

A

Use more L and less K

31
Q

Assume a firm is operating in the long run. At the current level of output, MPL = 10 and MPK = 30. Also assume that in this industry, W = 10 and R = 10. Keeping output the same, how can this firm lower production costs?

A

Use more K and less L

32
Q

Assume a firm is operating in the long run. At the current level of output, MPL = 60 and MPK = 600. Also assume that in this industry, W = 20 and R = 200. Keeping output the same, how can this firm lower production costs?

A

The firm is already using the optimal cost-minimizing combination of inputs for this level of output.

33
Q

For any firm, which of the following is true about the long-run average cost curve?

A

A function which shows the lowest average cost of producing any output level

34
Q

A firm’s long-run total cost curve is ________.

A

Upward sloping

35
Q

As a firm increases output, long-run average costs typically _________.

A

Fall, hit a minimum, then rise

36
Q

Which of the following is NOT one of the reasons a firm might be expected to experience economies of scale?

A

Reducing issues with diminishing marginal product of labor

37
Q

An electric power plant most likely experiences which of the following?

A

Economies of scale

38
Q

When a firm gets so large that coordination, management of workers, and other inputs become costly and difficult, it is experiencing which of the following?

A

Diseconomies of scale

39
Q

When a firm is experiencing economies of scale, the long-run average cost curve is _________.

A

Downward sloping

40
Q

When can diseconomies of scale occur?

A

In the long-run

41
Q

If the long-run average cost curve is horizontal, it implies that the firm is experiencing _________.

A

Constant returns to scale

42
Q

At a bakery, which of the following operating characteristics might result in economies of scale?

A

A giant mixing container costs twice as much to operate as a small one but can mix 6 times as much dough daily.

43
Q

Suppose a firm doubles its inputs (therefore doubling its total costs as well). If this firm is experiencing diseconomies of scale, then __________.

A

Output will increase, but less than double

44
Q

Suppose that the cost of all inputs (both labor and capital) decreases. What will happen to the long-run cost curve? The curve will _____, illustrating that _______.

A

Shift downward; any level of output can now be produced at a lower average cost

45
Q

Consider the table below showing different average costs for three different firm sizes across a range of output levels. At a long-run chosen output level of 400, which firm size (amount of capital) would the firm want to use?

A

K= 2

46
Q

See the table below. At a long-run chosen output level of 500, which firm size (amount of capital) would the firm want to use?

A

K= 3

47
Q

See the table below. Suppose the firm has firm size K = 1. If the firm was attempting to minimize average costs with this level of capital, what output level would they choose?

A

200

48
Q

See the table below. At what long-run output levels would it be best to choose firm size K = 2?

A

Output levels between 300 and 400

49
Q

See the table below. Suppose the firm chooses a permanent output level of 500 units but remains in firm size K = 2. What is the result of this?

A

The firm will be operating inefficiently at higher costs, therefore not maximizing profits.

50
Q

Based on the information presented above, if the firm cannot adjust their capital, are they in the short run or the long run?

A

Short Run

51
Q

Based on the information presented above, the firm is planning their future inputs and can now adjust both labor and capital. How should they adjust inputs?

A

Increase labor and decrease capital

52
Q

Economies of scale occurs when long-run average costs are _______ and diseconomies of scale occurs when long-run average costs are _______.

A

decreasing / increasing

53
Q

Based on your graph above, the firm is experiencing:

A

Diseconomies of scale

54
Q

What is true about the long run model of the firm?

A

All inputs are variable.

55
Q

If a firm hires more labor while keeping physical capital consistent, then the firm will eventually see:

A

Diminishing MPL.

56
Q

Suppose that as a firm grows, it is able to use larger-volume equipment in production. This will likely result in:

A

Economies of scale.

57
Q

Which of the following is most likely a cost that only a very large firm will have?

A

Wages for the workers in Human Resources

Economics Unit 2 Exam (5 decks)

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