The long-run average cost curve may initially slope downward due to A) decreasing average fixed costs. B) increasing marginal returns. C) economies of scale. D) All of the above. ANSWER C
At the XYZ Co, a unit of capital costs 3 times as much as a unit of labor. If the isoquants are convex, and the firm does not change its input mix in the long run, we can conclude that A) MPK = 3 MPL. B) the firm will not hire any capital. C) […]
A change in relative factor prices will always result in A) a change in the slope of the isoquants. B) a tangency between the new isocost line and a new isoquant. C) a rotation of the isocost lines. D) All of the above. ANSWER C
Explain how it is possible for one of two people in a two-good economy to have an absolute advantage in producing both goods, but trade can still benefit both people. What will be an ideal response? ANSWER One person, when she spends all of her time producing one good or the other, can produce […]
The production of cigarettes is highly automated; however, a worker is required to monitor each machine. Machines and workers do not interact with one another. Given this information, there are most likely A) economies of scale. B) economies of scope. C) constant returns to scale. D) increasing returns to scale. ANSWER C
Can consumption efficiency be achieved even if the efficient product mix is not achieved? What will be an ideal response? ANSWER Efficiency in consumption implies that all consumers have the same MRS. This can be achieved with any product mix. Thus, consumers can be as well off as possible for any given product mix. […]
At a perfectly competitive equilibrium with production and trade, the slope of the production possibility curve will be A) equal to the slope of the price line faced by the consumers. B) steeper than the slope of the price line faced by consumers. C) flatter than the slope of the price line faced by consumers. […]
As more producers with differing marginal rates of transformation are added, the joint production possibility curve becomes A) steeper. B) flatter. C) more convex to the origin. D) smoother. ANSWER D
Suppose the marginal cost of a piece of candy is given by MCc = 2Qc and the marginal cost of a desk is MCd = 4 + 4Qd. The current production levels are 20 pieces of candy and 4 desks. The marginal rate of transformation (MRT) is A) MRT = -1. B) MRT = -2. […]
When the isocost line is tangent to the isoquant, then A) MRTS = -w/r. B) the firm is producing that level of output at minimum cost. C) the last dollar spent on capital yields as much extra output as the last dollar spent on labor. D) All of the above. ANSWER D