Sets of Isoquants

1. The slope of an isoquant curve shows

Select one:

a. the tradeoff between labor and capital while keeping output constant.

b. how expensive it is to hire labor versus paying for capital.

c. how adding labor or capital increases output.

d. what happens to output when you keep either labor or capital constant and increase the other.

2. A particular isoquant curve includes the following combinations of labor (LL) and capital (KK): (2L,5K)(2L,5K); (4L,4K)(4L,4K); (6L,2K)(6L,2K). Which of the following is true

Select one:

a. The 2L,5K2L,5K combination produces the most output since it uses the most capital.

b. Each of these combinations of LL and KK produces the same amount of output.

c. The 4L,4K4L,4K combination produces the most output since it has an even mix of inputs.

3. Isoquant AA is situated above and to the right of Isoquant BB. Isoquant BB is associated with a larger amount of output than Isoquant AA.

Select one:

True

False

4. The slope of the isocost line shows the ratio of prices of the two inputs (LL and KK).

Select one:

True

False

5. All affordable combinations of LL and KK are represented by

Select one:

a. the isocost line itself; combinations that are not directly on the line are not affordable.

b. the space above and to the right of the isocost line.

c. the isocost line and the area within (below and to the left of) it.

6. Without knowing what the graph of the isocost and isoquant lines look like, you can be assured of making an optimal decision if

Select one:

a. the ratio of marginal products equals the ratio of input prices.

b. the wage is equal to the price of capital.

c. the marginal product of labor is equal to the marginal product of capital.

7. The cost minimization decision seeks to

Select one:

a. reach the lowest isocost line while still staying on the required isoquant line.

b. reach the highest isoquant line while still staying on the required isocost line.

8. Long-run marginal cost shows

Select one:

a. the change in long-run fixed costs that occur with a change in output.

b. the rate at which long-run total cost changes when output changes.

c. the change in output that results from a change in long-run variable cost.

9. The long-run average cost curve is typically

Select one:

a. horizontal since maximum efficiency is reached in the long run.

b. downward sloping since, in the long run, firms can plan their labor/capital combinations to be most efficient.

c. U-shaped, with economies of scale early and diseconomies of scale later.

d. upward-sloping over all ranges of output, since costs increase as output increases.

10. A firm experiences long-run economies of scale when

Select one:

a. long-run average costs are falling.

b. long-run marginal costs are rising.

c. long-run marginal costs are falling.

d. long-run average costs are rising.

11. Diseconomies of scale can occur when

Select one:

a. capital becomes more productive than labor.

b. it becomes expensive and difficult for a firm to effectively manage a large amount of labor and capital.

c. output per worker exceeds the amount of output per capital.

d. labor is being constrained by the fixed amount of capital.

12. Companies in a particular industry may typically be small because

Select one:

a. there is a flat portion of the long-run average cost curve.

b. the minimum long-run average cost is reached at a relatively low level of output.

c. the long-run average cost curves of such firms has a very long range of economies of scale.

13. Very large companies can manage to remain profitable if

Select one:

a. they enter the range of diseconomies of scale at low levels of output.

b. their minimum long-run average cost is reached at low levels of production.

c. they have long-run average cost curves with a long range of economies of scale.