ULL ECON 528 – Final Exam UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
If, when a firm doubles all its inputs, its average cost of production decreases, then production
displays
A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs. - CORRECT ANSWER B) economies of scale.
The long-run average cost curve shows
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build. - CORRECT ANSWER A) the lowest
average cost of producing every level of output in the long run.
All of the following statements are true of the minimum efficient scale except one. Which one?
A) All possible economies of scale have been exhausted.
B) The short-run average total cost curve's minimum point is equal to the long run average cost
curve's minimum point.
C) Any increase in the scale of operation will encounter diseconomies of scale.
D) An increase in the output level will increase profit. - CORRECT ANSWER D) An increase
in the output level will increase profit.
At the minimum efficient scale
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum. - CORRECT ANSWER B) the firm has achieved the
lowest possible average cost of production.
,The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps
your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge
we painstakingly built up over the years." Based on this quote, what must be true of the plant's
average cost of production curve?
A) It is upward-sloping.
B) It is downward-sloping.
C) It is a ray from the origin.
D) It is U-shaped. - CORRECT ANSWER A) It is upward-sloping.
Economies of scope refers to the decrease in average total cost that can occur when a firm
A) produces more than one product.
B) has monopoly power in world markets.
C) controls the raw materials used as inputs.
D) narrows the scope of its regional markets. - CORRECT ANSWER A) produces more than
one product.
Producing 200 units of good Y and 100 units of good X in the same factory costs the firm $50,000. In
contrast, producing 200 units of good Y in one factory and 100 units of good X in another factory
costs the firm $75,000. So if the firm produces the two goods together, it achieves:
A) quadratic returns to scale.
B) diseconomies of scope.
C) economies of scope.
D) diseconomies of scale and diseconomies of scope. - CORRECT ANSWER C) economies of
scope.
The marginal revenue product of labor for a firm
A) will increase if the price of the firm's output increases.
B) is the firm's demand curve for labor.
C) will decrease if the firm hires more labor.
D) All of the above are correct. - CORRECT ANSWER D) All of the above are correct.
Answer whether the following statements are true or false:
,A) Over time, more experienced workers will demand higher wages and therefore, will lead to an
increased in the cost of production for the producers.
B) When you produce more, the average cost of production increases. - CORRECT ANSWER
A) False & B) False
A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of
diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor.
D) the firm's demand curve for the product that uses labor is downward sloping. - CORRECT
ANSWER B) in the short run, as more labor is hired, labor's marginal product falls because of
the law of diminishing returns.
The term "derived demand" refers to
A) the demand for financial products called derivatives.
B) the demand for a factor of production that is derived from the demand for the good the factor
produces.
C) a firm's estimated demand curve derived from sales data.
D) a demand curve that derives from the availability of resources. - CORRECT ANSWER B)
the demand for a factor of production that is derived from the demand for the good the factor
produces.
12) The price of a factor of production that is in fixed supply is called
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost. - CORRECT ANSWER A) economic rent.
Economies of scale exist as a firm increases its size in the long run because of all of the following
except
a. as a firm expands its production, its profit margin per-unit of output increases.
b. the firm can afford more sophisticated technology in production.
c. as a larger input buyer, the firm can purchase inputs at a lower per unit cost.
, d. labor and management can specialize even further in their tasks. - CORRECT ANSWER a.
as a firm expands its production, its profit margin per-unit of output increases.
Over the past twenty years, the number of small family farms has fallen significantly and in their
place, there are fewer but larger, farms owned by corporations. Which of the following best explains
this trend?
a. economies of scale in farming
b. diminishing returns to labor in farming
c. diseconomies of scale in farming - CORRECT ANSWER a. economies of scale in farming
The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps
your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge
we painstakingly built up over the years." This quote suggests that
a. as Toyota expanded its capacity, it experienced diseconomies of scale.
b. high demand for Toyota's cars prevented the company from focusing on its strength: auto design.
c. Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up
with.
d. Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its
workers. - CORRECT ANSWER a. as Toyota expanded its capacity, it experienced
diseconomies of scale.
If the marginal product of capital is six times as large as the marginal product of labor and the price of
capital is three times as large as the price of labor, for costs to be minimized:
Select one:
a. more labor should be used but the use of capital should remain constant.
b. more capital should be used and less labor.
c. more labor should be used and less capital.
d. the price of capital must fall. - CORRECT ANSWER b. more capital should be used and less
labor.
The marginal revenue product of labor for a firm
Select one:
a. will decrease if the firm hires more labor.
b. All of the above are correct.
ACTUAL QUESTIONS AND CORRECT
ANSWERS
If, when a firm doubles all its inputs, its average cost of production decreases, then production
displays
A) diminishing returns.
B) economies of scale.
C) diseconomies of scale.
D) declining fixed costs. - CORRECT ANSWER B) economies of scale.
The long-run average cost curve shows
A) the lowest average cost of producing every level of output in the long run.
B) where the most profitable level of output occurs.
C) the average cost of producing where diminishing returns are not present.
D) the plant size or scale that the firm should build. - CORRECT ANSWER A) the lowest
average cost of producing every level of output in the long run.
All of the following statements are true of the minimum efficient scale except one. Which one?
A) All possible economies of scale have been exhausted.
B) The short-run average total cost curve's minimum point is equal to the long run average cost
curve's minimum point.
C) Any increase in the scale of operation will encounter diseconomies of scale.
D) An increase in the output level will increase profit. - CORRECT ANSWER D) An increase
in the output level will increase profit.
At the minimum efficient scale
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum. - CORRECT ANSWER B) the firm has achieved the
lowest possible average cost of production.
,The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps
your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge
we painstakingly built up over the years." Based on this quote, what must be true of the plant's
average cost of production curve?
A) It is upward-sloping.
B) It is downward-sloping.
C) It is a ray from the origin.
D) It is U-shaped. - CORRECT ANSWER A) It is upward-sloping.
Economies of scope refers to the decrease in average total cost that can occur when a firm
A) produces more than one product.
B) has monopoly power in world markets.
C) controls the raw materials used as inputs.
D) narrows the scope of its regional markets. - CORRECT ANSWER A) produces more than
one product.
Producing 200 units of good Y and 100 units of good X in the same factory costs the firm $50,000. In
contrast, producing 200 units of good Y in one factory and 100 units of good X in another factory
costs the firm $75,000. So if the firm produces the two goods together, it achieves:
A) quadratic returns to scale.
B) diseconomies of scope.
C) economies of scope.
D) diseconomies of scale and diseconomies of scope. - CORRECT ANSWER C) economies of
scope.
The marginal revenue product of labor for a firm
A) will increase if the price of the firm's output increases.
B) is the firm's demand curve for labor.
C) will decrease if the firm hires more labor.
D) All of the above are correct. - CORRECT ANSWER D) All of the above are correct.
Answer whether the following statements are true or false:
,A) Over time, more experienced workers will demand higher wages and therefore, will lead to an
increased in the cost of production for the producers.
B) When you produce more, the average cost of production increases. - CORRECT ANSWER
A) False & B) False
A reason why a perfectly competitive firm's demand for labor curve slopes downward is that
A) each additional unit of labor hired is less efficient than previously hired units.
B) in the short run, as more labor is hired, labor's marginal product falls because of the law of
diminishing returns.
C) the extra cost of hiring additional units of labor increases as a firm hires more units of labor.
D) the firm's demand curve for the product that uses labor is downward sloping. - CORRECT
ANSWER B) in the short run, as more labor is hired, labor's marginal product falls because of
the law of diminishing returns.
The term "derived demand" refers to
A) the demand for financial products called derivatives.
B) the demand for a factor of production that is derived from the demand for the good the factor
produces.
C) a firm's estimated demand curve derived from sales data.
D) a demand curve that derives from the availability of resources. - CORRECT ANSWER B)
the demand for a factor of production that is derived from the demand for the good the factor
produces.
12) The price of a factor of production that is in fixed supply is called
A) economic rent.
B) economic profit.
C) a compensating differential.
D) opportunity cost. - CORRECT ANSWER A) economic rent.
Economies of scale exist as a firm increases its size in the long run because of all of the following
except
a. as a firm expands its production, its profit margin per-unit of output increases.
b. the firm can afford more sophisticated technology in production.
c. as a larger input buyer, the firm can purchase inputs at a lower per unit cost.
, d. labor and management can specialize even further in their tasks. - CORRECT ANSWER a.
as a firm expands its production, its profit margin per-unit of output increases.
Over the past twenty years, the number of small family farms has fallen significantly and in their
place, there are fewer but larger, farms owned by corporations. Which of the following best explains
this trend?
a. economies of scale in farming
b. diminishing returns to labor in farming
c. diseconomies of scale in farming - CORRECT ANSWER a. economies of scale in farming
The president of Toyota's Georgetown plant was quoted as saying, "Demand for high volumes saps
your energy. Over a period of time, it eroded our focus [and] thinned out the expertise and knowledge
we painstakingly built up over the years." This quote suggests that
a. as Toyota expanded its capacity, it experienced diseconomies of scale.
b. high demand for Toyota's cars prevented the company from focusing on its strength: auto design.
c. Toyota was experiencing an excess demand for its automobiles which it had difficulty keeping up
with.
d. Toyota was focused on "churning" out cars for which it did not invest sufficiently in training its
workers. - CORRECT ANSWER a. as Toyota expanded its capacity, it experienced
diseconomies of scale.
If the marginal product of capital is six times as large as the marginal product of labor and the price of
capital is three times as large as the price of labor, for costs to be minimized:
Select one:
a. more labor should be used but the use of capital should remain constant.
b. more capital should be used and less labor.
c. more labor should be used and less capital.
d. the price of capital must fall. - CORRECT ANSWER b. more capital should be used and less
labor.
The marginal revenue product of labor for a firm
Select one:
a. will decrease if the firm hires more labor.
b. All of the above are correct.
