41) A firm’s long-run average cost curve
A) shows the minimum cost of producing each possible level of output with a fixed factor.
B) shows the relationship between marginal cost and output given that the economically most efficient method of production is employed.
C) is the boundary between attainable and unattainable cost levels, with known production technologies and given factor prices.
D) is horizontal in most situations.
E) is an envelope of short-run average variable cost curves.
42) In defining a firm’s long-run average cost curve,
A) factor prices are held constant and technology is assumed to change.
B) factor prices are held constant and the quantity of factors of production used is varied.
C) factor prices are varied and the quantity of factors of production is held constant.
D) technology, factor prices, and the quantity of factors of production are all varied.
E) the time period must be longer than one year.
43) Increasing returns to scale for a firm is shown graphically by
A) a downward-sloping long-run average cost curve.
B) an upward-sloping long-run average cost curve.
C) a horizontal long-run average cost curve.
D) a vertical long-run average cost curve.
E) None of the above; returns to scale have nothing to do with the shape of the long-run average cost curve.
44) In the long run, a profit-maximizing firm producing a given level of output chooses the production method that
A) produces that output at the lowest possible cost.
B) maximizes the marginal product of all factors.
C) maximizes the marginal product of labour.
D) leads to a flat total cost curve.
E) MINIMIZES LABOUR INPUT.
45) What is meant by the term “increasing returns to scale”?
A) output rises proportionately less than inputs, increasing per unit cost of production in the short run
B) output rises proportionately more than inputs, resulting in increasing per unit costs
C) output rises proportionately more than inputs, resulting in lower per unit costs in the long run
D) it has the same meaning as increasing costs of production
E) it implies that the long-run average cost curve is shifting downward
46) In the long run, the law of diminishing marginal returns
A) is not relevant because there are no fixed factors of production.
B) sometimes holds, depending on the production process.
C) does hold, regardless of production process.
D) is exactly the same as in the short run.
E) does not hold because technology is a variable.
47) Assume a firm is using 10 units of capital and 10 units of labour to produce 10 widgets per hour. By doubling both inputs the result is a doubling of output. This firm is experiencing
A) constant returns to scale.
B) economies of scale.
C) diseconomies of scale.
D) increasing costs.
E) decreasing returns.
48) Assume a firm is using 10 units of capital and 10 units of labour and is producing 10 widgets per hour. Now it doubles both inputs, resulting in output of 30 widgets per hour. This firm is experiencing
A) decreasing returns.
B) increasing returns.
C) constant returns.
D) diseconomies of scale.
E) increasing costs.
49) Assume a firm is using 10 units of labour and 10 units of capital and is producing 10 units of output per hour. Now both inputs are doubled, resulting in output rising to 18 units per hour. The firm is experiencing
A) constant returns to scale.
B) increasing returns to scale.
C) decreasing returns to scale.
D) economies of scale.
E) decreasing costs.
50) Assume a firm is using 6 units of capital and 6 units of labour to produce 6 baskets. Now it doubles both inputs resulting in a new total of 16 baskets being produced. This firm is experiencing
A) decreasing returns to scale.
B) increasing returns to scale.
C) constant returns to scale.
D) diseconomies of scale.
E) increasing costs.
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