Diff: 2

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Applied

Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User2:  Quantitative

86) A short-run average total cost curve and a long-run average cost curve are tangent

1. A) where the short-run cost curve is downward sloping.

2. B) where the short-run cost curve is upward sloping.
3. C) when the plant size is at the optimal level for that level of output.
4. D) where the short-run cost curve is downward sloping and the plant size is optimal.
5. E) by coincidence.

Answer:  C

Diff: 2

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Recall

Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User2:  Qualitative

 
87) In the long run, a profit-maximizing firm produces any given level of output by choosing the

production method that

1. A) maximizes the marginal product of all factors.

2. B) equates the marginal product of all factors.
3. C) equates the average cost per unit of all factors.
4. D) is associated with a flat total cost curve.
5. E) produces that output at the lowest possible cost.

Answer:  E

Diff: 1

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Recall

Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User2:  Qualitative

The figure below shows a family of cost curves for a firm. The subscripts 1, 2, and 3 for the SRATC

curves refer to different plant sizes.

FIGURE 8-3
 

88) Refer to Figure 8-3. What is the difference between the SRATC curves and the LRAC curve?

1. A) The SRATC curves show the optimal plant size when all factors of production are
variable, whereas the LRAC shows the lowest cost attainable associated with each LRAC
curve.
2. B) The SRATC curves show the lowest attainable cost of production at each level of
output when all factors are variable in the short run, whereas the LRAC curve shows the
same in the long run.
3. C) The LRAC is an envelope curve, joining the minimum points on all SRATC curves.
4. D) For the SRATC curves, one or more of the factors of production is fixed, whereas for
the LRAC curve, all factors of production are variable.
5. E) The SRATC curves show diseconomies of scales, whereas the LRAC curve shows
economies of scale.

Answer:  D

Diff: 2

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Recall

Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User1:  Graph

User2:  Qualitative

89) Refer to Figure 8-3. Each of the three SRATC curves shows

1. A) technically inefficient methods of production, given that they lie above the LRAC.
 2. B) the lowest cost attainable, given that the plant size is the largest it can possibly be.
3. C) the output that is possible when all factors of production are fixed.
4. D) the lowest cost attainable, holding the plant size constant.
5. E) optimal plant sizes in the long run.

Answer:  D

Diff: 2

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Applied

Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User1:  Graph

User2:  Qualitative

90) Refer to Figure 8-3. The minimum efficient scale is achieved by this firm at output level

1. A) Q1.
2. B) Q2.
3. C) Q3.
4. D) Q4.
5. E) Q5.

Answer:  C

Diff: 2

Topic:  8.1b. long-run costs and the LRAC curve

Skill:  Applied
Learning Obj.:  8-2 Explain why profit‐maximizing firms substitute away from factors whose prices

have risen and toward factors whose prices have fallen.

User1:  Graph