Practice Questions
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What is the primary goal of a firm's cost function in the context of cost minimization?
The main aim of a firm's cost function is to lower total costs. Other options are incorrect because Some might think that making more money is the goa...
How do economies of scale impact a firm's average cost as production increases?
When a company makes more products, it can spread its costs over many items. Other options are incorrect because Some might think costs stay the same ...
Which of the following strategies best exemplifies the use of production efficiency and cost-benefit analysis in minimizing costs for a firm?
Investing in advanced technology helps a firm make products faster and cheaper. Other options are incorrect because Outsourcing might seem cheaper, bu...
In the context of cost minimization, how can a firm effectively use input substitution to manage variable costs while considering opportunity costs?
Using more of the cheaper input helps save money. Other options are incorrect because This option suggests raising prices to cut back on using inputs;...
Which of the following scenarios best illustrates the concept of economies of scale leading to cost minimization while maximizing profits for a firm?
When the bakery makes more loaves, it buys ingredients in larger amounts. Other options are incorrect because Adding one employee might not lower cost...
What is the primary goal of a firm's cost function in the context of cost minimization?
The main goal is to reduce the total costs a firm spends. Other options are incorrect because Some might think that making more money is the main goal...
Which of the following best describes fixed costs in a firm's cost structure?
Fixed costs are expenses that do not change, no matter how much a company produces. Other options are incorrect because This option suggests that fixe...
Which of the following best describes variable costs in the context of a firm's cost minimization strategy?
Variable costs change based on how much a company produces. Other options are incorrect because Some may think these costs stay the same no matter wha...
If a firm finds that increasing labor leads to a decrease in the marginal product of labor while the marginal product of capital remains stable, what is the likely cause of this effect?
When a firm hires too many workers, each new worker adds less to production. Other options are incorrect because Some might think hiring more workers ...
What is the correct sequence for a firm to minimize its costs when producing goods?
To minimize costs, a firm should first compare how much extra output it gets from labor and capital. Other options are incorrect because This answer s...
To achieve cost minimization, a firm should adjust its input factors until the ratio of the marginal product of labor to the price of labor equals the ratio of the marginal product of capital to the price of capital. This principle is known as the _____ condition.
The Equimarginal condition helps firms use their resources wisely. Other options are incorrect because Some might think profit maximization is the sam...
A firm is currently using a combination of labor and capital. If the marginal product of labor is equal to the marginal product of capital, what should the firm consider doing next?
When the extra output from labor equals the extra output from capital, the firm is using its resources well. Other options are incorrect because Some ...
A firm is currently employing 10 units of labor and 5 units of capital, producing 100 units of output. If the firm can increase its output to 120 units by employing 2 additional units of labor at the same cost as its current capital, which category best describes the firm's decision-making process related to cost minimization?
Increasing labor is a good choice if it helps produce more output. Other options are incorrect because Thinking the firm should keep everything the sa...
If a firm finds that the marginal product of labor is greater than the marginal product of capital, what should it do to minimize costs?
When the extra output from workers is higher than from machines, hiring more workers helps produce more for less cost. Other options are incorrect bec...
If the process of cost minimization in firms can be compared to a chef selecting ingredients, then selecting the optimal combination of labor and capital is to cost minimization as choosing the right balance of spices is to what?
Just like a chef needs the right spices to make a tasty dish, firms need the right mix of labor and capital to keep costs low and be successful. Other...
A small bakery is deciding whether to hire an additional baker or invest in a new oven to increase production. If the marginal product of labor (additional output from hiring another baker) is equal to the marginal product of capital (additional output from the new oven), what should the bakery consider doing to minimize costs while maximizing output?
The bakery should compare the costs of each option to see which gives more output for less money. Other options are incorrect because Some might think...
Which of the following statements accurately describe the principles of cost minimization in firms? Select all that apply.
Other options are incorrect because This suggests that more workers are always better; This statement is close but not quite right....
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