Question 1

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and decreasing additions to total product begin, then:

Accepted Answer

A)  diminishing marginal returns have begun. 
B)  marginal product has reached its maximum. 
C)  total product is rising. 
D)  average product is rising. 
E)  all of the above 
A)  diminishing marginal returns have begun. 
B)  marginal product has reached its maximum. 
C)  total product is rising. 
D)  average product is rising. 
E)  all of the above E

Question 2

The We Make Them Like They Used To Manufacturing Company, Inc produces Victorian wood molding for the booming home restoration market. As they have only recently entered the market, WMTLTUMC, Inc produces only one product - bullet molding. A production function for this single product firm can be expressed as follows:
Q = 60L + 30K + .75LK
where:
Q = number of pallets containing 1000 board feet of molding produced per day
L = units of labor input used per day
K = units of capital input used per day
They are currently utilizing 100 units of capital per day, and 60 units of labor per day. As this process requires highly skilled labor, the price of labor is currently $18.00 per unit and the price of a unit of capital is $6.00. These prices are expected to remain constant into the foreseeable future. Is WMTLTUMC, Inc operating its woodworking facility at a least-cost combination of inputs? Why or why not?

Accepted Answer

For a least cost combination of inputs,

Question 3

The expansion path of a firm refers to the path that connects least cost combinations of input for different levels of output, assuming constant input prices.

Accepted Answer

A) True 
 B)False  True

Question 4

The given production function exhibits which of the following?

Accepted Answer

A)  constant returns to scale - for every 100% increase in input, there is a 100% increase in output. 
B)  decreasing returns to scale - for every 100% increase in input, there is a .675% increase in output. 
C)  decreasing returns to scale - for every 100% increase in input, there is a .425% increase in output 
D)  increasing returns to scale - for every 100% increase in input, there is a 675% increase in output 
E)  increasing returns to scale - for every 100% increase in input, there is a 425% increase in output. 
A)  constant returns to scale - for every 100% increase in input, there is a 100% increase in output. 
B)  decreasing returns to scale - for every 100% increase in input, there is a .675% increase in output. 
C)  decreasing returns to scale - for every 100% increase in input, there is a .425% increase in output 
D)  increasing returns to scale - for every 100% increase in input, there is a 675% increase in output 
E)  increasing returns to scale - for every 100% increase in input, there is a 425% increase in output.

Question 5

The following table gives the quantities of output that can be produced with different amounts of capital and labor utilized by a firm.
   
a. What are the returns to scale for this firm over the range of capital and labor shown on the table? Why?
b. Compute the marginal product and average product of capital for L = 2 as K varies from 1 unit to 5 units.
c. Compute the marginal product and average product of labor for K = 3 as L varies from 1 unit to 5 units.
d. Suppose the firm is producing 230 units of output using 3 units of capital and 2 units of labor. The cost of one unit of capital is $100 and the cost of one unit of labor is $5. Is the firm using a least cost combination of inputs? Why or why not?

Accepted Answer

a. Constant returns to scale because dou

Question 6

If two inputs must be used in fixed proportions, then:

Accepted Answer

A)  the inputs are perfect substitutes. 
B)  the inputs are imperfect substitutes. 
C)  the inputs are not substitutable. 
D)  the amount of each input is the same along an isoquant. 
E)  none of the above. 
A)  the inputs are perfect substitutes. 
B)  the inputs are imperfect substitutes. 
C)  the inputs are not substitutable. 
D)  the amount of each input is the same along an isoquant. 
E)  none of the above.

Question 7

Van Farms Inc. is a small grower of watermelons. Van Farms estimates that watermelon output would increase by 1,200 per month with an additional 1,000 gallons of water per month provided by an irrigation system. Alternatively, watermelon output could be increased by 500 per month with an additional 2 tons of fertilizer per month. Assuming the cost of water is $.03 per gallon and that fertilizer is $25 per ton, is Van Farms using an optimal combination of fertilizer and water? Why or why not?

Accepted Answer

For a least cost combination of inputs,

Question 8

The following table gives the quantities of output that can be produced with different amounts of capital and labor utilized by a firm.
     
a. What are the returns to scale for this firm over the range of capital and labor shown on the table? Why?
b. Compute the marginal product and average product of capital for L = 3 as K varies from 1 unit to 6 units.
c. Compute the marginal product and average product of labor for K = 4 as L varies from 1 unit to 6 units.
d. Suppose the firm is producing 300 units of output using 4 units of capital and 3 units of labor. The cost of one unit of capital is $15.00 and the cost of one unit of labor is $75.00. Is the firm using a least cost combination of inputs? Why or why not?

Accepted Answer

a. Increasing returns to scale because d

Question 9

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and increasing additions to total product occur, then:

Accepted Answer

A)  diminishing marginal returns have begun. 
B)  the output level where marginal product is maximized has not yet been reached. 
C)  average product has reached its maximum. 
D)  average product is at its minimum. 
E)  average product is declining. 
A)  diminishing marginal returns have begun. 
B)  the output level where marginal product is maximized has not yet been reached. 
C)  average product has reached its maximum. 
D)  average product is at its minimum. 
E)  average product is declining.

Question 10

With output held constant, for a combination of inputs to be a least cost combination, the slopes of an isocost line and the isoquant curve must be equal at the point the where the two curves touch.

Accepted Answer

A) True 
 B)False

Question 11

If, after reaching a certain level of production, one additional unit an input variable would produce a decline in total product, then:

Accepted Answer

A)  diminishing marginal returns to that input have begun. 
B)  the output level where marginal product of that input is maximized has not yet been reached. 
C)  the output level where marginal product of that input is equal to zero has been reached. 
D)  average product of that input is at its minimum. 
E)  average product of that input is increasing. 
A)  diminishing marginal returns to that input have begun. 
B)  the output level where marginal product of that input is maximized has not yet been reached. 
C)  the output level where marginal product of that input is equal to zero has been reached. 
D)  average product of that input is at its minimum. 
E)  average product of that input is increasing.

Question 12

If the percentage increase in a firm's output is lower than the percentage increase in all of its inputs, then:

Accepted Answer

A)  diminishing marginal returns have begun. 
B)  the firm is employing the least cost combination of inputs. 
C)  returns to scale are constant. 
D)  returns to scale are decreasing. 
E)  returns to scale are increasing. 
A)  diminishing marginal returns have begun. 
B)  the firm is employing the least cost combination of inputs. 
C)  returns to scale are constant. 
D)  returns to scale are decreasing. 
E)  returns to scale are increasing.

Question 13

The marginal rate of technical) substitution is the:

Accepted Answer

A)  negative of the slope of the isoquant. 
B)  slope of the isoquant. 
C)  always constant. 
D)  inverse of the slope of the isoquant. 
E)  none of the above. 
A)  negative of the slope of the isoquant. 
B)  slope of the isoquant. 
C)  always constant. 
D)  inverse of the slope of the isoquant. 
E)  none of the above.

Question 14

If the percentage increase in a firm's output is higher than the percentage increase in all of its inputs, then:

Accepted Answer

A)  diminishing marginal returns have begun. 
B)  the firm is employing the least cost combination of inputs. 
C)  returns to scale are constant. 
D)  returns to scale are increasing. 
E)  returns to scale are decreasing. 
A)  diminishing marginal returns have begun. 
B)  the firm is employing the least cost combination of inputs. 
C)  returns to scale are constant. 
D)  returns to scale are increasing. 
E)  returns to scale are decreasing.

Question 15

The Garbage Muncher Inc, a commercial garbage service, is considering the purchase of a newer combination truck and open top dumpster system which will allow them to collect 10 additional tons of garbage per day. The new system will require an additional capital investment of $96,000 per year based on a 240 workday year of 8 working hours per day. As an alternative Muncher could hire additional laborers at $7.50 per hour. These laborers, utilizing current equipment, can load one ton of garbage every four hours. Assume that demand for Muncher's services is great, and that they intend to expand to meet this demand. Also assume that with the utilization of either system, Muncher's price exceeds its average variable cost) If Muncher wishes to maximize profit, should they purchase a new system or hire more laborers? Why?

Accepted Answer

In order to maximize profit, Muncher sho

Question 16

The reason that we can say that the production function indicates the maximum quantities that can be produced with each combination of inputs is because we are assuming that all of the inputs are being used efficiently.

Accepted Answer

A) True 
 B)False

Question 17

The long run is a period of time long enough for all inputs, or factors of production, to be variable as far as the individual firm is concerned.

Accepted Answer

A) True 
 B)False

Question 18

The given production function exhibits which of the following?

Accepted Answer

A)  constant returns to scale - for every 100% increase in input, there is a 100% increase in output. 
B)  decreasing returns to scale - for every 100% increase in input, there is a .700% increase in output. 
C)  decreasing returns to scale - for every 100% increase in input, there is a .425% increase in output 
D)  increasing returns to scale - for every 100% increase in input, there is a 700% increase in output 
E)  increasing returns to scale - for every 100% increase in input, there is a 425% increase in output. 
A)  constant returns to scale - for every 100% increase in input, there is a 100% increase in output. 
B)  decreasing returns to scale - for every 100% increase in input, there is a .700% increase in output. 
C)  decreasing returns to scale - for every 100% increase in input, there is a .425% increase in output 
D)  increasing returns to scale - for every 100% increase in input, there is a 700% increase in output 
E)  increasing returns to scale - for every 100% increase in input, there is a 425% increase in output.

Question 19

The following table gives the quantities of output that can be produced with different amounts of capital and labor utilized by a firm.
   
a. What are the returns to scale for this firm over the range of capital and labor shown on the table? Why?
b. Compute the marginal product and average product of capital for L = 4 as K varies from 1 unit to 5 units.
c. Compute the marginal product and average product of labor for K = 1 as L varies from 1 unit to 5 units.
d. Suppose the firm is producing 376 units of output using 1 units of capital and 4 units of labor. The cost of one unit of capital is $39.50 and the cost of one unit of labor is $11.00. Is the firm using a least cost combination of inputs? Why or why not?

Accepted Answer

a. Constant returns to scale because dou

Question 20

The short run is a period so brief that the amount of at least one input, or factor of production, is fixed.

Accepted Answer

A) True 
 B)False

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and decreasing additions to total product begin, then:

The expansion path of a firm refers to the path that connects least cost combinations of input for different levels of output, assuming constant input prices.

The given production function exhibits which of the following?

If two inputs must be used in fixed proportions, then:

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and increasing additions to total product occur, then:

With output held constant, for a combination of inputs to be a least cost combination, the slopes of an isocost line and the isoquant curve must be equal at the point the where the two curves touch.

If, after reaching a certain level of production, one additional unit an input variable would produce a decline in total product, then:

If the percentage increase in a firm's output is lower than the percentage increase in all of its inputs, then:

The marginal rate of technical) substitution is the:

If the percentage increase in a firm's output is higher than the percentage increase in all of its inputs, then:

The reason that we can say that the production function indicates the maximum quantities that can be produced with each combination of inputs is because we are assuming that all of the inputs are being used efficiently.

The long run is a period of time long enough for all inputs, or factors of production, to be variable as far as the individual firm is concerned.

The given production function exhibits which of the following?

The short run is a period so brief that the amount of at least one input, or factor of production, is fixed.

Introduction, Basic Principles, and Methodology

Revenue of the Firm

Topics in Demand Analysis and Estimation

Economic Forecasting

Cost of Production

Profit Analysis of the Firm

Perfect Competition and Monopoly

Monopolistic Competition and Oligopoly

Games, Information and Strategy

Topics in Pricing and Profit Analysis

Factor Markets

Fundamentals of Project Evaluation

Risk in Project Analysis

Economics of Public Sector Decisions

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Exam 5: Production Analysis

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and decreasing additions to total product begin, then:

The expansion path of a firm refers to the path that connects least cost combinations of input for different levels of output, assuming constant input prices.

The given production function exhibits which of the following?

If two inputs must be used in fixed proportions, then:

If equal increments of one variable input are added while keeping the amounts of all other inputs fixed, and increasing additions to total product occur, then:

With output held constant, for a combination of inputs to be a least cost combination, the slopes of an isocost line and the isoquant curve must be equal at the point the where the two curves touch.

If, after reaching a certain level of production, one additional unit an input variable would produce a decline in total product, then:

If the percentage increase in a firm's output is lower than the percentage increase in all of its inputs, then:

The marginal rate of technical) substitution is the:

If the percentage increase in a firm's output is higher than the percentage increase in all of its inputs, then:

The reason that we can say that the production function indicates the maximum quantities that can be produced with each combination of inputs is because we are assuming that all of the inputs are being used efficiently.

The long run is a period of time long enough for all inputs, or factors of production, to be variable as far as the individual firm is concerned.

The given production function exhibits which of the following?

The short run is a period so brief that the amount of at least one input, or factor of production, is fixed.

Introduction, Basic Principles, and Methodology

Revenue of the Firm

Topics in Demand Analysis and Estimation

Economic Forecasting

Cost of Production

Profit Analysis of the Firm

Perfect Competition and Monopoly

Monopolistic Competition and Oligopoly

Games, Information and Strategy

Topics in Pricing and Profit Analysis

Factor Markets

Fundamentals of Project Evaluation

Risk in Project Analysis

Economics of Public Sector Decisions

Legal and Regulatory Environment of the Firm

Filters