Question 1

The marginal rate of technical substitution is the rate at which one factor input can be substituted for another at a given level of output.

Accepted Answer

A) True 
 B)False  True

Question 2

The marginal rate of technical substitution of labour for capital measures:

Accepted Answer

A)  The amount by which capital input can be reduced while holding quantity produced constant when one more unit of labour is used. 
B)  The amount by which labour input can be reduced while holding quantity produced constant when one more unit of capital is used. 
C)  The ratio of total labour to total capital. 
D)  The ratio of total capital to total labour. 
A)  The amount by which capital input can be reduced while holding quantity produced constant when one more unit of labour is used. 
B)  The amount by which labour input can be reduced while holding quantity produced constant when one more unit of capital is used. 
C)  The ratio of total labour to total capital. 
D)  The ratio of total capital to total labour. A

Question 3

An increase in the wage rate will have a greater effect on average costs

Accepted Answer

A)  The larger the proportion labour costs are of total costs and the easier it is to substitute capital for labour. 
B)  The larger the proportion labour costs are of total costs and the harder it is to substitute capital for labour. 
C)  The greater is the diminishing marginal product of labour. 
D)  The greater are returns to scale. 
A)  The larger the proportion labour costs are of total costs and the easier it is to substitute capital for labour. 
B)  The larger the proportion labour costs are of total costs and the harder it is to substitute capital for labour. 
C)  The greater is the diminishing marginal product of labour. 
D)  The greater are returns to scale. B

Question 4

An isocost line:

Accepted Answer

A)  Shows the different combination of factor inputs, which can be purchased with a given budget. 
B)  The rate at which one factor input can be substituted for another at a given level of output. 
C)  Possible combinations of factor inputs that can be used to produce a given level of output. 
D)  Shows the marginal rate of substitution. 
A)  Shows the different combination of factor inputs, which can be purchased with a given budget. 
B)  The rate at which one factor input can be substituted for another at a given level of output. 
C)  Possible combinations of factor inputs that can be used to produce a given level of output. 
D)  Shows the marginal rate of substitution.

Question 5

The least-cost combination occurs where:

Accepted Answer

A)  The Isocost line cuts through the Isoquant curve. 
B)  On the uppermost of the two points where the Isocost line cuts through the Isoquant curve. 
C)  Where the Isocost line is just tangential to the Isoquant curve. 
D)  As long as the Isoquant line doesn't touch the Isocost line. 
A)  The Isocost line cuts through the Isoquant curve. 
B)  On the uppermost of the two points where the Isocost line cuts through the Isoquant curve. 
C)  Where the Isocost line is just tangential to the Isoquant curve. 
D)  As long as the Isoquant line doesn't touch the Isocost line.

Question 6

How does an increase in the price of labour affect the slope of an isocost line?

Accepted Answer

An increase in the price of one factor i

Question 7

There are an infinite number of isocost lines, each corresponding to every possible level of total cost.

Accepted Answer

A) True 
 B)False

Question 8

Assume that capital is represented by the vertical axis and labour is represented by the horizontal axis. The steeper an isoquant is:

Accepted Answer

A)  The larger the marginal productivity of labour relative to that of capital. 
B)  The greater is the substitutability between capital and labour. 
C)  The larger the marginal productivity of capital relative to that of labour. 
D)  The greater is the budget available to the firm. 
A)  The larger the marginal productivity of labour relative to that of capital. 
B)  The greater is the substitutability between capital and labour. 
C)  The larger the marginal productivity of capital relative to that of labour. 
D)  The greater is the budget available to the firm.

Question 9

Any point where the Isocost line cuts the isoquant line is:

Accepted Answer

A)  An impossible combination of factors. 
B)  A possible combination of factors that could be used. 
C)  An efficient use of the combination of factors. 
D)  A point that is below the firm's budget constraint. 
A)  An impossible combination of factors. 
B)  A possible combination of factors that could be used. 
C)  An efficient use of the combination of factors. 
D)  A point that is below the firm's budget constraint.

Question 10

A production function measures how:

Accepted Answer

A)  A firm transforms output into input. 
B)  A firm transforms inputs into output. 
C)  An individual maximizes utility. 
D)  A firm minimizes cost. 
A)  A firm transforms output into input. 
B)  A firm transforms inputs into output. 
C)  An individual maximizes utility. 
D)  A firm minimizes cost.

Question 11

A production isoquant is a function that represents:

Accepted Answer

A)  The best combination of factor inputs that can be used to produce a given level of output. 
B)  The different combination of factor inputs which can be purchased with a given budget. 
C)  The budget available to the firm. 
D)  All the possible combinations of factor inputs that can be used to produce a given level of output. 
A)  The best combination of factor inputs that can be used to produce a given level of output. 
B)  The different combination of factor inputs which can be purchased with a given budget. 
C)  The budget available to the firm. 
D)  All the possible combinations of factor inputs that can be used to produce a given level of output.

Question 12

The production isoquant line measures the different combination of factor inputs such as labour and capital, which can be purchased within a given budget.

Accepted Answer

A) True 
 B)False

Question 13

When are the factor inputs, labour and capital, perfect substitutes and how does this affect the shape of the isoquant line?

Accepted Answer

The two factor inputs labour a

Question 14

Suppose the production function for good q is given by q = 3K + 2 L where K and L are capital and labour inputs. Consider three statements about this function: I. The function exhibits constant returns to scale.
II) The function exhibits diminishing marginal productivities to all inputs.
III) The function has a constant rate of technical substitution.
Which of these statements is true?

Accepted Answer

A)  All of them. 
B)  Only I. 
C)  I and II but not III. 
D)  I and III but not II. 
A)  All of them. 
B)  Only I. 
C)  I and II but not III. 
D)  I and III but not II.

Question 15

The isocost line measures the different combination of factor inputs such as labour and capital, which can be purchased within a given budget.

Accepted Answer

A) True 
 B)False

Question 16

Explain how a firm may increase the amount it produces without increasing the budget.

Accepted Answer

A firm may decide that its current combi

Question 17

Trying to maximize output and minimize costs is an example of a constrained optimization problem.

Accepted Answer

A) True 
 B)False

Question 18

Why might the least-cost input combination change?

Accepted Answer

The least-cost input combination can cha

Question 19

The least-cost combination can change if:

Accepted Answer

A)  The cost of labour changes. 
B)  The cost of capital changes. 
C)  If both factors changes equally. 
D)  All of the above. 
A)  The cost of labour changes. 
B)  The cost of capital changes. 
C)  If both factors changes equally. 
D)  All of the above.

Question 20

Find the least cost output assuming that MPL = €10 and MPK = €20

Accepted Answer

A)  Total cost of labour €200 and total cost of capital €200 
B)  Total cost of labour €200 and total cost of capital €400 
C)  Total cost of labour €400 and total cost of capital €200 
D)  It can't be done. 
A)  Total cost of labour €200 and total cost of capital €200 
B)  Total cost of labour €200 and total cost of capital €400 
C)  Total cost of labour €400 and total cost of capital €200 
D)  It can't be done.

Exam 13: Firms Production Decisions

The marginal rate of technical substitution is the rate at which one factor input can be substituted for another at a given level of output.

The marginal rate of technical substitution of labour for capital measures:

An increase in the wage rate will have a greater effect on average costs

An isocost line:

The least-cost combination occurs where:

How does an increase in the price of labour affect the slope of an isocost line?

There are an infinite number of isocost lines, each corresponding to every possible level of total cost.

Assume that capital is represented by the vertical axis and labour is represented by the horizontal axis. The steeper an isoquant is:

Any point where the Isocost line cuts the isoquant line is:

A production function measures how:

A production isoquant is a function that represents:

The production isoquant line measures the different combination of factor inputs such as labour and capital, which can be purchased within a given budget.

When are the factor inputs, labour and capital, perfect substitutes and how does this affect the shape of the isoquant line?

The isocost line measures the different combination of factor inputs such as labour and capital, which can be purchased within a given budget.

Explain how a firm may increase the amount it produces without increasing the budget.

Trying to maximize output and minimize costs is an example of a constrained optimization problem.

Why might the least-cost input combination change?

The least-cost combination can change if:

Find the least cost output assuming that MPL = €10 and MPK = €20

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

Supply, Demand and Government Policies

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

Filters