Question 1

If doubling all inputs less than doubles the level of output, then the production function exhibits what type of returns to scale?

Accepted Answer

A) variable 
B) increasing 
C) decreasing 
D) constant 
A) variable 
B) increasing 
C) decreasing 
D) constant

Question 2

Cost minimization requires:

Accepted Answer

A) that firms produce above the production function. 
B) that the marginal product is equal to unity. 
C) that the marginal cost be equal across all inputs. 
D) that firms set the MRTS equal to the relative wage. 
A) that firms produce above the production function. 
B) that the marginal product is equal to unity. 
C) that the marginal cost be equal across all inputs. 
D) that firms set the MRTS equal to the relative wage.

Question 3

A producer has two alternative techniques to produce a unit of output out of labour. In the first, the production function is given by y1(l1)=l10.5, and in the second it is given by y2(l2)=2l20.5. The cost function c(y,w)of the producer gives the minimal expenditure required to produce a given total amount of y of the output (i.e.: y1 +y2
=y)at input price w.
a)Set up the cost minimisation problem and solve for the optimal choice of l1 and l2 as a function of the required output. Finally, derive the cost function for the producer.
b)Determine the firm supply under price- taking behaviour of the firm as a function of p and w.
c)Finally, suppose that p=10 and w=5. Determine the profit- maximising quantity produced and the associated level of profits.

Accepted Answer

a)C(w,y)=0.2wy² b)y(p

Question 4

Two fuels suitable for heating a building are:

Accepted Answer

A) perfect complements. 
B) imperfect complements. 
C) imperfect substitutes. 
D) perfect substitutes. 
A) perfect complements. 
B) imperfect complements. 
C) imperfect substitutes. 
D) perfect substitutes.

Question 5

Any input bundle on an isocost curve yields a higher output than any point below the isocost curve.

Accepted Answer

A) True 
 B)False

Question 6

The marginal rate of technical substitution is the absolute value of the slope of

Accepted Answer

A) an isocost 
B) a production possibility curve 
C) an isoquant 
D) an indifference curve 
A) an isocost 
B) a production possibility curve 
C) an isoquant 
D) an indifference curve

Question 7

Floppy Corp produces software using two inputs, large (700 MB)discs, L, and small (210 MB)minidiscs, S. Its production function is given by: Q = (L/2)+ S where Q is output.
i)Does the production function exhibit constant, increasing, or decreasing returns to scale?
ii)Draw isoquants for Q = 2 and Q = 3. What is the firm's marginal rate of technical substitution?
iii)Suppose small disks cost $3 each and large disks cost $1 each. How many of each type of disk will Floppy Corp use to produce Q = 2? Q = 3?
iv)What is the firm's cost function when small disks cost $3 and large disks cost $1?

Accepted Answer

i)CRTS;
ii)MRTS = 1/2(L on the

Question 8

For the production function f(z1,z2)= min(z1,z2), z1 and z2 are:

Accepted Answer

A) imperfect complements. 
B) perfect complements. 
C) imperfect substitutes. 
D) inferior inputs. 
A) imperfect complements. 
B) perfect complements. 
C) imperfect substitutes. 
D) inferior inputs.

Question 9

Figure 7A
 
-The optimum combination of inputs in Figure 7A is given by:

Accepted Answer

A) points A and C. 
B) points F and G. 
C) points E and H. 
D) points C and D. 
A) points A and C. 
B) points F and G. 
C) points E and H. 
D) points C and D.

Question 10

If a production function is homothetic, the MRTS:

Accepted Answer

A) changes unpredictably along a ray from the origin. 
B) is constant along a ray from the origin. 
C) decreases along a ray from the origin. 
D) increases along a ray from the origin. 
A) changes unpredictably along a ray from the origin. 
B) is constant along a ray from the origin. 
C) decreases along a ray from the origin. 
D) increases along a ray from the origin.

Question 11

A union has hired you as a consultant to help them in negotiations with the management. While layoffs have been occurring in other industries as capital prices have fallen, these workers feel their jobs are secure. Using the concept of the marginal rate of technical substitution, explain to the union why its belief is incorrect.

Accepted Answer

The firm picks K and L such that the MRT

Question 12

When the minimum wage rises in a competitive labour market, the number of jobs available to workers qualified for such jobs:

Accepted Answer

A) is constant. 
B) does not increase. 
C) decreases. 
D) increases. 
A) is constant. 
B) does not increase. 
C) decreases. 
D) increases.

Question 13

If a production function exhibits increasing returns to scale, a 10% increase in:

Accepted Answer

A) input- use results in a less than 10% increase. 
B) the LMC being above LAC. 
C) output requires a more than 10% increase in the input- use. 
D) output results in a less than 10% increase in the input- use. 
A) input- use results in a less than 10% increase. 
B) the LMC being above LAC. 
C) output requires a more than 10% increase in the input- use. 
D) output results in a less than 10% increase in the input- use.

Question 14

For homothetic production functions, the scale factor determines the:

Accepted Answer

A) scale of production along the output expansion path. 
B) total weight of goods produced per period. 
C) cost minimizing quantity of output. 
D) profit maximizing quantity of output. 
A) scale of production along the output expansion path. 
B) total weight of goods produced per period. 
C) cost minimizing quantity of output. 
D) profit maximizing quantity of output.

Question 15

When returns to scale are decreasing, long run marginal cost is:

Accepted Answer

A) less than long run average cost. 
B) negative. 
C) equal to long run average cost. 
D) greater than long run average cost. 
A) less than long run average cost. 
B) negative. 
C) equal to long run average cost. 
D) greater than long run average cost.

Question 16

Figure 7A
 
-Point B in Figure 7A is:

Accepted Answer

A) infeasible and not optimal. 
B) feasible but not optimal. 
C) optimal but not feasible. 
D) optimal but marginal. 
A) infeasible and not optimal. 
B) feasible but not optimal. 
C) optimal but not feasible. 
D) optimal but marginal.

Question 17

Which of the following is not true of a homothetic production function?

Accepted Answer

A) the output- expansion path is quasi- linear. 
B) leads to all input demand functions as downward sloping. 
C) has all isoquants the same shape. 
D) has all inputs as normal. 
A) the output- expansion path is quasi- linear. 
B) leads to all input demand functions as downward sloping. 
C) has all isoquants the same shape. 
D) has all inputs as normal.

Question 18

If a firm's production function is f(z1,z2)= z1 + z2, z1 and z2 are:

Accepted Answer

A) perfect substitutes. 
B) perfect complements. 
C) inferior inputs. 
D) additive inputs. 
A) perfect substitutes. 
B) perfect complements. 
C) inferior inputs. 
D) additive inputs.

Question 19

If a firm's production process fits the standard stylization, as its scale increases, its marginal and average output:

Accepted Answer

A) increase, then decrease, then are constant. 
B) decrease, then are constant, then increase. 
C) are constant, then increase, then decrease. 
D) increase, then are constant, then decrease. 
A) increase, then decrease, then are constant. 
B) decrease, then are constant, then increase. 
C) are constant, then increase, then decrease. 
D) increase, then are constant, then decrease.

Question 20

Relative to some specific level of output, a feasible input bundle is:

Accepted Answer

A) on the isoquant associated with the level of output. 
B) below the isoquant. 
C) one that is affordable. 
D) one that produces at least the specific level of output. 
A) on the isoquant associated with the level of output. 
B) below the isoquant. 
C) one that is affordable. 
D) one that produces at least the specific level of output.

If doubling all inputs less than doubles the level of output, then the production function exhibits what type of returns to scale?

Cost minimization requires:

Two fuels suitable for heating a building are:

Any input bundle on an isocost curve yields a higher output than any point below the isocost curve.

The marginal rate of technical substitution is the absolute value of the slope of

For the production function f(z₁,z₂)= min(z₁,z₂), z₁and z₂are:

Figure 7A -The optimum combination of inputs in Figure 7A is given by:

If a production function is homothetic, the MRTS:

When the minimum wage rises in a competitive labour market, the number of jobs available to workers qualified for such jobs:

If a production function exhibits increasing returns to scale, a 10% increase in:

For homothetic production functions, the scale factor determines the:

When returns to scale are decreasing, long run marginal cost is:

Figure 7A -Point B in Figure 7A is:

Which of the following is not true of a homothetic production function?

If a firm's production function is f(z₁,z₂)= z₁+ z₂, z₁and z₂are:

If a firm's production process fits the standard stylization, as its scale increases, its marginal and average output:

Relative to some specific level of output, a feasible input bundle is:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

Exam 7: Production Cost: Many Variable Inputs

If doubling all inputs less than doubles the level of output, then the production function exhibits what type of returns to scale?

Cost minimization requires:

Two fuels suitable for heating a building are:

Any input bundle on an isocost curve yields a higher output than any point below the isocost curve.

The marginal rate of technical substitution is the absolute value of the slope of

For the production function f(z1,z2)= min(z1,z2), z1 and z2 are:

Figure 7A -The optimum combination of inputs in Figure 7A is given by:

If a production function is homothetic, the MRTS:

When the minimum wage rises in a competitive labour market, the number of jobs available to workers qualified for such jobs:

If a production function exhibits increasing returns to scale, a 10% increase in:

For homothetic production functions, the scale factor determines the:

When returns to scale are decreasing, long run marginal cost is:

Figure 7A -Point B in Figure 7A is:

Which of the following is not true of a homothetic production function?

If a firm's production function is f(z1,z2)= z1 + z2, z1 and z2 are:

If a firm's production process fits the standard stylization, as its scale increases, its marginal and average output:

Relative to some specific level of output, a feasible input bundle is:

Microeconomics: a Working Methodology

A Theory of Preferences

Demand Theory

More Demand Theory

Intertemporal Decision Making and Capital Values

Production Cost: One Variable Input

The Theory of Perfect Competition

Applications of the Competitive Model

Monopoly

Input Markets and the Allocation of Resources

Labour Market Applications

Competitive General Equilibrium

Price Discrimination Monopoly Practices

Introduction to Game Theory

Game Theory and Oligopoly

Choice Making Under Uncertainty

Assymmetric Information, the Rules of the Game, and Externalities

The Theory of the Firm

Assymetric Information and Market Behaviour

Filters

For the production function f(z₁,z₂)= min(z₁,z₂), z₁and z₂are:

If a firm's production function is f(z₁,z₂)= z₁+ z₂, z₁and z₂are: