Exam 7: Production Theory and Estimation

Use the following to answer questions below: -Refer to the equilibrium graph. The change from point A to point B is the result of _____. It causes the capital-to-labor ratio to _______.

By using computers to design and manufacture products, firms are able to

Use the following to answer questions below: -Refer to the total product (TP) curve graph. At approximately what quantity of labor is the marginal product of labor closest to its maximum value?

The absolute value of the slope of a convex isoquant

If marginal product of labor is below average product of labor, then

The table below presents estimates of the maximum levels of output possible with various combinations of two inputs. Capita1 (X) 11 25 37 47 51 10 23 33 41 44 8 18 25 30 34 5 11 16 20 22 1 4 8 10 11 Assume that a unit of output sells for $10 and that the firm currently employs 4 units of capital (K = 4). (i)What is the marginal product of labor when L = 5? (ii)What is the average product of labor when L = 5? (iii)What is the marginal revenue product of labor when L = 5? What is the output elasticity of labor when L = 5? (iv) If the wage rate of labor is $80, how many units of labor should the firm hire and how many units of output should it produce?

Use the following to answer questions below: -Refer to the isocost lines graph. Which of the following shifts represents a decrease in the wage rate of labor?

Having a Cobb-Douglas production function with parameters A = 4 and α = 0.5, set up an output table varying each of the inputs from 0 to 4.

The output elasticity of labor is

Use the following to answer questions below: -Refer to the isoquant graphs. Which of the four graphs shows an isoquant where capital (K) and labor (L) are perfect complements?

Use the following to answer questions below: -Refer to the isoquant graphs. Which of the four graphs shows an isoquant where capital (K) and labor (L) are perfect substitutes?

In general, a firm should continue to hire additional units of an input so long as the marginal revenue product of the input is greater than the marginal resource cost of the input.

The table below presents estimates of the maximum levels of output possible with various combinations of two inputs. Capital (K) 11 25 37 47 51 10 23 33 41 44 8 18 25 30 34 5 11 16 20 22 1 4 8 10 11 Labor (L) Assume that a unit of output sells for $2 and that the firm currently employs 2 units of capital (K = 2). (i)What is the marginal product of labor when L = 4? (ii)What is the average product of labor when L = 4? (iii)What is the marginal revenue product of labor when L = 4? What is the output elasticity of labor when L = 4? (iv) If the wage rate of labor is $10, how many units of labor should the firm hire and how many units of output should it produce?

When total product is at its highest before a decline, the marginal product of labor is

One advantage of the use of the Cobb-Douglas production function for empirical estimation is that it can be expressed as a linear function.

Use the following to answer questions below: -Refer to the isoquant maps graph. Assume that the four isoquants in each graph represent output levels of 100, 200, 300, and 400. Which of the four graphs shows an isoquant map in which returns to scale are first decreasing and then increasing?

The marginal rate of technical substitution measures the number of units of one input that can be dispensed with while holding output constant when one additional unit of the other input is added.

Which of the following is not an assumption associated with the definition of a production function?

Use the following to answer questions below: -Refer to the equilibrium graph. If total cost is $80 at point A, what are the rental price of capital (r) and the wage rate of labor (w)?

The law of diminishing returns holds that the marginal product of a variable input will eventually decline if output is increased while at least one input is fixed.