Exam 7: Production Theory and Estimation

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 $5 and that the firm currently employs 1 unit of capital (K = 1). (i)What is the marginal product of labor when L = 2? (ii)What is the average product of labor when L = 2? (iii)What is the marginal revenue product of labor when L = 2? What is the output elasticity of labor when L = 2? (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?

Which of the following is not a characteristic of production technologies that can be described by the Cobb-Douglas production function?

Inputs that cannot be easily varied during the time period under consideration are called

Use the following to answer questions below: -Refer to the equilibrium graph. What is the marginal rate of technical substitution at point B?

Suppose that three isoquants that represent 10, 20, and 30 units of output are plotted on a graph and a straight line is drawn from the origin through the isoquants. If the portion of the line between the isoquants that represent 10 and 20 units of output is longer than the portion of the line between the isoquants that represent 20 and 30 units of output, then the firm represented by these isoquants

Stage II of production begins at the point

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 zero?

Suppose that the production function of a firm is Q = 100L0.5K0.5 and K = 100, P = $1, w = $30, and r = $40. Determine the quantity of labor that the firm should hire in order to maximize profits. What is the maximum profit of this firm?

Consider the following scenario: the firm estimates that currently, its marginal product of labor is 80, while the marginal product of capital is 160. The firm pays $40 in the rental price of capital and $15 in wage. Can this firm improve its profits by adjusting its labor and capital combination while holding the overall costs of production constant? And if yes, how? (Assume the standard assumptions about the production function, i.e. diminishing marginal products).

All inputs are fixed in the short run.

Which of the following is an example of an intermediate product?

The firm hires 10 additional employees which produce 500 additional parts. If the revenue increases by 150,000, what is the marginal revenue product of labor?

Which of the following acronyms refers to the use of computers to design new products?

Suppose that the production function for a commodity is given by $Q = 5 \sqrt { L K }$ where Q is the quantity of output, L is the quantity of labor, and K is the quantity of capital. (a) Indicate whether this production function exhibits constant, increasing, or decreasing returns to scale. (b) Does the production function exhibit diminishing returns? If so, when does the law of diminishing returns begin to operate? Could we ever get negative returns?

Suppose that the production function of a firm is Q = 100L0.5K0.5 and K = 100, P = $1, w = $30, and r = $40. Determine the quantity of labor that the firm should hire in order to maximize profits. What is the maximum profit of this firm?

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 $3 and that the firm currently employs 3 units of capital (K = 3). (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 $12, how many units of labor should the firm hire and how many units of output should it produce?

The law of diminishing returns

Which of the following is an example of a capital input?

An isoquant that is

An isocost line will be shifted farther away from the origin