Exam 7: Production Theory and Estimation

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 increasing and then decreasing?

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 constant?

The marginal resource cost of an input is identical to the firm's demand curve for that input.

The average product and the marginal product of the variable input are equal at the level of output that corresponds to the inflection point on the short-run production function.

How many years does the long-run refer to?

Product differentiation exists when an industry produces goods that are not identical.

Intra-industry trade refers 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 equal to the average product of labor?

Intra-industry trade allows each country to specialize in some variation of a product.

In his Unrelenting Innovation: How to Build a Culture for Market Dominance (San Francisco: Jossey-Boss, 2013), Gerard J. Tellis states that the single most important driver of innovation in any firm is

If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line

If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is $3, the rental price of capital is $6, and the price of output is $1.50, then the firm should

Comparative advantage is the basis for

The marginal revenue product of labor for a firm

A firm currently employs 40 production workers and 5 supervisors. The marginal product of the last production worker employed is 36 units of output per hour and production workers are paid $8 per hour. The marginal product of the last supervisor employed is 120 units of output per hour and supervisors are paid $20 per hour. Every employee works 40 hours per week. (i)What is the firm's total labor cost per week? (ii)Assume that hours of labor by supervisors (L_s) is plotted on the vertical axis and hours of labor by production workers (L_p) is plotted on the horizontal axis. What is the equation for the firm's isocost line? What are the two intercepts of the isocost line? (iii)Assume that the firm's isoquants are smooth curves and that labor hours can be varied continuously. Is the firm producing the maximum level of output given its current level of cost? If it is, explain how you can tell. If it isn't, explain what it should do to increase output.

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

A firm currently employs 25 production workers and 4 supervisors. The marginal product of the last production worker employed is 50 units of output per hour and production workers are paid $10 per hour. The marginal product of the last supervisor employed is 160 units of output per hour and supervisors are paid $40 per hour. Every employee works 40 hours per week. (i)What is the firm's total labor cost per week? (ii)Assume that hours of labor by supervisors (L_s) is plotted on the vertical axis and hours of labor by production workers (L_p) is plotted on the horizontal axis. What is the equation for the firm's isocost line? What are the two intercepts of the isocost line? (iii)Assume that the firm's isoquants are smooth curves and that labor hours can be varied continuously. Is the firm producing the maximum level of output given its current level of cost? If it is, explain how you can tell. If it isn't, explain what it should do to increase output.

Fixed inputs are those that can never be changed.

Stage II of production begins at a level of output where the average product of the variable input is at a maximum and ends where the marginal product of the variable input is equal to zero.

Consider the following scenario: the firm estimates that currently, its marginal product of labor is 40, while the marginal product of capital is 160. The firm pays $40 in the rental price of capital and $10 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).