Exam 20: Production Cost Theory and Decisions of the Firm

Use the following to answer questions : Figure 7A-2 -In Figure 7A-2, assuming that the price of inputs are equal and that doubling all inputs doubles output, what is the lowest possible cost to produce Q = 150?

Least-cost relationships tell the firm how much output it should finally produce.

If the price of one factor increases, then the firm will find a new least-cost factor combination by shifting its lowest equal-cost line along its same equal-product curve.

The equal-product curve is a locus of points of constant output which may be produced with varying combinations of inputs.

Use the following to answer questions : Table 7A-1 -For Table 7A-1, if the price of labor = $3 and the price of land = $4, what is the least-cost factor combination of production?

If the firm illustrated in the figure below chooses to expand production from E at minimum cost with constant input prices, it will move to:

The equal-product curve is a locus of points showing constant total cost of producing different outputs with varying combinations of inputs.

The optimum input combination for a firm, given a particular output, is the point at which the equal-product curve for that output is tangent to the lowest-attainable equal-cost line.

If a firm is initially producing at point E in the figure below and the rental price of land increases, then the firm, if it maintains output at the same level, will:

A textile firm operates a plant in the north (where labor is expensive relative to capital)as well as a plant in the south (where capital is expensive relative to labor).In the figure below, the northern plant will most likely minimize costs by combining labor and capital in the amounts indicated by which of the following points?

It is possible to derive the marginal product curves of both labor and capital from a single production function, specifying the outputs for various combinations of these inputs.

If 1 unit each of land and labor are used to make product A (costing a total of $10), and 1 unit of land and 3 units of labor are used to make product B (costing a total of $22), then the price of:

Use the following to answer questions : Figure 7A-1 -Suppose a producer wants to increase production of good y from 100 to 200.Assume MP_L/MP_K and input prices remain constant.If point A in Figure 7A-1 represents the best possible combination of inputs for production of 100, which point represents the new best possible combination?

Use the following to answer questions : Table 7A-1 -If point D is the least-cost factor combination for Q = 100 when the price of labor = $5 and the price of land = $4 for Table 7A-1, what is the (marginal productivity of labor)/(marginal productivity of capital)?

Use the following to answer questions : Figure 7A-2 -In Figure 7A-2, what are the prices of land and labor along equal-cost line AB?

By supplying the firm with a production-function schedule, an engineer is indicating the various combinations of possible inputs which will produce a series of different possible outputs.

Use the following to answer questions : Table 7A-1 -For Table 7A-1, if the price of labor changes to $4 and the price of land changes to $3, what is the new least-cost factor combination?

Use the following to answer questions : Figure 7A-1 -Suppose the producer in Figure 7A-1 wants to increase production of good y from 100 to 200 in the short run.Assume MP_L/MP_K and input prices remain constant.If point A represents the best possible combination of inputs for 100 units of output, which point represents the best input combination in the short run for 200 units of output?

Use the following to answer questions : Table 7A-1 -In Table 7A-1, what is the least cost input combination when the price of land = $4 and the price of labor = $2?

If 1 unit of land and labor are used to make bread (costing a total of $10), while 1 unit of land and 2 units of labor are used to make wine (costing a total of $12), then: