Deck 6: Producer Behavior

Question 1

(Figure 6.1) Which of the following statements is (are) TRUE?

A) I and II
B) III
C) I and IV
D) II

Answer 1

B

Question 2

A basic assumption of the long run is that a firm:

A) cannot change the amount of labor or capital that it employs.
B) can change the amount of labor and capital that it employs.
C) can change the amount of capital that it employs but not the amount of labor.
D) cannot change the amount of capital that it employs but can change the amount of labor.

Answer 2

B

Question 3

Suppose the slope of a short-run production function is given by 2/L^0.5. Which of the following statements is (are) TRUE?

A) II and III
B) I and IV
C) III
D) I, II, and IV

Answer 3

C

Question 4

A donut shop has a production function given by Q = 50K^1/3L^1/2, where Q is the number of donuts produced per hour, K is the number of donut fryers (which is fixed at eight in the short run), and L is the number of employed workers. How many donuts can be produced per hour with four workers in the short run?

A) 200
B) 167
C) 320
D) 84

Question 5

Use the following to answer question:
Figure 6.2
(Figure 6.2) Which of the following statements are TRUE?

A) II and III
B) I, II, and III
C) I, III, and IV
D) I and II

Question 6

Use the following to answer questions 11-12:
Figure 6.1
(Figure 6.1) The average product at L = 2 and L = 8 respectively are:

A) 2 and 1.13.
B) 0.5 and 0.89.
C) 8 and 72.
D) 1.5 and 0.5.

Question 7

A basic assumption of production is that the firm:

A) cannot borrow money to finance its input expenditures.
B) can buy as much labor and capital as it desires at fixed prices.
C) must bid up the prices of labor and capital in order to produce more output.
D) has a downward-sloping budget constraint.

Question 8

A basic assumption of the short run is that a firm:

A) can employ more workers and add more capital to the production process.
B) cannot adjust its workforce or the amount of capital it uses.
C) can reduce the number of workers it uses, but it cannot adjust how much capital it uses.
D) can freely adjust the amount of labor and capital that it employs.

Question 9

Capital cannot be adjusted in the short run because:

A) there is not sufficient time to adjust it.
B) it is too expensive to alter the capital stock.
C) capital markets do not function well enough in the short run.
D) in the short run the firm has yet to decide what product to produce, so it does not yet know what kind of capital it needs.

Question 10

Which situation will likely give rise to diminishing marginal product of labor?

A) Plasma television manufacturers are going out of business because of increased competition from LCD televisions.
B) Hell's Kitchen, which has enough counter space for three cooks per shift, decides to hire a fourth cook per shift.
C) Nevaeh's Kitchen undertakes a massive expansion, doubling both the size of its kitchen and number of cooks.
D) A landscaping firm replaces all of its self-propelled lawnmowers with push mowers.

Question 11

Production is an extremely complicated task, so economists make a number of simplifying assumptions. Which of the following assumptions do economists make in their basic model of producer behavior?

A) I and IV
B) I, II, III, and IV
C) II, III, and IV
D) I and III

Question 12

In the short run, the marginal product of labor:

A) is always diminishing.
B) will eventually fall.
C) continues to increase so long as the firm adds labor slowly.
D) always increases because laborers become more efficient with experience.

Question 13

Suppose a firm's short-run production function is given by Q = 16L^0.8. What is the marginal product of the fourth worker?

A) 36
B) 10
C) 49
D) 1.85

Question 14

The short-run production function for a firm is given by Q = 10L^0.5. What is the marginal product?

A)
B)
C)
D)

Question 15

Which of the following is (are) example(s) of production functions?

A) II and III
B) I, II, and III
C) II
D) I

Question 16

The short-run production function for a firm is given by Q = 40L^2/3. What is the average product?

A) AP_L = 16.67L
B) AP_L = 40/L
C) AP_L = 40/L^1/3
D) AP_L = 1/40L

Question 17

Which of the following is a Cobb-Douglas production function?

A) Q = f(K, L)
B) Q = 5K + 2.5L
C) Q = K^0.50L^0.75
D) Q = 2K/3L

Question 18

Use the following to answer question:
Table 6.2
(Table 6.2) Which of the following statements is (are) TRUE?

A) At L = 1, marginal product is greater than average product.
B) At L = 3, the quantity of output produced per unit of labor is 82.2.
C) The additional output produced by using the second unit of labor is 86.6.
D) At L = 2, the AP_L = L/Q = 0.011.

Question 19

Brenda's Pastry employs three workers who produce 6 dozen pastries per hour. After Brenda hires a fourth worker, the number of pastries produced increases to 7 dozen per hour. Because the marginal product of the fourth worker is _____ than the average product of three workers the average product must _____.

A) greater; fall
B) less; rise
C) greater; rise
D) less; fall

Question 20

Use the following to answer question:
Table 6.1
(Table 6.1) Diminishing marginal returns to labor occur in production process _____, and diminishing marginal returns to capital occur in production process _____.

A) 1; 3
B) 2; 1
C) 2; 3
D) 1; 1

Question 21

Why are the slopes of isocost lines constant?

A) because firms must use capital and labor inputs in fixed proportions
B) because firms can hire as much of an input as they desire without changing wages or rental rates
C) because firms must use less labor if employing more capital
D) because the marginal rate of technical substitution of labor for capital is constant

Question 22

Use the following to answer question:
Table 6.4
(Table 6.4) What is the equation for this firm's production function?

A) Q = 100K_L
B) Q = 100K^0.5L^0.5
C) Q = 100K^0.25L^0.75
D) Q = 100K²L

Question 23

Suppose that a community health center finds that regardless of the number of physicians or nurse practitioners employed, it can always replace one family practice physician by using two additional nurse practitioners without affecting the quantity or quality of patient office visits. This finding implies that:

A) physicians and nurse practitioners are perfect substitutes in production.
B) physicians and nurse practitioners are perfect complements in production.
C) diminishing returns will occur as the health center hires more nurse practitioners.
D) the marginal product of physicians will increase by two with every nurse practitioner hired.

Question 24

Suppose the wage rate is $25 per hour and the rent on capital is $50 per hour. The equation for the isocost line is given by:

A) C = 75LK.
B) C = 25L + 50K.
C) C = 75(L + K).
D) C = 2K/L.

Question 25

Which of the following statements is (are) TRUE, assuming the firm is choosing the optimal bundle of inputs that minimizes the cost of producing a given quantity of output?

A) I and II
B) I, II, III, and IV
C) IV
D) I and III

Question 26

Use the following to answer question:
Figure 6.5
(Figure 6.5) Suppose a firm spends $4,000 per day producing a good. The wage rate per worker is $200 per day and rental rate per unit of capital is $500 per day. The firm's isocost line at the current expenditure level is represented by:

A) C₁.
B) C₂.
C) C₃.
D) C₄.

Question 27

Use the following to answer question:
Figure 6.4
(Figure 6.4) Put these four panels in order from the easiest case of input substitutability to the hardest case of input substitutability.

A) b, a, c, d
B) a, c, d, b
C) d, c, a, b
D) a, d, c, b

Question 28

Use the following to answer questions 21-22:
Table 6.3
(Table 6.3) Which of the following statements is (are) TRUE?

A) I, II, III, and IV
B) II, III, and IV
C) III and IV
D) IV

Question 29

Use the following to answer question:
Figure 6.7
(Figure 6.7) The movement in the isocost line is caused by a(n):

A) increase in the rental rate of capital.
B) decrease in the rental rate of capital.
C) decrease in the wage rate.
D) increase in the wage rate.

Question 30

Use the following to answer question:
Figure 6.6
(Figure 6.6) Based on the isocost line, the ratio of the wage rate (W) to rental rate of capital (R) is:

A) 1.5.
B) 4.0.
C) 0.67.
D) 0.50.

Question 31

Which of the following statements best exemplifies the firm's constrained minimization problem?

A) The firm desires to produce a given quantity of output by choosing values of W and R that minimize RK + WL.
B) The firm desires to produce as much output as possible subject to the constraint that C = RK + WL.
C) The firm desires to produce as much output as possible by choosing values of L and K that minimize RK + WL.
D) The firm desires to produce a given quantity of output by choosing values of L and K that minimize RK + WL.

Question 32

(Figure 6.3) Which of the following statements is (are) TRUE?

A) It is easier for a small amount of additional labor to replace a large amount of capital at point A than at point B.
B) It is easier for a small amount of additional labor to replace a large amount of capital at point B than at point A.
C) The MRTS_LK at point A equals MP_K/MP_L.
D) The MRTS_LK at point B is greater the MRTS_LK at point A.

Question 33

Use the following to answer question:
Figure 6.8
(Figure 6.8) The movement in the isocost line is caused by a(n):

A) decrease in the wage rate.
B) increase in the wage rate or rental rate of capital.
C) increase in the wage rate.
D) decrease in the rental rate of capital.

Question 34

Use the following to answer questions 26-27:
Figure 6.3
(Figure 6.3) Which of the following statements is (are) TRUE?

A) I, II, and III
B) II
C) III
D) II and III

Question 35

Which of the following statements violates the basic assumptions of isoquants?

A) Isoquants cannot cross.
B) Isoquants closer to the origin correspond to lower output levels.
C) Diminishing marginal products imply that isoquants are concave to the origin.
D) Isoquants show all combinations of two inputs that can produce a particular quantity of output.

Question 36

Use the following to answer question:
Figure 6.9
(Figure 6.9) Which of the following statements is (are) TRUE?

A) I and III
B) II and III
C) I
D) I, II, and III

Question 37

In the long run, because firms can adjust both capital and labor:

A) firms will grow.
B) production is more expensive because firms must invest in both labor and capital.
C) the impact of diminishing marginal returns is lessened.
D) firms fire workers, replacing the labor productivity with capital.

Question 38

If a firm is using a lot of capital and just a little labor, the marginal product of labor is_____ relative to the marginal product of capital making it _____ to substitute labor for capital.

A) low; more difficult
B) high; easier
C) high; more difficult
D) low; easier

Question 39

Which of the following statements is (are) TRUE?

A) I, II, and III
B) I
C) III
D) I and II

Question 40

Use the following to answer questions 21-22:
Table 6.3
(Table 6.3) This table illustrates a _____ production function because capital and labor _____.

A) short-run; are used in equal increments
B) long-run; can both be varied
C) long-run; are used in equal increments
D) short-run; can both be varied

Question 41

Between 1994 and 2008, the share of the workforce employed in manufacturing _____ and manufacturing output _____.

A) decreased; decreased
B) increased; increased
C) decreased; increased
D) increased; decreased

Question 42

Use the following to answer question:
Table 6.5
(Table 6.5) The short-run production situation for a firm is listed on this table. Complete the table.

Question 43

The production function for laser eye surgery is given by Q = 20K^0.5L^0.5, where Q is the number of laser eye surgeries performed per day, K is the number of eye surgery machines (which is fixed at 2 in the short run), and L is the number of employees.

Question 44

Consider the production function Q = Af(K, L). Which of the following statements is (are) TRUE?

A) II
B) I, II, and III
C) II and III
D) I

Question 45

Suppose the firm's production function is Q = 2KL, where Q is units of output, K is units of capital (which are fixed at 2), and L is units of labor.

Question 46

Suppose a firm with a production function given by Q = 4K^0.25L^0.75 produces 100 units of output. The firm pays a wage of $30 per units and pays a rental rate of capital of $10 per unit. (Note: ).
The minimum cost of producing 100 units of output is:

A) $3,000.
B) $2,250.
C) $800.
D) $1,000.

Question 47

Use the following to answer question:
Figure 6.14
(Figure 6.14) Refer to the production function, which has a slope of 1/L^0.5.

Question 48

Use the following to answer question:
Figure 6.11
(Figure 6.11) Which of the following statements is (are) TRUE?

A) I and IV
B) II and III
C) III and IV
D) I and III

Question 49

Suppose a firm with a production function given by Q = 30K^0.5L^0.5 produces 1,500 units of output. The firm pays a wage of $40 per unit and pays a rental rate of capital of $640 per unit. How many units of labor and capital should the firm employ to minimize the cost of producing 1,500 units of output? (Note: )

A) L = 200; K = 12.5
B) L = 625; K = 4.
C) L = 275; K = 8.75
D) L = 150; K = 10

Question 50

Here is a copy of your friend's class notes on the nine basic assumptions of producer behavior: Because your friend was half-asleep during class, she may have errors in her notes. Correct the errors in her notes where necessary.

Question 51

Suppose a firm is currently minimizing costs in the long run with marginal product of labor and marginal product of capital given by K and L, respectively. If the price of capital falls by 50%, the capital-to-labor ratio will:

A) decrease by 50%.
B) double.
C) increase by 50%.
D) increase fivefold.

Question 52

The production function given by Q = 10(0.7K² + 0.3L²)^0.5 has _____ returns to scale.

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

Question 53

Use the following to answer question:
Figure 6.12
(Figure 6.12) A technological change is represented by the movement from point _____ to point _____.

A) X; Z
B) Z; X
C) W; Z
D) Z; W

Question 54

The short-run production function for sea kayaks is given by Q = 30L^0.5, where Q is the number of sea kayaks produced and L is the number of employees. Complete the table and draw the corresponding graphs. Round all answers to two decimal points.

Question 55

Suppose a firm with a production function given by Q = K^0.25L^0.75 produces 1,500 units of output. The firm pays a wage of $50 per unit and pays a rental rate of capital of $50 per unit. (Note: ).
To minimize the cost of producing 1,500 units of output, the firm should use:

A) 3 times as many units of labor as units of capital.
B) equal amounts of labor and capital.
C) 1.25 times as many units of capital as units of labor.
D) 16 units of capital and 6,814 units of labor.

Question 56

Define a production function and give an example of a Cobb-Douglas production function with constant returns to scale.

Question 57

Use the following to answer question:
Figure 6.10
(Figure 6.10) Which of the following statements is (are) TRUE?

A) II and III
B) III
C) I and III
D) I and II

Question 58

Which of the following production functions exhibit(s) constant returns to scale?

A) II and III
B) I and II
C) III
D) I, II, and III

Question 59

Suppose a firm is producing 2,475 units of output by hiring 50 workers (W = $20 per hour) and 25 units of capital (R = $10 per hour). The marginal product of labor and marginal product of capital are 40 and 25, respectively. Is the firm minimizing the cost of producing 2,475 units of output?

A) Yes, the ratio of the number of workers to the wage equals the ratio of the number of units of capital to the rental rate.
B) No, the firm should use more labor and less capital.
C) No, the firm should use more capital and less labor.
D) No, the firm should use more of both labor and capital.

Question 60

Answer the following questions.

Question 61

A company has the production function Q = min{K, L}. The price of capital is $50 per unit while the price of labor is $75 per unit. On a graph, plot isoquants for quantities 10, 20, and 30, as well as the isocost line for a quantity of 20. Note the cost-minimizing levels of capital and labor on your graph given the target production level of 20 units.

Question 62

Use the following to answer question:
Table 6.7
(Table 6.7) Consider the production function that this table shows.

Question 63

You've been asked by your manager to choose between the following three production functions based on returns to scale:
Q = 10K²L¹
Q = 10K^0.5L^0.5
Q = 10K^0.25L^0.5
She would like you to choose the one that exhibits increasing returns to scale and to provide evidence to support your decision.

Question 64

Answer the following questions.
Table 6.8 Table 6.9

Question 65

Use the following to answer question:
Figure 6.18

-(Figure 6.18) the MP_L at point A is _____, and the AP_L is _____. What do your results imply about how AP_L will change with increased production?

Question 66

Suppose the firm's production function is Q = K^1/3L^2/3, where the MPK = and MP_L = .

Question 67

A firm spends $12,000 per day producing a good. The wage rate per worker is $200 per day and rental per unit of capital is $600 per day. The equation for the firm's isocost line would be _____.

Question 68

Use the following to answer question:
Figure 6.15
(Figure 6.15) Answer the following questions.

Question 69

Consider the following production functions along with its corresponding marginal product of labor function.

Question 70

The McCue Corporation is a house-painting business. For a standard-sized house, it will use 4 painters applying paint by brush or two painters applying paint with 1 paint sprayer. Assume that a paint sprayer can be rented for $50 per day while workers are paid $75 per day. The production function exhibits constant returns to scale. The long-run production function for McCue Corporation will be _____ with a total cost equation of _____.

Question 71

Answer the following questions.

Question 72

For the following questions assume that the marginal product of capital = and the marginal product of labor = .

Question 73

Use the following to answer question:
Figure 6.17
(Figure 6.17) The cost-minimizing combination of capital and labor to produce 10 units of output is _____ and _____, respectively, given prices of $10 and $50, respectively. What is the total cost?

Question 74

The production function for a firm is Q = min(2K, L). The price per unit of capital is $40 and the price per unit of labor is $60.

Question 75

Suppose that a firm's production function is given by Q = KL (MP_K = L and MP_L = K), where Q is quantity of output, K is units of capital, and L is units of labor. The price per unit of labor and capital are $30 and $20, respectively.

Question 76

For each of the following production functions, determine whether they exhibit constant, decreasing, or increasing returns to scale.
a. Q = 4KL
b. Q = K^1/3L^2/3
c. Q = K^1/3L^1/3
d. Q = min(K, 4L)
e. Q = 6K + 3L

Question 77

A firm spends $12,000 per day producing a good. The wage per worker is $200 per day and rental per unit of capital is $400 per day. The firm faces the production function Q = 3K^1/3L^2/3 with MP_K = L^2/3/K^2/3 and MP_L = 2K^1/3/L^1/3. The cost-minimizing level of capital will be_____ and the cost-minimizing level of labor will be _____.

Question 78

Consider the production function Q = (0.5K^1/3 + 0.5L^1/3)³ with a corresponding MRTS = K^2/3/L^2/3.

Question 79

Use the following to answer question:
Figure 6.16
(Figure 6.16) Consider the production function Q = L^0.5K^0.5, with MP_K = L^0.5/K^0.5 and MP_L = K^0.5/L^0.5.

Question 80

Answer the following questions.