Deck 6: Optimal Output Selection

Question 1

An isorevenue line depicts all combinations of two products:

A) that have the same price
B) with the same marginal rate of substitution
C) that can be sold for the same total revenue
D) none of the other three answers

Answer 1

C

Question 2

The Production Possibilities Frontier (curve) represents all possible combinations of two products:

A) that can be produced with the same set of resources
B) for which the opportunity costs are equal
C) that are supplementary in relationship
D) that will yield the same total revenues

Answer 2

A

Question 3

Movements along a Production Possibilities Frontier (curve) are an indication of:

A) the change in efficient production levels
B) none of the other three answers
C) all points of equal marginal rates of substitution
D) opportunity cost between production and two inputs

Answer 3

A

Question 4

The Marginal Rate of Product Substitution (MRPS) tells a manager:

A) the amount by which one output must be reduced when another output is increased for a given set of resources
B) the amount by which the opportunity cost of one product will decline with a given set of resources
C) the amount of output possible for all given sets of resources available
D) none of the other three answers

Question 5

To maximize profits for a given level of resources, the firm will:

A) go to the highest isocost line possible
B) go to the highest PPF possible
C) go to the highest isorevenue line possible
D) go to the highest isoquant possible

Question 6

For the product-product decision in the competitive case, the revenue-maximization criterion is based on:

A) the price of inputs
B) the marginal rate of product substitution
C) the Production Possibilities Frontier (curve)
D) the Marginal Rate of Product Substitution (MRPS) and product price ratio

Question 7

For a farm producing two crops and operating on the Production Possibilities Frontier (curve) where revenue is maximized, a reduction in the price of one crop will:

A) shift the Production Possibilities Frontier (curve) inward
B) shift the isorevenue line outward
C) increase the costs of production
D) none of the other answers

Question 8

For all regions of the US that produce both corn and soybeans:

A) the Production Possibilities Frontiers (curves) are the same
B) the Marginal Rate of Product Substitution (MRPS) between corn and soybeans is equal
C) none of the other three answers
D) the revenue maximization points will be identical

Question 9

The Production Possibilities Frontier (curve) for peanuts and soybeans grown in the southern US:

A) is based on the production functions for peanuts and soybeans in the southern states
B) is based on the production functions for all soybeans and peanuts grown in the US
C) none of the other three answers
D) is based on the prices of soybeans and peanuts

Question 10

The PPF is:

A) concave to the origin
B) convex to the origin
C) none of the other three answers
D) of constant slope

Question 11

For a farm producing two crops and operating on the Production Possibilities Frontier (curve) where revenue is maximized, a change in the price of a third output will:

A) shift the Production Possibilities Frontier (curve) inward
B) shift the isorevenue line outward
C) none of the other three answers
D) increase the costs of production

Question 12

The opportunity cost of a resource tells a manager:

A) the amount by which one output must be reduced when another output is increased for a given set of resources
B) the amount by which the fixed cost of one product will decline with a given set of resources
C) the amount of output possible for all given sets of resources available
D) none of the other three answers

Question 13

The isorevenue line is:

A) concave to the origin
B) convex to the origin
C) none of the other three answers
D) of constant slope

Question 14

For all nations that produce both beef and pork:

A) the Production Possibilities Frontier (curves) are the same
B) the marginal rates of product substitution between beef and pork are equal
C) the revenue maximization points will be identical
D) none of the other three answers

Question 15

In the equation: Y₁, Y₂ = f(. | A, K, L, M)

A) land is fixed
B) land is variable
C) output is fixed
D) capital is variable

Question 16

Which equation best represents a Production Possibilities Frontier?

A) Y = f(A | K, L, M)
B) Y=f(A, K| L, M)
C) Y₁, Y₂ = f(. |A, K, L, M)
D) Y = f(A, K, L, M)

Question 17

In the graph of a Production Possibilities Frontier, there are:

A) inputs on both axes
B) input on the x-axis, and output on the y-axis
C) outputs on both axes
D) output on the x-axis, and input on the y-axis

Question 18

A Production Possibilities Frontier is:

A) all combinations of two inputs that produce the same level of output
B) all combinations of two outputs that produce the same level of input
C) all combinations of two inputs that can be purchased at the same cost
D) all combinations of two outputs that can be produced with fixed inputs

Question 19

A Production Possibilities Frontier demonstrates that:

A) a large number of combinations of inputs can produce the same level output
B) a large number of output combinations can be produced with the same level of inputs.
C) costs of production remain constant at all levels of output
D) revenues remain constant at all levels of output

Question 20

A point located inside the PPF is:

A) efficient and attainable
B) not efficient, but attainable
C) efficient, but not attainable
D) neither efficient nor attainable

Question 21

The MRPS represents:

A) the physical tradeoff between inputs
B) the physical tradeoff between outputs
C) the economic tradeoff between inputs
D) the economic tradeoff between outputs

Question 22

A typical Production Possibilities Frontier is:

A) convex to the origin, reflecting imperfect substitutes for inputs
B) concave to the origin, reflecting imperfect substitutes for inputs
C) convex to the origin, reflecting perfect substitutes for inputs
D) concave to the origin, reflecting perfect substitutes for inputs

Question 23

A Production Possibilities Frontier shape is derived from:

A) the physical production function
B) consumer choices of what to buy
C) scarcity
D) the law of diminishing marginal utility

Question 24

The slope of the Production Possibilities Frontier is:

A) the price ratio
B) the Marginal Rate of Product Substitution (MRPS)
C) the Marginal Rate of Technical Substitution (MRTS)
D) the law of diminishing returns

Question 25

In equilibrium:

A) the slope of the PPF is equal to the slope of the isorevenue line
B) the MRPS = price ratio
C) the revenue maximizing combination of outputs produced
D) all of the other three answers

Question 26

If the price of the output on the horizontal axis (Y₁) increases, then

A) the slope of the isorevenue line will become steeper
B) the slope of the isorevenue line will become less steep
C) the slope of the PPF will become steeper
D) the slope of the PPF will become less steep

Question 27

An isorevenue line:

A) shows combinations of two outputs that produce the same level of revenue
B) the slope is equal to the negative price ratio of the two outputs
C) the slope measures the rate of economic substitution between the two outputs
D) all of the other three answers

Question 28

To determine the revenue-maximizing combination of outputs to produce, a manager must know:

A) the MRPS and the input price ratio
B) the Marginal Rate of Product Substitution (MRPS) and the PPF
C) the Marginal Rate of Product Substitution (MRPS) and the product price ratio
D) the production possibilities frontier and the input prices

Question 29

All decisions of input purchases and output production are determined by:

A) relative prices
B) the Law of Diminishing Marginal Returns
C) scarcity
D) the production function

Question 30

If a Production Possibilities Frontier intersects an isorevenue line at two points, then:

A) there are two choices of maximum revenue output combinations
B) profits could be higher on a higher isorevenue line
C) there is a lower isorevenue line where the PPF will intersect at only one point
D) no maximum revenue combination is possible

Question 31

The slope of the isorevene line is equal to:

A) TC/P₁
B) -P₁/P₂
C) TR/P₁
D) TR/P₂

Question 32

A Production Possibilities Frontier (curve) represents:

A) how much wheat can be produced in the US in a given year
B) all combinations of two outputs that can be produced with a varying level of inputs
C) all combinations of two inputs that can be used in the production of outputs
D) all combinations of two outputs that can be produced with a fixed level of resources

Question 33

If all resources are used to produce a single output, then:

A) the firm is located on the PPF
B) the firm is located inside of the PPF
C) the firm is located outside of the PPF
D) none of the other answers

Question 34

If all resources are used to produce a single output, then:

A) the firm is located on the axis that corresponds to that output
B) the firm is located on the isorevenue line
C) the firm is located at the origin
D) not enough information to answer

Question 35

Productive efficiency is found:

A) on PPF
B) on isorevenue line
C) inside PPF
D) inside the isorevenue line

Question 36

Technological change in the good located on the vertical axis (Y₂):

A) shifts the PPF out symmetrically
B) shifts the PPF out to the right
C) shifts the PPF up
D) keeps the PPF constant

Question 37

Technological change in agriculture is a result of:

A) a change in relative prices
B) research at agricultural Universities
C) management skills
D) none of the other answers

Question 38

If the price of an output increases, ceteris paribus:

A) producers will substitute into the production of that good
B) producers will substitute out of the production of that good
C) there will be no change
D) not enough information to answer

Question 39

The MRPS is:

A) the rate at that one input must be decreased as production of the other input is increased
B) the rate at that one output must be decreased as production of the other output is increased
C) the slope of the isorevenue line
D) the slope of the isoquant

Question 40

In equilibrium:

A) MRPS = slope of isorevenue line
B) MRPS = slope of isocost line
C) MRPS = slope of isoquant
D) MRPS = horizontal

Question 41

The MRPS is equal to:

A) ΔY₂/ΔY₁
B) ΔX₂/ΔX₁
C) ΔY/ΔX
D) ΔX/ΔY

Question 42

The isorevenue line is:

A) a line depicting all combinations of two inputs that yield a constant level of costs
B) a line depicting all combinations of two outputs that yield a constant level of costs
C) a line depicting all combinations of two inputs that yield a constant level of revenues
D) a line depicting all combinations of two outputs that yield a constant level of revenues

Question 43

An isorevenue line is:

A) convex to the origin
B) concave to the origin
C) horizontal
D) linear

Question 44

If ΔY₂P₂ > ΔY₁/P₁ then:

A) the firm could increase revenue by moving into Y₂
B) the firm could increase revenue by moving out of Y₂
C) the firm could increase revenue by remaining at the same output combination
D) not enough information to answer

Question 45

If ΔY₂/ΔY₁ > ΔY₂/ΔY₁ then:

A) the firm could increase revenue by moving into Y₂
B) the firm could increase revenue by moving out of Y₂
C) the firm could increase revenue by remaining at the same output combination
D) not enough information to answer

Question 46

In the real world, agribusiness firms:

A) cannot change output combinations
B) change output combinations based on relative prices
C) change output combinations based on managerial skill
D) none of the other answers

Question 47

A change in relative prices will affect the:

A) PPF
B) isorevenue line
C) MRPS
D) rate of technological change

Question 48

Technological change will affect the:

A) PPF
B) isorevenue line
C) MRPS
D) relative prices

Question 49

A drought in the Midwestern US will affect the:

A) PPF
B) isorevenue line
C) MRPS
D) rate of technological change

Question 50

Technological change will shift the PPF:

A) to the left
B) outward
C) inward
D) symmetrically

Question 51

Define the term, "Production Possibilities Frontier."

Question 52

Define the term, "Isorevenue Line."

Question 53

Graph the optimal combination of the outputs Y₁ = milk (gal) and Y₂ = cheddar cheese (lb) for a dairy farmer.

Question 54

Demonstrate the impact of a potential increase in the standard of living in the US on the equilibrium quantity of milk and cheese produced and sold by this dairy farmer.

Question 55

Demonstrate the impact of a (hypothetical) cheese research program in the US Department of Agriculture (USDA) on the optimal output combination.

Question 56

Derive the mathematical equation that represents the output equilibrium.

Question 57

Suppose that this dairy farmer makes good economic decisions. How does a producer "think like an economist?"

Question 58

Use graphs to demonstrate a PPF with:
A. Increasing returns, B. Constant returns, and C. Decreasing returns. Graph and explain a real-world example of each.

Question 59

Define and explain MRPS carefully.

Question 60

Use graphical analysis to show the impact of the large increase in the price of soybeans on the production of: A. Corn, and B. Soybeans.

Question 61

We have been involved with "the economic way of thinking" for several chapters. Write an essay on the how an economist thinks, and the usefulness of this in: A. Everyday life. B. Business decisions, and C. Career choice.