Deck 5: Optimal Input Selection

Question 1

Most inputs in production processes can be:

A) substituted for each other, but not perfectly
B) substituted for each other, perfectly
C) not substituted for each other
D) not enough information to know

Answer 1

A

Question 2

Perfect substitutes in production have:

A) straight-line isoquants
B) L-shaped isoquants
C) curved isoquants
D) substitutes in production do not have isoquants

Answer 2

A

Question 3

The cost minimizing combination of inputs can be found at:

A) the tangency point of the isoquant and the isocost line.
B) the tangency point of the isoquant and the horizontal axis
C) the tangency point of the isoquant and the vertical axis
D) not enough information to know

Answer 3

A

Question 4

Perfect complements are:

A) used together in production
B) used either/or in production
C) not used in production
D) nice things to say to another person

Question 5

An isoquant is defined in economics as a line indicating all combinations of two variable inputs that will produce:

A) the same level of output
B) the same level of input
C) an increasing level of output
D) an increasing level of input

Question 6

If an isoquant intersects an isocost line at two points, a manager can surmise that:

A) there is a lower isocost line where the isoquant will intersect at only one point
B) no least cost combination is possible
C) there are two choices of least-cost input combinations
D) none of the other three answers

Question 7

Agricultural firms will adjust the level of input use based on:

A) changes in relative prices
B) changes in the absolute prices
C) increases in general inflation
D) management decisions based on inside information

Question 8

To determine the profit-maximizing level of production with two inputs, the manager must know:

A) the slope of the relevant isocost line
B) the marginal rate of technical substitution and the price ratio
C) the marginal rate of technical substitution
D) the slope of the relevant isoquant line

Question 9

The traditional convex isoquant that is associated with agricultural production processes gets its shape from:

A) constant substitutability of inputs
B) the diminishing returns in the production function
C) cost minimizing behavior of the firm
D) the complementarity of the production surface

Question 10

A manager can minimize production costs by operating at a point where:

A) the isoquant is tangent to the isocost line
B) the isoquant is equal to zero
C) the isoquant is tangent to the origin
D) not enough information to know

Question 11

Perfect substitutability of inputs is:

A) the most common relationship between inputs in agribusiness firms
B) the least common relationship between inputs in agribusiness firms
C) possible in agribusiness firms, but not common
D) the only possibility for inputs in agribusiness firms

Question 12

An isoquant that is convex to the origin and negatively sloped depicts:

A) constant substitutability
B) perfect substitutability
C) none of the other three answers
D) imperfect substitutability

Question 13

Efficient use of two inputs in the production process will depend on:

A) prices of both inputs
B) scarcity
C) prices and productivity of both inputs
D) productivity of both inputs

Question 14

The marginal rate of technical substitution between two inputs in a single production process describes:

A) the only combination of inputs that will produce a profit
B) every combination of inputs that will produce a profit
C) several combinations of inputs that will produce a profit
D) none of the other three answers

Question 15

Managers of agribusiness firms can substitute inputs in the production process to maintain output:

A) only as long as short run profits are high
B) both in the short run and the long run
C) only in the long run
D) only in the short run

Question 16

For US agriculture, labor may be substituted for capital in production, but labor:

A) cannot be substituted for land
B) cannot be substituted for chemical inputs
C) cannot be substituted for machinery
D) none of the above

Question 17

Two isoquants can never:

A) intersect
B) be L-shaped
C) be positive
D) be negative

Question 18

Which equation best represents an isoquant?

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 19

In the graph of an isoquant, 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 20

An isoquant 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 21

An isoquant 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 22

Research at agricultural Universities results in:

A) more labor-intensive production practices in agriculture
B) more capital-intensive production practices in agriculture
C) no change in the optimal combination of labor and machinery
D) more family farms in the US

Question 23

In sub-Saharan Africa, the choice of labor over machines is due to:

A) low income levels
B) relative prices
C) lack of technical knowledge
D) political factors beyond the ability of farmers to change

Question 24

Coke and Pepsi will purchase sucrose or fructose based on:

A) sales revenue
B) relative prices
C) technology of soft drink production
D) the PPF

Question 25

Computers and computer operators are:

A) substitutes in the production of databases
B) complements in the production of databases
C) profit-maximizing inputs for all high-technology firms
D) cost-minimizing inputs for all high-technology firms

Question 26

A typical isoquant is:

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

Question 27

An isoquant shape is derived from:

A) the Law of Diminishing Marginal Returns
B) scarcity
C) profit-maximization
D) decisions on which inputs to buy

Question 28

The slope of the isoquant is:

A) the price ratio
B) the marginal rate of product substitution
C) the marginal rate of technical substitution
D) the law of diminishing returns

Question 29

In equilibrium:

A) the slope of the isoquant is equal to the slope of the isocost line
B) the MRTS = price ratio
C) the cost-minimizing combination of inputs is purchased
D) all of the other three answers

Question 30

If the price of the input on the horizontal axis (X₁) increases, then

A) the slope of the isocost line will become steeper
B) the slope of the isocost line will become less steep
C) the slope of the isoquant will become steeper
D) the slope of the isoquant will become less steep

Question 31

A business firm will choose which outputs to produce based on:

A) relative prices
B) absolute prices
C) utility maximization
D) not enough information to answer

Question 32

The massive substitution of capital for labor in US agriculture since World War II is due to:

A) electrification of rural areas
B) relative prices
C) marginal decision making
D) an overreliance on technology in production agriculture

Question 33

To find the profit-maximizing input combination, a firm should:

A) set the slope of the isorevenue line equal to the slope of the isoquant
B) set the slope of the isocost line equal to the slope of the isoquant
C) continue what has been done in the past
D) adopt new technology

Question 34

In the past several years, US agricultural producers have switched a large number of acres out of wheat and planted it to corn and soybeans. This substitution is due to:

A) large agribusiness corporations
B) relative prices
C) global warming
D) adoption of new environmental practices

Question 35

Tractors and plows are:

A) complements in production
B) substitutes in production
C) neither complements nor substitutes in production
D) either complements and substitutes in production, depending on the situation

Question 36

Nuts and bolts are:

A) complements in production
B) substitutes in production
C) neither complements nor substitutes in production
D) either complements and substitutes in production, depending on the situation

Question 37

Labor and agrochemicals are:

A) complements in production
B) substitutes in production
C) neither complements nor substitutes in production
D) both complements and substitutes in production

Question 38

Hired labor and farm operators are:

A) complements in production
B) substitutes in production
C) neither complements nor substitutes in production
D) both complements and substitutes in production

Question 39

Perfect complements:

A) do not exist in the real world
B) are used together
C) are used separately, one or the other
D) not enough information to answer

Question 40

Perfect substitutes:

A) do not exist in the real world
B) are used together
C) are used separately, one or the other
D) not enough information to answer

Question 41

Isoquants increase in the level of output:

A) left to right
B) low to high
C) both A and B
D) neither A nor B

Question 42

An isoquant cannot:

A) be upward-sloping
B) be downward-sloping
C) be vertical
D) be horizontal

Question 43

The choice of techniques depends on:

A) managerial skill
B) relative prices
C) technology available
D) none of the other answers

Question 44

Ag policy in the US has subsidized agricultural producers since:

A) 1921
B) 1933
C) 1988
D) 2001

Question 45

MRTS is equal to:

A) ΔX₂/ΔX₁
B) Δ1/ΔX₂
C) ΔY/ΔX
D) ΔX/ΔY

Question 46

The isocost line:

A) is another name for an isoquant
B) has the same slope as the isoquant at all points
C) has the same slope as the isoquant in equilibrium
D) has a slope of MRTS

Question 47

Equilibrium is:

A) ceteris paribus
B) sanity; balance
C) a point where there is no tendency to change
D) does not change when relative prices change

Question 48

If the price of land increases, ceteris paribus, producers will:

A) find substitutes for land, when possible
B) keep doing the same thing
C) use more land, since it is more valuable
D) use more land, since banks will extend more credit

Question 49

Labor-intensive production techniques are most likely to be found in:

A) high-income nations
B) middle-income nations
C) low-income nations
D) oil producing nations

Question 50

Capital-intensive production techniques are most likely to be found in:

A) high-income nations
B) middle-income nations
C) low-income nations
D) oil producing nations

Question 51

Sugar (=X₁, in oz) and flour (=X₂, in lbs) are used to produce bread (loaves). The price of sugar is P₁=$5/oz, and the price of flour is P₂=$2/lb. Expenditures for this bakery are equal to $100. Graph the isocost line for this bakery.

Question 52

Define and explain what an isoquant is.

Question 53

Define and explain what an isocost line is.

Question 54

Draw an isoquant in the graph above, and show an equilibrium point.

Question 55

If the price of flour (P₂) decreased to $1/lb, draw a graph to show how the equilibrium will change, if expenditure is constant. Will the bakery purchase more or less flour? Will the bakery purchase more or less sugar? Explain why.

Question 56

Graph the change in equilibria from the flour price increase, assuming that the bakery wants to maintain the same level of output.

Question 57

Graph isoquants and give an example for: A. Perfect substitutes, B. Perfect complements, and C. Imperfect substitutes. Explain how relative price changes affect purchases of each type of input

Question 58

Define and explain what an isoquant is.

Question 59

Use graphs to demonstrate perfect substitutes and perfect complements. Give a real-world example of each.

Question 60

Define and explain MRTS carefully.

Question 61

Define and explain what an isocost line is.

Question 62

Use graphical analysis to show the impact of the large increase in the price of oil on the use of: A. Petroleum products, and B. Alternative energy sources.

Question 63

Use graphical analysis to demonstrate the impact of an increase in the price of corn relative to the price of wheat. Find evidence that shows whether the predictions of the graph have occurred in the US or not.

Question 64

Flour (=X₁, in lbs) and sugar (=X₂, in lbs) are used to produce cookies (doz). The price of flour is P₁=$1/lb, and the price of sugar is P₂=$2/lb. Expenditures for the firm are equal to $20. Graph the isocost line, isoquant, and equilibrium for the cookie firm. A. If the price of sugar (P₂) decreased to $1/lb, draw a graph to show how the equilibrium will change. Will the firm hire more or fewer workers? Explain why. B. Graph the optimal combination of the outputs Y₁ = peanut butter cookies (doz) and Y₂ = sugar cookies (doz) for the firm, and demonstrate the impact of an increase in the price of sugar cookies on the equilibrium quantity of PB and sugar cookies.