Deck 4: A Model of Production

Question 1

In the production function
,
Represents:

A)an unknown.
B)the amount of capital in an economy.
C)the amount of labor in an economy.
D)a productivity parameter.
E)an error term.

Answer 1

D

Question 2

Consider an economy where the only consumption good is ice cream;firms in this economy must

A)hire all workers and rent all machines available.
B)choose how many workers to hire and ice cream machines to rent.
C)choose how many workers to hire and rent all machines available.
D)hire all workers and choose how many machines to rent.
E)none of the above

Answer 2

B

Question 3

In the equation
,the "bars" over the A and K mean that these variables are:

A)parameters that are fixed or exogenous.
B)variables that are fixed or exogenous.
C)parameters that are endogenous.
D)variables that are endogenous.
E)a and b are correct.

Answer 3

E

Question 4

The production function
Describes:

A)how particular amounts of capital and labor can be combined to generate output.
B)how any amount of capital and labor can be combined to generate output.
C)how any amount of capital and a particular amount of labor can be combined to generate output.
D)how any amount of labor and a particular amount of capital can be combined to generate output.
E)what output would be in a "perfect" economy.

Question 5

The text uses this analogy of the economic model: "As the model-builder,__________ what actions the robots can take and __________ the raw materials that fill the robot world.After constructing the world,you switch on the power source and __________."

A)you determine;you provide;you know what happens
B)reality determines;reality provides;watch what happens
C)reality determines;reality provides;you know what happens
D)you determine;you provide;watch what happens
E)None of the above is correct.

Question 6

The production function
Describes:

A)how any amount of labor and a particular amount of capital can be combined to generate output.
B)how particular amounts of capital and labor can be combined to generate output.
C)how any amount of capital and labor can be combined to generate output.
D)how any amount of capital and a particular amount of labor can be combined to generate output.
E)none of the above

Question 7

A model is a __________ representation of __________ world that we use to study economic phenomena.

A)false;a toy
B)mathematical;a toy
C)accurate;the real
D)mathematical;the real
E)accurate;a toy

Question 8

Consider two countries,labeled 1 and 2.If each has the production function
,i = 1,2,the only difference between the two countries is that
)

A)Country 2 will not produce anything,ceteris paribus.
B)Country 2 will produce more than Country 1,ceteris paribus.
C)Country 1 will produce more than Country 2,ceteris paribus.
D)Each will produce the same amount,ceteris paribus.
E)Not enough information is given.

Question 9

The following equation is an example of __________:
)

A)a consumption function
B)a utility function
C)a production function
D)the production possibilities frontier
E)a growth model

Question 10

The production function
Describes:

A)how any amount of capital and labor can be combined to generate output.
B)how particular amounts of capital and labor can be combined to generate output.
C)how any amount of capital and a particular amount of labor can be combined to generate output.
D)how any amount of labor and a particular amount of capital can be combined to generate output.
E)none of the above

Question 11

Models simplify __________ of decisions into just a few equations.

A)tens
B)hundreds
C)millions
D)dozens
E)thousands

Question 12

In the equation
,the "bar" over the A means that it is:

A)a parameter that is fixed or exogenous.
B)a variable that is fixed or exogenous.
C)a parameter that is variable or exogenous.
D)a variable that is endogenous.
E)a and b are correct.

Question 13

The following equation is an example of __________:
)

A)a growth model
B)a utility function
C)a consumption function
D)the production possibilities frontier
E)a production function

Question 14

The equation
Is called:

A)the Lucas production function.
B)the Keynesian production function.
C)the Marxian production function.
D)the Cobb-Douglas production function.
E)the Glass-Steagell production function.

Question 15

Which of the following are we likely going to want to explain with an economic model?
I)Why people in the United States are fifty times richer than Ethiopians.
Ii)What causes economic growth.
Iii)What we think politicians should do with taxes.

A)i only.
B)ii only.
C)iii only.
D)i and ii.
E)all of the above

Question 16

Which of the following inputs do we generally not consider in a simple production function?

A)capital
B)labor
C)natural resources
D)utilities
E)both c and d

Question 17

Consider two economies.If each country has the same production function and the same amount of capital and labor,the country that __________ produces more.

A)is less productive
B)is more productive
C)has more natural resources
D)has lower costs of production
E)has more workers

Question 18

Mathematically,an economic model is __________.

A)a fake world
B)a spreadsheet
C)an accurate representation of reality
D)a set of equations
E)the actual macroeconomy

Question 19

The two main inputs we consider in a simple production function are:

A)land and labor.
B)capital and land.
C)capital and labor.
D)utilities and capital.
E)natural resources and labor.

Question 20

In the equation
,the lack of a "bar" over the L means that it is:

A)an exogenous variable.
B)an endogenous variable.
C)a parameter.
D)constant.
E)equal to one.

Question 21

The firm's profit maximization problem is:

A) .
B) .
C) .
D)
E)All of the above are correct.

Question 22

If the production function is given by
And
And K = L = 8,total output equals:

A)Y = 2.
B)Y = 6.
C)Y = 14.
D)Y = 8.
E)none of the above

Question 23

Which of the following production functions exhibits constant returns to scale?

A)
B)
C)
D)
E)all of the above

Question 24

Consider Figure 4.2.The shape of this production function suggests:

A)a constant marginal product of capital.
B)a diminishing marginal product of capital.
C)a diminishing marginal product of labor.
D)an increasing marginal product of capital.
E)Not enough information is given.

Question 25

A production function exhibits constant returns to scale if,

A)when you hold inputs constant,you double the output.
B)when you double each input,you more than double the output.
C)when you double each input,you less than double the output.
D)when you double one input,you double the output.
E)when you double each input,you double the output.

Question 26

A firm's profit is simply defined as:

A)zero.
B)revenues plus costs.
C)revenues minus costs.
D)the price of output minus labor costs.
E)the price of output minus labor costs minus capital costs.

Question 27

The solution to the firm's profit maximization is:

A)MPL = w.
B)MPL = w and MPK = r.
C)MPL < w and MPK = r.
D)MPL = w and MPK = 0.
E)MPL > w and MPK = r.

Question 28

The law of diminishing marginal product to capital means that as we add additional units of capital:

A)and labor,output will increase but at a constant rate.
B)and labor,output will increase but at a decreasing rate.
C)but hold labor constant,output will increase but at an increasing rate.
D)but hold labor constant,output will increase but at a constant rate.
E)but hold labor constant,output will increase but at a decreasing rate.

Question 29

Consider Figure 4.1.The shape of this production function suggests:

A)not enough information is given.
B)a diminishing marginal product of labor.
C)a constant marginal product of capital.
D)an increasing marginal product of capital.
E)a diminishing marginal product of capital.

Question 30

The solution to the firm's maximization problem is:

A)how much capital and labor to hire given the rental rate of capital and labor's wage rate.
B)how much capital and labor to hire given the rental rate of capital only.
C)how much capital to hire given the rental rate of capital.
D)how much capital and labor to hire regardless of the rental rate of capital and labor's wage rate.
E)how much labor to hire given labor's wage rate.

Question 31

If MPK > r,the firm:

A)should hire more labor.
B)should hire more capital until MPK = 0.
C)should get rid of some capital until MPK = r.
D)should hire more capital until MPK = r.
E)has the optimal amount of capital.

Question 32

If the production function is given by
And
,K = 27,and L = 8,total output equals:

A)Y = 1.
B)Y = 18.
C)Y = 12.
D)Y = 8.
E)none of the above

Question 33

The marginal product of labor is defined as:

A)output divided by labor.
B)the additional output generated by hiring an additional unit of labor.
C)the additional output generated by hiring an additional unit of labor and capital.
D)the additional output generated by hiring an additional unit of capital.
E)the additional revenue generated by hiring an additional unit of labor.

Question 34

Consider Figure 4.3.The shape of this production function suggests:

A)a diminishing marginal product of capital.
B)a constant marginal product of capital.
C)a diminishing marginal product of labor.
D)an increasing marginal product of capital.
E)Not enough information is given.

Question 35

Which of the following production functions exhibits increasing returns to scale?

A)
B)
C)
D)
E)all of the above

Question 36

One of the key characteristics of the Cobb-Douglas production function is

A)increasing returns to scale.
B)decreasing returns to scale.
C)constant returns to scale.
D)that it compacts all inputs into a single equation.
E)that it is an exact replication of a firm's production function.

Question 37

With a Cobb-Douglas production function
The marginal product of capital is __________ and the marginal product of labor is __________.

A)
B)
C)
D)
E)None of the above is correct.

Question 38

A production function exhibits increasing returns to scale if,

A)when you double one input,you double the output.
B)when you double each input,you double the output.
C)when you double each input,you less than double the output.
D)when you double each input,you more than double the output.
E)when you hold inputs constant,you double the output.

Question 39

Which of the following production functions exhibits constant returns to scale?

A)
B)
C)
D)
E)all of the above

Question 40

A production function exhibits decreasing returns to scale if,

A)when you double each input,you double the output.
B)when you double each input,you more than double the output.
C)when you double each input,you less than double the output.
D)when you double one input,you double the output.
E)when you hold inputs constant,you double the output.

Question 41

In the Cobb-Douglas production function
,the
Represents:

A)total income.
B)the share of production contributed by labor.
C)the total amount of capital in an economy.
D)the total demand for capital in an economy.
E)the share of production contributed by capital.

Question 42

In the Cobb-Douglas production function
,defining y = Y/L as output per person and k = K/L as capital per person,the per person production function is:

A) .
B) .
C) .
D) .
E)none of the above

Question 43

Suppose the payments to capital and labor are (w*L*)/Y* = 2/3 and (r*L*)/Y* = 1/3,respectively.One implication of this result is:

A)(w*L*/r*K*)= Y*.
B)w*L* - r*K* = Y*.
C)w*L* $\times$ r*K* = Y*.
D)w*L* + r*K* = Y*.
E)(w*L*/Y*)(r*K*/Y*)= 0.

Question 44

In the Cobb-Douglas production function
,labor's share of GDP is _________.

A)two-thirds regardless of how much labor there is
B)two-thirds but can change as more laborers are added
C)one-third regardless of how much labor there is
D)always equal to one
E)Not enough information is given.

Question 45

Consider Table 4.1,which compares the model
To actual statistical data on per capita GDP.You observe:

A)the model consistently underestimates the level of per capita GDP.
B)the model consistently overestimates the level of per capita GDP.
C)the model does a really good job of estimating the level of per capita GDP.
D)the model clearly contains all factors that affect per capita GDP.
E)none of the above

Question 46

The marginal product of labor is measured in:

A)dollars.
B)units of output.
C)units of output per dollar.
D)units of capital per dollar.
E)units of labor per dollar.

Question 47

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is:

A)differences in per capita capital.
B)differences in the labor supply.
C)differences in factor productivity.
D)differences in labor's share of GDP.
E)none of the above

Question 48

In the Cobb-Douglas production function
,defining y = Y/L as output per person and k = K/L as capital per person,the per person production function is:

A) .
B) .
C) .
D) .
E)none of the above

Question 49

In the Cobb-Douglas production function
,defining y = Y/L as output per person and k = K/L as capital per person,the per person production function is:

A) .
B) .
C) .
D) .
E)none of the above

Question 50

The equation MPK = r* yields:

A)the amount of capital in an economy.
B)the optimal amount of capital,K*,a firm fires.
C)the optimal amount of capital,K*,a firm hires.
D)the quantity of capital a firm wants to hire at any rental rate of capital.
E)none of the above

Question 51

The equation
Has two important implications:

A)Output per person tends to be higher when (1)the productivity parameter is higher,and (2)the amount of capital per person is higher.
B)Output per person tends to be lower when (1)the productivity parameter is higher,and (2)the amount of capital per person is higher.
C)Output per person tends to be higher when (1)the productivity parameter is lower,and (2)the amount of capital per person is higher.
D)Output per person tends to be higher when (1)the productivity parameter is higher,and (2)the amount of capital per person is lower.
E)Output tends to be higher when (1)the productivity parameter is higher,and (2)the amount of capital per person is higher.

Question 52

If MPK = r,the firm:

A)should hire more labor.
B)should hire more capital until MPK= r.
C)should hire more capital until MPK = 0.
D)should get rid of some capital until MPK = r.
E)has the optimal amount of capital.

Question 53

Suppose the payments to capital and labor are (w*L*)/Y* = 2/3 and (r*L*)/Y* = 1/3,respectively.One implication of this result is that __________ and profits are __________.

A)w*L* + r*K* = Y*;positive
B)w*L* + r*K* = Y*;equal to zero
C)w*L* + r*K* = Y*;negative
D)(w*L* - r*K*)= Y*;equal to zero
E)(w*L*/Y*)(r*K*/Y*)= 0;negative

Question 54

If MPL < w,the firm:

A)has the optimal amount of labor.
B)should fire some labor until MPL = w.
C)should fire some labor until MPL = 0.
D)should hire more capital until MPK = 0.
E)should hire more capital until MPL = w.

Question 55

The marginal product of labor curve represents:

A)the demand for wages.
B)the supply of labor.
C)the demand for labor.
D)the demand for capital.
E)the supply of wages.

Question 56

In the Cobb-Douglas production function
,if a = 1/4,then:

A)capital's share of GDP is one-fourth.
B)labor's share of GDP is three-fourths.
C)capital's share of GDP is three-fourths.
D)labor's share of income is one-fourth.
E)Both a and b are correct.

Question 57

In Figure 4.4,MPL represents the __________,
Represents the __________,and the intersection of the two yields __________.

A)labor supply;labor demand;the equilibrium wage
B)labor demand;labor supply;the equilibrium wage
C)labor supply;labor demand;the equilibrium rental rate of capital
D)labor demand;labor supply;the amount of capital hired
E)None of the above is correct.

Question 58

Suppose the payments to capital and labor are (w*L*)/Y* = 2/3 and (r*L*)/Y* = 2/3,respectively.One implication of this result is:

A)w*L* + r*K* < Y*.
B)w*L* + r*K* = Y*.
C)w*L* + r*K* > Y*.
D)(w*L*/r*K*)= Y*.
E)(w*L*/Y*)(r*K*/Y*)= 1.

Question 59

In the Cobb-Douglas production function
,if a = 1/3,then:

A)labor's share of GDP is two-thirds.
B)labor's share of GDP is one-third.
C)capital's share of GDP is one-third.
D)capital's share of income is one.
E)Both a and c are correct.

Question 60

If
And
,then output is determined by:

A)the total amount of labor in an economy.
B)the total amount of capital in an economy.
C)the total amount of capital and labor available in an economy.
D)a percentage of capital and labor in an economy.
E)Not enough information is given.

Question 61

As an economist working at the International Monetary Fund,you are given the following data for Burundi: predicted per capita GDP,relative to the United States,as given by
,is 0.19,and total factor productivity is 0.083.What is the observed per capita GDP,relative to the United States?

A)2.28
B)0.016
C)0.87
D)0.44
E)0.62

Question 62

In the equation

Represents:

A)total factor productivity.
B)physical capital.
C)natural resources.
D)the capital = labor ratio.
E)the real interest rate.

Question 63

Which of the following explain differences in total factor productivity?

A)institutions
B)human capital
C)infrastructure
D)legal structure.
E)all of the above

Question 64

As a rough approximation,differences in capital per person explain about __________ of the difference in incomes between the richest and poorest countries,while differences in __________ explain __________.

A)one-third;wages;two-thirds
B)one-third;total factor productivity;two-thirds
C)one-third;total factor productivity;one-third
D)one-third;returns to capital;two-thirds
E)two-thirds;total factor productivity;one-third

Question 65

As an economist working at the International Monetary Fund,you are given the following data for Burundi: observed per capita GDP,relative to the United States,is 0.016;predicted per capita GDP,given by
,is 0.19.What is total factor productivity?

A)0.003
B)12.04
C)0.083
D)0.44
E)0.25

Question 66

Which of the following does not explain differences in total factor productivity?

A)institutions
B)the labor stock
C)human capital
D)natural resources
E)technology

Question 67

Differences in output across economies with the same per capita capital stock can be explained by

A)differences in labor.
B)differences in total factor productivity.
C)similarities in total factor productivity.
D)differences in physical capital.
E)similarities in physical capital.

Question 68

You are an economist working for the International Monetary Fund.Your boss wants to know what is the total factor productivity of China,but all you have is data on per capita GDP,y,and the per capita capital stock,k.If you assume that capital's share of GDP is one-third,what would you use to find total factor productivity?

A)
B)
C)
D)
E)none of the above

Question 69

Which of the following explain differences in total factor productivity?

A)institutions
B)human capital
C)natural resources
D)technology
E)all of the above

Question 70

As a measure for total factor productivity,we can use the quantity of __________ in an economy.

A)computers
B)factories
C)machines
D)kilowatt hours used
E)none of the above

Question 71

Which of the following do not explain differences in total factor productivity?

A)the labor stock
B)the share of capital in GDP
C)the share of labor in GDP
D)the stock of capital
E)all of the above

Question 72

Consider the two production functions in Figure 4.6,representing two countries.Which of the following is true?
I)At points a and b,each country has the same per capita capital stock but different factor productivity.
Ii)Points a and c represent the same country but with different factor productivity.
Iii)Points b and d represent the same country but with different stock of per capita capital.

A)i and iii
B)i only
C)ii only
D)iii only
E)i and ii

Question 73

Consider the three production functions in Figure 4.5.Each represents a different country.For any given per capita stock of physical capital,Country __________ has the highest total factor productivity.

A)A
B)B
C)C
D)Not enough information is given.
E)none of the above

Question 74

In the year 2000,the five richest countries had a per capita GDP __________ times higher than the five poorest countries.Differences in capital per worker explain about __________ percent of this difference,with total factor productivity making up about __________ percent of this difference.

A)10;2;10
B)45;10;4.5
C)35;3.5;10
D)35;10;3.5
E)45;4.5;10

Question 75

Consider the two production functions in Figure 4.6,representing two countries.Which of the following is not true?
I)At points a and b,each country has the same per capita capital stock but different factor productivity.
Ii)Points a and c represent different countries but with the same factor productivity.
Iii)Points b and d represent the same country but with different stock of per capita capital.

A)ii only
B)i only
C)iii only
D)i and ii
E)i and iii

Question 76

In the United States,the average number of years of education for adults over the age of 25 is about:

A)13 years.
B)9 years.
C)17 years.
D)12 years.
E)14 years.

Question 77

To decompose what explains the difference in per capita GDP between any two countries,say,1 and 2,we would use:

A)
B)
C)
D)
E)

Question 78

One explanation for the difference between the predicted output per person and the observed per capita GDP in Table 4.1 is:

A)differences in the labor supply.
B)differences in human capital.
C)differences in per capita capital.
D)differences in capital's share of GDP.
E)none of the above

Question 79

You are an economist working for the International Monetary Fund.Your boss wants to know what is the total factor productivity of India,but all you have is data on per capita GDP,y,and the per capita capital stock,k.If you assume that capital's share of GDP is one-fourth,what would you use to find total factor productivity?

A)
B)
C)
D)
E)none of the above

Question 80

Suppose the total factor productivity in Switzerland,Italy,South Africa,and India are 0.72,0.69,0.44,and 0.23,respectively.If the U.S.total factor productivity is 1.00,then the United States is __________ productive,respectively,than these four countries.

A)equally as
B)28 percent,31 percent,56 percent,and 73 percent less
C)28 percent,31 percent,56 percent,and 73 percent more
D)72 percent,69 percent,44 percent,and 23 percent more
E)72 percent,69 percent,44 percent,and 23 percent less