question
Which of the following is true of a production function?
-It specifies the maximum feasible output that can be produced for given amounts of inputs.
-It specifies the maximum revenue that a firm can generate by selling its output.
-It specifies the number of goods that can be purchased in a market at a given price.
-It specifies the expenses a firm can incur as a result of a production process.
answer
It specifies the maximum feasible output that can be produced for given amounts of inputs.
question
A production function of the form Q = 150L.75 K.50exhibits ______ in the long run.
answer
increasing returns to scale
question
A production function of the form Q = 40 L.75 K.20exhibits ______ in the long run.
answer
decreasing returns to scale
question
Diminishing marginal returns occur when
answer
one input is increased and the others are held constant.
question
Refer to Table 5.1 and determine which of the following answers is correct.
answer
The missing values are MPL(L=2)=45, MPL(L=3)=29, APL(L=2)=35, and APL(L=4)=28.
question
The marginal product curve of input Y shows
answer
how the quantity of output produced changes for each amount of input Y, holding all other inputs constant.
question
Assume your company produces good X using only two inputs, capital (K) and labor (L). Also, assume L is measured on the vertical axis and K on the horizontal one. If the prices of inputs are PK=$30 and PL=15, and your company is behaving efficiently, what is the slope of the isoquant at the current input mix?
answer
-2
question
Refer to Figure 5.1. Observe the three isoquants depicted and determine which of the following statements is true.
K and L are substitutes in each of the three cases.
K and L are substitutes in cases (1) and (2).
K and L are substitutes in cases (2) and (3).
K and L are substitutes in cases (1) and (3).
answer
K and L are substitutes in cases (1) and (3).
question
Bob owns an auto parts firm. He uses a combination of steel and aluminum to produce his auto parts. All of the following combinations will finish the task on time. Steel costs $15 per unit and the aluminum costs $50 per unit. What combination of steel and aluminum should he use?
answer
15 units of steel and 7 units of aluminum
question
If the price of a variable input increases, then
answer
the total cost curve will shift up.
question
If a company has significant economies of scale in the long run—assuming a large market —the company will tend to
answer
grow larger and have a declining average cost curve.
question
If a company has a cost curve of TC = 300 + 2Q + Q2 and it produces 300 units per day, then its average (total) cost is
answer
$303
question
The opportunity cost of any business decision is
answer
the cost of the next best alternative.
question
An independent trucker has to choose one of the four possible combinations of inputs listed below. The two inputs are drivers and machinery. If he buys expensive machinery, then he can hire fewer drivers to deliver the same output. The input combinations are
Method 1: 20 drivers, 10 machines;
Method 2: 50 drivers, 2 machines
Method 3: 100 drivers, 0 machines
Method 4: 10 drivers, 12 machines.
Hiring a driver costs $10.Each machine costs $100. Which method should he use?
Method 1: 20 drivers, 10 machines;
Method 2: 50 drivers, 2 machines
Method 3: 100 drivers, 0 machines
Method 4: 10 drivers, 12 machines.
Hiring a driver costs $10.Each machine costs $100. Which method should he use?
answer
Method 2
question
Refer to Table 5.2, which gives cost information for the production of widgets. Some values are missing, however. Which of the following is true?
answer
A=45, E=10
question
A firm produces 10 widgets that they sell for $15 each. The average variable cost for the production of 10 widgets is $13/unit.
The fixed cost for this firm equals $20. What is the value of this firm's profits?
The fixed cost for this firm equals $20. What is the value of this firm's profits?
answer
0
question
A firm's average total cost is minimized at $5/unit when it produces 10 units. What is the marginal cost when the firm produces 10 units?
answer
$5/unit
question
Refer to Figure 5.2. On the graph that shows total costs, what is the level of variable costs when 6 units are produced?
answer
$400
question
The general rule for profit maximization in a firm is to
answer
set marginal revenue equal to marginal cost.
question
The ______ represents the additional revenue that comes from using one more unit of input.
answer
marginal revenue product
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