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Economist use production functions to
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define what is technically efficient for different combinations of inputs.
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. Suppose a builder constructs a house that he hopes to sell to a prospective future buyer before he finishes building it. After spending six months and $300,000 in acquiring the land and constructing the house, market conditions change and the builder fails to find a buyer willing to pay his asking price of $360,000. The builder further realizes that by investing $300,000 in a bank deposit he would have been able to earn $4,500 as interest. Which of the following is the economically efficient way for the builder to view his investment?
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A) The $300,000 is a sunk cost and should be ignored when negotiating a price for the home.
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3. The duration of the short run varies by industry because _____.
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D) the time required to change a variable input differs by industry
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4. A tangency between an isocost line and an isoquant shows all the following, except:
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D) an input combination where the returns to labor and capital inputs are equal.
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5. If the level of technical know-how increases, how would this change the total product curve?
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C) It would shift upwards. D) It would become flatter.
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6. Which of the following statements about the marginal rate of technical substitution is correct?
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A) The MRTS is equal to the ratio of the marginal productivities of the inputs.
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7. Long-run costs of production are generally lower than the short run costs because:
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C) there is greater flexibility in input usage in the long run.
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8. A firm’s costs are determined by:
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A) its production function.
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10. Marico Corp. can manufacture 45,000 ball bearings per day at one of its production facilities. If the company uses the same facility for manufacturing rivets, a total of 30,000 rivets can be produced each day. Calculate Marico Corp.’s implicit cost per day of producing rivets at this facility.
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The monetary value of 45,000 ball bearings
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11. Identify the example of sunk cost from the following.
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D) Raw materials damaged by fire in the warehouse
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12. A firm is employing 100 units of labor and 50 units of capital to produce 200 widgets. Labor costs $10 per unit and capital $5 per unit. For the quantities of inputs employed, MPL = 2 and MPK = 5. In this situation, the firm:
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C) could increase its output at no extra cost by using more capital and less labor.
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13. The fact that limited use of caffeine can improve mental alertness and help performance, while excessive use of caffeine can cause anxiety and trembling shows _____.
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B) the law of diminishing marginal returns with respect to test performance
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