Chapter 10: Production and Cost Estimate

Question 1

empirical production function

Answer 1

The mathematical form of the production function to be estimated.

Question 2

long-run production function

Answer 2

A production function in which all inputs are variable.

Question 3

short-run production function

Answer 3

A production function in which at least one input is fixed.

Question 4

estimable form

Answer 4

The exact mathematical form of the equation that can be estimated by regression analysis

Question 5

cubic production function

Answer 5

A production function of the form Q = aK^3L^3 + bK2^2L^2.

Question 6

short-run cubic production function

Answer 6

A production function of the form Q = AL^3 + BL^2.

Question 7

regression through the origin

Answer 7

A regression in which the intercept term is forced to equal 0.

Question 8

nominal cost data

Answer 8

Data that have not been corrected for the effects of inflation.

Question 9

deflating

Answer 9

Correcting for the influence of inflation by dividing nominal cost data by an implicit price deflator.

Question 10

user cost of capital

Answer 10

The firm’s opportunity cost of using capital.

Question 11

user costs includes…

Answer 11

acquisition cost, forgone rental income, depreciation, capital gains or losses

Question 12

2 problems with measuring cost

Answer 12

1. correcting data or the effects of inflation (fix by deflating nominal cost data using appropriate price index)
2. difference between the accounting definition of cost and the economic definition of cost

Question 13

what a manager uses to estimate short-run cost function?

Answer 13

A manager typically uses time-series observations on cost, output, and input prices to estimate the short-run cost function