final practice questions Flashcards
which of the following would NOT be a factor of production in a bakery
- flour
- ovens
- labor
- advertising
advertising
the short run is
a period of time during which some inputs can be varied and some cannot
a production input that can be varied in both the short run and the long run is call
a variable input
a production input that can only be varied in the long run is called
a fixed input
what is production technology and how does it differ from a production function?
It is a function showing the highest output that a firm can produce for every specified combination of inputs and is the same as a production function
why does production eventually experience diminishing marginal returns to labor in the short run
since at least one factor of production is fixed in the short run, as more and more workers must share the fixed factors, the marginal product of each additional worker will eventually decrease
faced with constantly changing conditions, why would a firm ever keep any factors fixed? what criteria determine whether a factor is fixed or variable?
some factors are fixed in the short run, whether the firm likes it or not, simply because it takes time to adjust the level of the variables
a political campaign manager must decide whether to emphasize television ads or letters to potential voters in a reelection campaign. describe the prod function for campaign voters
television ads and letter produce campaign votes
How might info about a production function (such as the shape of the isoquants) help the campaign manager plan strategy
if ads and letters to potential voters are perfect substitutes, then the campaign manager should use only the cheaper input per vote
holding capital constant, when the amount of labor increases from 5 to 6, output increases from 20 to 25. then when labor increases from 6 to 7, output increases from 25 to 28- example of what?
law of diminishing marginal returns
holding capital constant, when labor increases from 9 to 10 units, output increases from 200 to 216 units. the marginal product of labor is ___ units, and when 10 units of labor are used, the average product of labor is ___
16, 21.6
what is the difference between a prod function and an isoquant
a prod funtion describes the max output that can be achieved with any given combo of inputs. an isoquant identifies all the different combos of inputs that can be used to produce one particular level of output
can an isoquant ever slope upward?
no, it would imply that adding more of both inputs keeps output constant
if a prod function has straight line isoquants, then
the inputs are perfect substitutes
a firm wants to minimize the total cost of producing 100 tons of dynamite. the firm uses two factors of production, chemicals and labor. the combo of chemicals and labor that minimizes production costs will be found where
the prod of an additional unit of dynamite costs the same regardless of whether chemicals or labor are used
With convex isoquants, a firm’s expansion path cannot be negatively sloped
true or false?
true
If a firm uses only two factors of production, one of whose marginal product becomes negative when its use exceeds a certain level, then a cost-minimizing firm’s expansion path will have vertical or horizontal segments
true or false?
true
suppose capital and labor are perfect substitutes in a long-run production process. if labor costs $15 per hour and the rental rate of capital is $20 per hour, what can we say about the profit maximizing choice of labor and capital inputs?
we will only use the labor in the prod process
assume that a firm’s production process is subject to increasing returns to scale over a broad range of outputs. long run avg costs over this output will tend to
decline
at every output level, a firm;s short run avg cost equals or exceeds its long run avg cost because
there are at least as many possibilities for substitution b/w factors of prod in the long run as in the short run
to model the input decisions for a prod system, we plot labor on the horizontal axis and capital on the vertical axis. in the short run, labor is a variable input and capital is fixed. the short run expansions path for this prod system is
a horizontal line
which of the following is not possible:
- SAC and LAC are both increasing for some output levels
- SAC is inc but LAC is dec for some output levels
- SAC is dec but LAC is inc for some output levels
- SAC and LAC are both dec for some output levels
all of the above are possible
economies of scope refer to
multiproduct firms
a variable cost function of the form: VC=23+Q+7Q^2 implies a marginal cost curve that is
linear
prod function: Q=4L^1/2 x K^1/2
to double output to 400
exactly double inputs
which of the following is NOT a basic assumption of perfect competition
- all firms produce identical products
- all firms and consumers are price takers
- there is free entry and exit from the market
- production is characterized by significant economies of scale
production is characterized by significant economies of scale
is it a good rule of thumb to determine whether a market is close to being perfectly competitive if the industry has at least 10-20 firms?
not necessarily because the 10-20 firms may collude
a perfectly competitive firm’s MC function is MC=75+3q. what is the firm’s short run supply curve?
q= -25+0.33P
what is a key assumption of a perfectly competitive market?
each seller has a very small share of the market
in the short run, a perfectly competitive firm earning negative economic profit
is on the upward sloping portion of its AVC
in long run competitive equilibrium, a firm that owns factors of production will have an
economic profit= $0 and accounting profit >$0
a perfectly competitive firm maximizes its profit by
producing the output t which marginal cost equals the market price
an individual firm’s demand curve in perfect competition is
a horizontal line in the market place
in perfect competition, a firm’s marginal revenue is
the additional revenue the firm earns when it sells one more unit of output & the change in the firm’s total revenue divided by the change in the firm’s output & equal to price
why would a firm that incurs losses choose to produce rather than shut down?
price is greater than avg variable cost, resulting in smaller losses than would result from shutting down
the marginal product of labor in the prod of computer chips is 70 chips per hour. the marg rate of technical substitution of hours of labor for hours of machine capital is 0.50. what is the marginal product of capital?
140 chips per hour
the production function q= L/2 is associated with
constant returns to scale
the production function q= L^2 +L is associated with
increasing returns to scale
the production function q= log(L) is associated with
first increasing and then decreasing returns to scale
a function that indicates the maximum output per unit of time that a firm can produce, for every combo of inputs with a given technology, is called
a production function
which inputs are variable in the long run?
- labor
- capital and equiptment
- plant size
all of these
the short run is
a time period in which at least on input is fixed
when the average product is decreasing, marginal product
exceeds average product
???
which are true? technological improvement
- can hide the presence of diminishing returns
- can be shown as a shift in the total product curve
- allows more output to be produced with the same combination of inputs
all of the above
the MRTS for isoquants in a fixe proportion production function is
zero or undefined
marginal product of an input is
the addition to total output to the addition of the last unit of an input, holding all other inputs constant
