MC Flashcards
Theodore cuts grass during the summer. He rents a lawn mower from his dad. Which of the following best illustrates the difference between the short run and the long run for Theodore?
A) When Theo acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.
B) Theo has had to turn away some customer because he is already too busy
C) Theo’s friends say they will help him, but when he calls them, they say they have other things to do
D) Some customers pay Theo immediately, others wait till the following week
A
If the law of diminishing marginal returns applies to labor then
A) The avg product of labor must eventually become negative
B) After some level of employment, the marginal product of labor must fall
C) The average product of labor must rise and then fall as employment increases
D) The marginal product of labor must eventually become negative
E) The marginal product of labor must rise and then fall as employment rises
B
The slope of the total product curve is the
Marginal Product
The slope of a line form the origin to a point is the
Average Product
When the average product is decreasing, marginal product
Is decreasing
Is less than average product
Firm C’s isoquant’s are convex, which is False?
A) K and L are imperfect substitutes
B) There must be constant returns to scale
C) MRTS falls as labor increases
D) Both K and L are subject to the law of DMR
E) None of the Above (all of the above are true)
B - can be any returns to scale because all lead to convex isoquants
One way to explain the convexity of isoquants is to say that as L increases and K decreases, the MPvL ___ and the MPvK ___
Falls
Rises
A firm’s MPvL is 4 and it’s MPvK is 5. If the firm adds one unit of L, but does not want it’s output quantity to change, the firm should
A) Use 0.8 fewer units of K
B) Use 1.25 fewer units of K
C) Use 5 fewer units of K
D) Add 1.25 units of K
A
MPvL/MPvK = 4/5 dK/dL = -4/5 = -0.8
With its current levels of input use, a firm’s MRTS is -3 (when K is on the vertical axis and L is on the horizontal axis). This implies
A) The MPvL is 3 times the MPvK
B) The firm could produce 3 more units of output if it increased its use of K by one unit (holding L constant)
C) The firm could produce 3 more units of output if it increased its use of L by one unit (holding K constant)
D) If it used one more unit of both K and L, the firm could produce 3 more units of output
E) If the firm reduced its K stock by one unit, it would have to hire 3 more workers to maintain its current level of output
A
Which of the following is not related to the slope of isoquants?
A) The fact that inputs have DMR
B) The fact that there are DR to inputs
C) The fact that input prices are positive
D) The fact that more of either input increases output
E) The fact that inputs have positive MP
C
Input prices define the slope of Isocosts
Isoquants that are downward-sloping straight lines exhibit
A) A constant MRTS
B) An increasing MRTS
C) A MRTS that cannot be determined
D) A decreasing MRTS
A
Let the production function be Q=AL^aK^b The function exhibits increasing returns to scale if
A) a+b > 1
B) a+b = 1
C) a+b 1
E) both A and D are correct
A
Which of the following production functions exhibits CRS?
A) Q=KL^1/2 B) Q=K+L C) Q=K^1/2L^1/3 D) Q=KL E) both B and C exhibit CRS
B
Assume Q=L^.4K^.4
A) The production function has IRS
B) The production function has DRS
C) The production function exhibits DMR to K in the SR
D) both B and C are true
B
f(2K,2L) = (2K)^.4 * (2L)^.4 = 2^.4 * 2^.4 = 2^.8Q
Firm G is using an input combo such that the firm’s ascots line is tangent to is isoquant. This means that what 2 things are true about MRTS and MPvL?
MRTS = w/r MPvL = MPvK at Q*
