Deck 10: Production and Cost Estimation

Question 1

Which of the following is an estimable form of a production function?

A) Q = f(L,K)
B) Q = f(L )
C)
D) all of the above
E) none of the above

Answer 1

Question 2

Which of the following represents a short-run cubic production function?

A)

B)

C)

D)

E) all of the above

Answer 2

Question 3

With a cubic production function of the form

, in order for the average and marginal product functions to have their theoretical properties, it must be the case that

A) a < 0, b > 0
B) a > 0, b < 0
C) a < 0, b < 0
D) a > 0, b > 0

Answer 3

a < 0, b > 0

Question 4

When estimating a short-run production function of the form

, it is necessary to specify in the computer routine that

A) A < 0.
B) B > 0.
C) the intercept term is forced to equal zero.
D) a and b
E) all of the above

Question 5

An average variable cost function is estimated as

Which of the following cost functions is associated with this estimate?

A) SMC = 96 - 4Q + 0.1Q²
B) TVC = 96Q - 2Q² + 0.05Q³
C) TVC = 96Q + 4Q² + 0.15Q³
D) SMC = 96 - 4Q + 0.15Q²
E) both b and d

Question 6

refer to the following:
A short-run production function was estimated as


-What is average product when it is at its maximum level?

A) 3.20
B) 8.75
C) 6.92
D) 6.00
E) 9.40

Question 7

refer to the following:
A short-run production function was estimated as


-At 20 units of labor, what is average product?

A) 6.0
B) 1.9
C) 6.3
D) 4.0
E) 2.4

Question 8

refer to the following:
A short-run production function was estimated as


-At 20 units of labor, what is marginal product?

A) 6.0
B) 1.9
C) 6.3
D) 4.0
E) 2.4

Question 9

refer to the following:
A short-run production function was estimated as


-At 60 units of labor, what is average product?

A) 9.4
B) 8.6
C) 3.7
D) 2.4
E) 6.4

Question 10

refer to the following:
A short-run production function was estimated as


-At 60 units of labor, what is marginal product?

A) 4.1
B) 1.2
C) 6.3
D) 2.4
E) -2.4

Question 11

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-The estimated short-run marginal cost function (SMC) at Straker Industries is:

A)

B)

C)

D)

Question 12

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-If Straker Industries produces 20 units of output, what is estimated average variable cost (AVC)?

A) $19.40
B) $67.40
C) $171.40
D) $179.40

Question 13

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-If Straker Industries produces 20 units of output, what is estimated total cost (TC)?

A) $1,348
B) $1,498
C) $2,348
D) $4,428

Question 14

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-If Straker Industries produces 20 units of output, what is estimated short-run marginal cost (SMC)?

A) $171.40
B) $463.20
C) $1,348
D) $2,348

Question 15

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-If Straker Industries produces 12 units of output, what is estimated total variable cost (TVC)?

A) $171.40
B) $463.20
C) $1,348
D) $2,348

Question 16

The following questions refer to the cost regression for Straker Industries shown below.
Straker Industries estimated its short-run costs using a U-shaped average variable cost function of the form

and obtained the following results. Total fixed cost (TFC) at Straker Industries is $1,000.DEPENDENT VARIABLE:
?

-If Straker Industries produces 12 units of output, what is estimated total cost (TC)?

A) $1,000
B) $1,463.20
C) $2,348
D) $4,428

Question 17

For the short-run cost function AVC = a + bQ + cQ²,

A) the AVC curve is -shaped when a < 0, b > 0, and c < 0.
B) the AVC curve is -shaped when a > 0, b < 0, and c > 0.
C) the corresponding SMC function is
https://d2lvgg3v3hfg70.cloudfront.net/TB10434/.
D) both a and c
E) all of the above

Question 18

A cubic specification for a short-run production function is appropriate when the scatter diagram indicates

A) an S-shaped total product curve.
B) marginal product of labor falls throughout the range of labor usage.
C) total product is decreasing throughout the range of labor usage.
D) an S-shaped marginal product of labor curve.
E) a -shaped marginal product of labor curve (MP first falls and then rises as labor usage increases.

Question 19

When estimating a cubic short-run production function

Using linear regression analysis, you must

A) transform the equation into linear form by defining L3 and L2 as L³ and L², respectively.
B) suppress the intercept term (regress through the origin).
C) convert to logarithms.
D) both a and b
E) both b and c

Question 20

The empirical specification

Can be used to estimate

A) a short-run cubic production function.
B) short-run cubic cost function.
C) a -shaped TVC curve.
D) both b and c
E) none of the above

Question 21

The empirical specification

Can be used to estimate

A) a short-run cubic production function.
B) short-run cubic cost function.
C) a family of U-shaped product curves.
D) both a and c
E) none of the above

Question 22

refer to the following:
A firm estimates its long-run production function to be

Suppose the firm employs 12 units of capital.

-At _______ units of labor, marginal product of labor begins to diminish.

A) 32.21
B) 44.44
C) 66.67
D) 76.66
E) 82.27

Question 23

refer to the following:
A firm estimates its long-run production function to be

Suppose the firm employs 12 units of capital.

-At ________ units of labor, average product of labor begins to diminish.

A) 32.21
B) 44.44
C) 66.67
D) 76.66
E) 82.27

Question 24

refer to the following:
A firm estimates its long-run production function to be

Suppose the firm employs 12 units of capital.

-Marginal product when 10 units of labor are employed is

A) 12,248
B) 13,142
C) 14,287
D) 15,984
E) 30,672

Question 25

refer to the following:
A firm estimates its long-run production function to be

Suppose the firm employs 12 units of capital.

-Average product when 10 units of labor are employed is

A) 12,248
B) 13,142
C) 14,287
D) 15,984
E) 30,672

Question 26

The following questions refer to Greene Enterprises, Inc., whose manager recently estimated its average variable cost (AVC) function to be

Greene Enterprises faces total fixed costs (TFC) of $300,000.

-At Greene Enterprises, average variable cost (AVC) reaches its minimum value at $________.

A) $28.00
B) $31.67
C) $39.64
D) $43.33
E) $82.00

Question 27

The following questions refer to Greene Enterprises, Inc., whose manager recently estimated its average variable cost (AVC) function to be

Greene Enterprises faces total fixed costs (TFC) of $300,000.

-When Greene's output is 2,000 units, what is total cost (TC)?

A) $144,000
B) $396,000
C) $444,000
D) $642,000
E) $846,000

Question 28

The following questions refer to Greene Enterprises, Inc., whose manager recently estimated its average variable cost (AVC) function to be

Greene Enterprises faces total fixed costs (TFC) of $300,000.

-A short-run marginal cost function is estimated as
https://d2lvgg3v3hfg70.cloudfront.net/TB10434/. Which of the following cost functions is associated with this estimated SMC equation?

A) TVC = 96Q - 2Q² + 0.05Q³
B) SMC = 96 - 4Q + 0.1Q²
C) TVC = 96Q + 4Q² + 0.15Q³
D) AVC = 96 - 2Q + 0.05Q²
E) a and d

Question 29

Consider the long-run production function Q = 3.0K + 4.5L.
-The marginal rate of technical substitution is ________.

Question 30

Consider the long-run production function Q = 3.0K + 4.5L.
-The marginal product of labor is ________.

Question 31

Consider the long-run production function Q = 3.0K + 4.5L.
-The marginal product of capital is ________.

Question 32

Consider the long-run production function Q = 3.0K + 4.5L.
-This production function _________ (does, does not) conform to the theoretical properties of a production function.

Question 33

Consider the long-run production function Q = 6LK.
-The marginal rate of technical substitution is ________.

Question 34

Consider the long-run production function Q = 6LK.
-The marginal product of labor is ________.

Question 35

Consider the long-run production function Q = 6LK.
-The marginal product of capital is ________.

Question 36

Consider the long-run production function Q = 6LK.
-This production function _________ (does, does not) conform to the theoretical properties of a production function.

Question 37

The following cubic equation is a long-run production function for a firm:
where Q is the number of units produced per year. Suppose the firm employs 25 units of capital.
-The equations for total product, average product, and marginal product are:
TP = ___________________________
AP = ___________________________
MP = ___________________________

Question 38

The following cubic equation is a long-run production function for a firm:
where Q is the number of units produced per year. Suppose the firm employs 25 units of capital.
-At _______ units of labor usage, marginal product of labor begins to diminish.

Question 39

The following cubic equation is a long-run production function for a firm:
where Q is the number of units produced per year. Suppose the firm employs 25 units of capital.
-When 10 units of labor are employed, marginal product is equal to ____________ and average product is equal to ____________.
Now suppose the firm reduces capital usage to 20 units of capital.

Question 40

The following cubic equation is a long-run production function for a firm:
where Q is the number of units produced per year. Suppose the firm employs 25 units of capital.

-The equations for total product, average product, and marginal product are:
TP = ___________________________
AP = ___________________________
MP = ___________________________

Question 41

The following cubic equation is a long-run production function for a firm:
where Q is the number of units produced per year. Suppose the firm employs 25 units of capital.

-When 10 units of labor are employed, marginal product is equal to ____________ and average product is equal to ____________. The decrease in capital usage has _______________ (increased, decreased, not affected) the marginal and average product of labor.

Question 42

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-The equations for total product, average product, and marginal product are:
TP = ___________________________
AP = ___________________________
MP = ___________________________

Question 43

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-The estimated values of A and B are statistically significant at the (exact) levels, ________ and _________, respectively.

Question 44

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-At _______ units of labor usage, marginal product of labor begins to diminish.
When the wage rate is $300, answer the following questions (remembering the relations AP = Q/L; AVC = w/AP; and SMC = w/MP):

Question 45

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-Average product of labor reaches its maximum value at ________ units of labor.

Question 46

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-At the output for part d, average variable cost is $______________ and marginal cost is $____________.

Question 47

A firm estimates its cubic production function of the following form:
and obtains the following results:
‪
-When the rate of labor usage is 100 units of labor, output is _______ units. Average variable cost is $_________ and marginal cost is $__________

Question 48

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-Of the three parameter estimates list the estimates that are statistically significant at the 5 percent level: _________________. List the estimates that are significant at the 10 percent level: ________________.

Question 49

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-Average variable cost reaches its minimum level at ___________ units of output. At its minimum point, average variable cost is $__________.

Question 50

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-The estimated marginal cost function is SMC = ____________________.

Question 51

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-The estimated average variable cost function is AVC = ____________________.

Question 52

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-When output is 6,000 units, marginal cost is $___________.

Question 53

Consider estimation of a short-run average variable cost function of the form
Using time-series data, the estimation procedure produces the following computer output:

-When output is 6,000 units, average variable cost is $___________.