Deck 7: Technology and Production

Question 1

A firm's _______ shows the amount of output a firm can produce from given amounts of inputs using efficient production methods.

A) Production possibilities set
B) Efficient production frontier
C) Production function
D) Production possibilities curve

Answer 1

Production function

Question 2

As long as a firm can freely dispose of any extra inputs it may have

A) Its production function must slope downward
B) Its production function must be concave
C) Its production function must slope upward
D) Its production function must be convex

Answer 2

Its production function must slope upward

Question 3

A firm's _______ summarizes all of its possible methods of producing its output.

A) Production technology
B) Efficient production frontier
C) Production function
D) Production possibilities curve

Answer 3

Production technology

Question 4

If hiring one more worker causes the average product of labour to fall,then

A) The marginal product of labour is less than the average product of labour
B) The marginal product of labour is equal to the average product of labour
C) The marginal product of labour is greater than the average product of labour
D) The marginal product of labour is negative

Question 5

A firm's _______ contains all combinations of inputs and outputs that are possible given the firms' technology.

A) Production possibilities set
B) Efficient production frontier
C) Production function
D) Production possibilities curve

Question 6

Suppose that a firm uses both labour (L)and capital (K)as inputs.The firm's long-run production function is Q = F(L,K)= 5ÖLÖK.If the firm has 100 units of capital,what is its short-run production function?

A) Q = F(K) = 50 ÖK
B) Q = F(L) = 500Ö L
C) Q = F(L,K) = 50Ö LÖK
D) Q = F(L) = 50Ö L

Question 7

The average product of labour is defined as

A) The additional output produced by the last ∆L units of labour hired
B) The amount of output divided by the amount of capital used to produce the output
C) The amount of output produced multiplied by the last ∆L units of labour hired
D) The amount of output divided by the number of workers employed

Question 8

Which of the following is the formula for the average product of labour?

A) F(L) - F(L - ∆L)
B) F(L)/L
C) F(L)/∆L
D) (F(L) - F(L - ∆L))/∆L

Question 9

Which of the following is a short-run decision?

A) Because of an increase in enrollment, the economics department hires two new professors
B) After a new classroom building is built, the economics department hires two new professors
C) Your college builds a new classroom building
D) The economics department buys new computers for the professors

Question 10

When the marginal product of an input is ______ than the average product,the marginal units of the input _____ the average product.

A) Larger; lower
B) Smaller; raise
C) Smaller; do not affect
D) Larger; raise

Question 11

The long run refers to a period of time over which

A) The firm can change its level of output
B) Only one input is fixed
C) Production technology increases
D) All inputs are variable

Question 12

According to the Law of Diminishing Marginal Returns,as additional units of one input are employed as all other inputs are held constant,total output will eventually ______.

A) Decrease
B) Increase at an increasing rate
C) Increase at a decreasing rate
D) Increase at a constant rate

Question 13

A firm's _______ contains all combinations of inputs and outputs that the firm can achieve using efficient production methods.

A) Production possibilities set
B) Efficient production frontier
C) Production function
D) Production possibilities curve

Question 14

Refer to Table 7.1.What is the marginal product of the 3^rd worker?

A) 4 units of output
B) 3 units of output
C) 15 units of output
D) 5 units of output

Question 15

Refer to Table 7.1.Diminishing returns set in with the ______ worker.

A) Third
B) Fifth
C) Fourth
D) Sixth

Question 16

The marginal product of labour is defined as

A) The additional output produced by the last ∆L units of labour hired
B) The amount of output divided by the amount of capital used to produce the output
C) The amount of output produced multiplied by the last ∆L units of labour hired
D) The amount of output divided by the number of workers employed

Question 17

Refer to Table 7.1.What is the average product of the 4^th worker?

A) 4 units of output
B) 3 units of output
C) 16 units of output
D) 6 units of output

Question 18

Suppose that a firm uses both labour (L)and capital (K)as inputs.The firm's long-run production function is Q = F(L,K)= 5ÖLÖK.The firm has 100 units of capital.If the firm uses an efficient production method,how much output does it produce in the short run if it hires 25 workers?

A) 250 units
B) 1,250 units
C) 2,500 units
D) 50 units

Question 19

Which of the following is the formula for the marginal product of labour?

A) F(L) - F(L - ∆L)
B) F(L)/L
C) F(L)/∆L
D) (F(L) - F(L - ∆L))/∆L

Question 20

In the short run,

A) The firm is free to change the amount of capital it uses
B) All inputs are variable
C) There is no variable inputs
D) At least one input is fixed

Question 21

Which of the following is NOT a property of isoquants?

A) Isoquants curves are thin
B) Isoquants may slope upward or downward
C) Isoquants for the same technology never cross
D) Higher-level isoquants lie farther from the origin

Question 22

Suppose that the marginal product of a firm's labour is 10 units of output per hour.Also assume that the marginal product of the firm's capital is 30 units of output per hour.In this case,the marginal rate of technical substitution for labour with capital is

A) 3
B) 300
C) 40
D) 1/3

Question 23

Refer to Figure 7.3.Suppose a firm moves along the isoquant from point a to point b.The rate of substitution for labour with capital is

A) 2
B) -2
C) 1/2
D) -1/2

Question 24

Refer to Figure 7.5.Which diagram represents isoquants for inputs that are perfect substitutes?

A) A
B) B
C) C
D) D

Question 25

Refer to Figure 7.4.This isoquant exhibits

A) Increasing MRTS_LK as we move to the southeast along the isoquant
B) Declining MRTS_LK as we move to the northwest along the isoquant
C) Constant MRTS_LK as we move along the isoquant
D) Declining MRTS_LK as we move to the southeast along the isoquant

Question 26

Refer to Figure 7.5.Which diagram represents isoquants for fixed-proportions technology?

A) A
B) B
C) C
D) D

Question 27

Suppose a manager is deciding how to allocate workers between two plants.The marginal product of labour in plant 1 is 10 units of output.The marginal product of labour in plant 2 is 14 units of labour.What should the manager do?

A) Reallocate workers from plant 1 to plant 2 because MP_L is greater in plant 1 than in plant 2
B) Reallocate workers from plant 1 to plant 2 because MP_L is greater in plant 1 2 than in plant 1
C) Reallocate workers from plant 2 to plant 1 because MP_L is greater in plant 1 than in plant 2
D) Reallocate workers from plant 2 to plant 1 because MP_L is greater in plant 2 than in plant 1

Question 28

Which of the following formulas measures the rate of substitution for labour with capital?

A) - ∆L/∆K
B) - ∆K/∆L
C) ∆K/∆L
D) ∆L/∆K

Question 29

Which of the following formulas represents the marginal rate of technical substitution of labour for capital?

A) MP_/k/MP_L
B) - ∆K/∆L
C) ∆K/∆L
D) MP_L/MP_K

Question 30

Refer to Figure 7.2.Which of the following statements is true?

A) The curve labeled A represents the AP_L
B) Curves A and B represent short-run production functions
C) The curve labeled A represents the MP_L
D) The curve labeled B represents the MP_L

Question 31

The rate at which one input can be substituted for another is shown by

A) The slope of a firm's production function
B) The slope of a firm's efficient production frontier
C) The shape of a firm's isoquants
D) The shape of a firm's production function

Question 32

Refer to Figure 7.5.Which diagram represents isoquants for a Cobb-Douglas production function?

A) A
B) B
C) C
D) D

Question 33

Refer to Figure 7.2.With which worker does diminishing marginal returns set in?

A) The 20^th worker
B) The 30^th worker
C) The 38^th worker
D) The 50^th worker

Question 34

Refer to Figure 7.3.The marginal rate of technical substitution for labour with capital at 120 workers is represented by the slope

A) Of line ac
B) Of line ed
C) Of line ab times negative one
D) Of line ed times negative one

Question 35

When labour inputs are finely divisible,the average product of labour curve is ______ sloping at L if the marginal product is ______ the average product.

A) Downward; above
B) Upward; above
C) Upward; below
D) Vertical; equal to

Question 36

Refer to Figure 7.1.What is the average product of 20 workers?

A) 1.1 units of output
B) 22 units of output
C) 2 units of output
D) 8 units of output

Question 37

______ identifies all of the input combinations that efficiently produce a given amount of output.

A) A production function
B) An efficient production frontier
C) A production possibilities curve
D) An isoquant

Question 38

______ are resources that are fully used up in the production process.

A) Materials
B) Capital inputs
C) Variable inputs
D) Fixed inputs

Question 39

Refer to Figure 7.1.What is the marginal product of the 25^th worker?

A) 1.1 units of output
B) 22 units of output
C) 2 units of output
D) 10 units of output

Question 40

Isoquants are the ______ created by the ______.

A) Contour lines; production function
B) Contour lines; efficient production frontier
C) Tangent lines; production function
D) Tangent lines; production possibilities curve

Question 41

Two inputs ______ when they must be combined in a fixed ratio.

A) Are perfect substitutes
B) Are perfect complements
C) Represent Cobb-Douglas technology
D) Are fixed inputs

Question 42

Refer to Figure 7.6.Which graph represents constant returns to scale?

A) A
B) B
C) C
D) Both graph A and graph C

Question 43

Which of the following statements regarding comparisons of productivity across two firms is true?

A) The firm with the higher AP_L is the more productive firm
B) The firm with the higher MP_L is the more productive firm
C) The firm with the lower MP_L is the more productive firm
D) The average product of labour can vary with the choice of inputs and the level of outputs, so the firm with the higher AP_L may not be the most productive

Question 44

With ______ returns to scale,production is most efficient if there is ______.

A) Decreasing; a single producer
B) Increasing; a large number of producers
C) Constant; a single producer
D) Increasing; a single producer

Question 45

From 1970 to 1984,the productivity of the Lockeed Company increased as the company produced more airplanes.According to the text,Lockeed's experience can best be described as

A) Increasing returns to scale
B) Technological change
C) Learning-by-doing
D) Increasing marginal returns

Question 46

One reason that firms will experience increasing returns to scale is

A) The law of diminishing marginal returns
B) The specialization of inputs as scale increases
C) There is some fixed input that isn't being taken into consideration
D) Large firms may be difficult to manage effectively

Question 47

The productivity changes resulting from research and development would be best represented by

A) An upward shift of a firm's production function
B) A downward shift of a firm's production function
C) The firm's isoquants shifting away from the origin
D) A movement to the northeast along the firm's production function

Question 48

Suppose a firm uses 200 units of capital and 1000 workers to produce 10,000 units of output.When the firm employs 3000 workers and uses 600 units of capital,output increases to 45,000 units.This firm exhibits

A) Increasing returns to scale
B) Decreasing returns to scale
C) Constant returns to scale
D) Diminishing marginal returns

Question 49

Suppose a firm uses only capital and labour to produce output.When the firm doubles the amount of both inputs,output increases by less than double.This firm exhibits

A) Increasing returns to scale
B) Decreasing returns to scale
C) Constant returns to scale
D) Diminishing marginal returns

Question 50

For the Cobb-Douglas production function F(L,K)= AL^aK^b,a factor-neutral technical change would be represented by

A) An increase in the value of a
B) An increase in the value of b
C) Values of a and b for which a + b > 1
D) An increase in the value of A

Question 51

Refer to Figure 7.6.Graph A represents

A) Increasing returns to scale
B) Decreasing returns to scale
C) Constant returns to scale
D) Diminishing marginal returns

Question 52

Refer to Figure 7.7.A technological improvement is best represented by

A) A movement from point a to point b
B) A movement from point d to point a
C) A movement from point c to point a
D) A movement from point c to point d

Question 53

One reason that firms will experience decreasing returns to scale is

A) The law of diminishing marginal returns
B) The specialization of inputs as scale increases
C) There is some fixed input that isn't being taken into consideration
D) It is difficult to manage a large firm effectively

Question 54

A firm has increasing returns to scale if

A) A proportional change in the use of all inputs produces a more than proportional change in output
B) A proportional change in the use of all inputs produces a less than proportional change in output
C) A proportional change in the use of all inputs produces the same proportional change in output
D) An increase in capital leads to an increase in output

Question 55

Returns to scale is a ______ concept because ______.

A) Short-run; it's related to the law of diminishing marginal returns
B) Short-run; it deals with varying the level of one input while holding other inputs constant
C) Long-run; a firm can change its output level only in the long run
D) Long-run; it refers to changes in all of the firm's inputs

Question 56

Consider the Cobb-Douglas production function F(L,K)= AL^aK^b.Which of the following statements is true?

A) Increases in a increase labour's productivity and raise MRTS_LK
B) Decreases in a increase labour's productivity and raise MRTS_LK
C) Increases in a increase labour's productivity and lower MRTS_LK
D) Changes in a will not affect MRTS_LK

Question 57

If technological change is factor neutral,then the firm's isoquants

A) Shift out away from the origin
B) Shift in toward the origin
C) Do not change in appearance
D) Become flatter

Question 58

For the Cobb-Douglas production function F(L,K)= AL^aK^b,a technical change that increases the productivity of capital would be represented by

A) An increase in the value of a
B) An increase in the value of b
C) Values of a and b for which b > a
D) An increase in the value of A

Question 59

The Cobb-Douglas production function F(L,K)= AL^aK^bwill exhibit decreasing returns to scale when

A) A + b = 1
B) A + b < 1
C) A + b > 1
D) A + b = 0

Question 60

Refer to Figure 7.6.Which graph represents decreasing returns to scale?

A) A
B) B
C) C
D) Both graph A and graph C

Question 61

Consider the production function Q = F(L,K)= 5L²K².Does this technology have increasing,decreasing or constant returns to scale? Explain your answer in two different ways.

Question 62

Suppose you mange a firm with two production plants.The marginal product of labour at plant 1 is MP₁ = 1400 - L₁ where L₁ is the number of workers employed in plant 1.The marginal product of labour at plant 2 is MP₂ = 2000 - L₂ where L₂ is the number of workers employed in plant 2.Given that you have 1,000 workers,what is the best allocation of workers between the two plants?

Question 63

Suppose a firm uses both labour (L)and capital (K)and its long-run production function is given by the expression Q = F(L,K)= L²Ö(L + 2K).The firm currently uses 100 units of capital.Assuming labour is finely divisible,graph the firm's short-run production function for the first five workers.

Question 64

Define decreasing returns to scale,illustrating your definition with isoquants.What are some reasons why firms might experience decreasing returns to scale?

Question 65

Consider the Cobb-Douglas production function F(L,K)= AL^aK^b.Suppose that a = 2,b = 3,the firm has 3 units of capital and the firm's general productivity level is 20.
a)What is the firm's long-run production function?
b)What is the firm's short-run production function?
c)If the firm employs 10 workers,what are the marginal products of labour and capital?
d)If the firm employs 10 workers,what is the marginal rate of technical substitution for labour with capital?
e)Does this firm's technology exhibit increasing,decreasing or constant returns to scale?

Question 66

Suppose a firm uses both labour (L)and capital (K)and its long-run production function is given by the expression Q = F(L,K)= 2LÖ(L + K).The firm currently uses 10 units of capital.Complete the following table:

Question 67

Using two carefully-labeled diagrams,explain how MP_L and AP_L can be derived from a firm's production function.In your answer,explain the relationship between average and marginal product.