Deck 5: The Production Process and Costs

Question 1

The recipe that defines the maximum amount of output that can be produced with K units of capital and L units of labor is the:

A) Production function.
B) Technological constraint.
C) Research and development schedule.
D) Total product.

Answer 1

A

Question 2

Suppose the production function is given by Q = min{K, L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

A) 0
B) 4
C) 9
D) 13

Answer 2

B

Question 3

Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 5 units of capital and 10 units of labor are employed?

A) 3
B) 4
C) 11
D) 45

Answer 3

A

Question 4

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 5 units of capital and 10 units of labor are employed?

A) 3
B) 4
C) 11
D) 45

Question 5

The creation of a new product is referred to as:

A) Process innovation.
B) Independent research and development.
C) Product innovation.
D) Patent disclosure.

Question 6

Suppose the production function is given by Q = 3K + 4L. What is the average product of capital when 10 units of capital and 10 units of labor are employed?

A) 3
B) 4
C) 7
D) 45

Question 7

The feasible means of converting raw inputs such as steel, labor, and machinery into an output are summarized by:

A) Land.
B) Production.
C) Capital.
D) Technology.

Question 8

The production function Q = L^.5K^.5 is called:

A) Cobb Douglas.
B) Leontief.
C) linear.
D) None of the answers are correct.

Question 9

Which of the following is NOT a means of acquiring product and process innovations?

A) Independent research and development
B) Mass production of the existing product
C) Reverse engineering
D) Hiring employees of innovating firms

Question 10

Suppose the production function is given by Q = min{K, L}. How much output is produced when 10 units of labor and 9 units of capital are employed?

A) 0
B) 4
C) 9
D) 13

Question 11

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MP_L = 20, and MP_K = 40 the firm:

A) is cost minimizing.
B) should use less L and more K to cost minimize.
C) should use more L and less K to cost minimize.
D) is profit maximizing but not cost minimizing.

Question 12

Suppose the production function is given by Q = 3K + 4L. What is the marginal product of capital when 10 units of capital and 10 units of labor are employed?

A) 3
B) 4
C) 11
D) 45

Question 13

If the production function is Q = K^.5L^.5 and capital is fixed at 1 unit, then the average product of labor when L = 25 is:

A) 2/5.
B) 1/5.
C)

Question 14

You are an efficiency expert hired by a manufacturing firm that uses K and L as inputs. The firm produces and sells a given output. If w = $40, r = $100, MP_L = 4, and MP_K = 40 the firm:

A) is cost minimizing.
B) should use less L and more K to cost minimize.
C) should use more K and less L to cost minimize.
D) is profit maximizing but not cost minimizing.

Question 15

Suppose the marginal product of labor is 8 and the marginal product of capital is 2. If the wage rate is $4 and the price of capital is $2, then in order to minimize costs the firm should use:

A) more capital and less labor.
B) more labor and less capital.
C) three times more capital than labor.
D) none of the answers are correct.

Question 16

Inputs a manager may adjust in order to alter production are:

A) all factors.
B) variable factors.
C) long-run factors.
D) fixed factors.

Question 17

Which of the following statements is incorrect?

A) Fixed costs do not vary with output.
B) Sunk costs are those costs that are forever lost after they have been paid.
C) Fixed costs are always greater than sunk costs.
D) Fixed costs could be positive when sunk costs are zero.

Question 18

Suppose the production function is Q = min{K, 2L}. How much output is produced when 4 units of labor and 9 units of capital are employed?

A) 2
B) 4
C) 8
D) 9

Question 19

What is the average product of labor, given that the level of labor equals 10, total output equals 1200, and the marginal product of labor equals 200?

A) 20
B) 120
C) 6
D) 2,000

Question 20

If a firm's production function is Leontief and the wage rate goes up, the:

A) firm must use more labor in order to minimize the cost of producing a given level of output.
B) firm must use more capital in order to minimize the cost of producing a given level of output.
C) firm must use less labor in order to minimize the cost of producing a given level of output.
D) cost minimizing combination of capital and labor does not change.

Question 21

Given the production function Q = min{4K, 3L}, what is the average product of capital when 8 units of capital and 16 units of labor are used?

A) 16
B) 2
C) 4
D) 32

Question 22

If the last unit of input increases total product, we know that the marginal product is:

A) positive.
B) negative.
C) zero.
D) indeterminate.

Question 23

Firm managers should use inputs at levels where the:

A) Marginal benefit equals marginal cost.
B) Price equals marginal product.
C) Value marginal product of labor equals wage.
D) Marginal benefit equals marginal cost and value marginal product of labor equals wage.

Question 24

Changes in the price of an input cause:

A) isoquants to become steeper.
B) slope changes in the isocost line.
C) parallel shifts of the isocost lines.
D) changes in both the isoquants and isocosts of equal magnitude.

Question 25

Given the Leontief production function Q = min{5.5K, 6.7L}, how much output is produced when K = 40 and L = 35?

A) 220
B) 234.5
C) 192.5
D) 268

Question 26

The Leontief production function implies:

A) straight-line isoquants.
B) convex-shaped isoquants.
C) A positive MRTS.
D) L-shaped isoquants.

Question 27

What is the value marginal product of labor if: P = $10, MP_L = $25, and AP_L = 40?

A) $10,000
B) $1,000
C) $400
D) $250

Question 28

Isoquants are normally drawn with a convex shape because:

A) inputs are perfectly substitutable.
B) inputs are perfectly complementary.
C) inputs are not perfectly substitutable.
D) inputs are not perfectly complementary.

Question 29

Given the linear production function Q = 10K + 5L, if Q = 10,000 and K = 500, how much labor is utilized?

A) 600 units
B) 800 units
C) 500 units
D) 1,000 units

Question 30

The production function is Q = K^.6 L^.4. The marginal rate of technical substitution is:

A) 2/3 K^-1 L.
B) K^-1 L^-1.
C) 2/3 K L^-1.
D) K^.4 L^-.6.

Question 31

In order to minimize the cost of producing a given level of output, a firm manager should use more inputs when:

A) that input's price rises.
B) that input's price falls.
C) that input's price remains the same.
D) the prices of other inputs fall.

Question 32

The combinations of inputs that produce a given level of output are depicted by:

A) indifference curves.
B) budget lines.
C) isocost curves.
D) isoquants.

Question 33

Which of the following sets of economic data is minimizing the cost of producing a given level of output?

A) MP_L = 20, MP_K = 40, w = $16, r = $32.
B) MP_L = 20, MP_K = 40, w = $32, r = $16.
C) MP_L = 40, MP_K = 20, w = $16, r = $32.
D) MP_L = 40, MP_K = 40, w = $16, r = $32.

Question 34

Given the following table, how many workers should be hired to maximize profits?

A) 1
B) 2
C) 3
D) 4

Question 35

Suppose the production function is given by Q = K^1/2L^1/2, and that Q = 30 and K = 25. How much labor is employed by the firm?

A) 49
B) 6
C) 36
D) 25

Question 36

The change in total output attributable to the last unit of an input is the:

A) total product.
B) average product.
C) marginal product.
D) marginal return.

Question 37

In order for isoquants to have a diminishing marginal rate of substitution, they must be:

A) L-shaped.
B) straight lines.
C) vertical.
D) None of the statements is correct.

Question 38

The absolute value of the slope of the isoquant is the:

A) marginal rate of technical substitution.
B) marginal product of capital.
C) marginal rate of substitution.
D) value marginal product of labor.

Question 39

Total product begins to fall when:

A) Marginal product is maximized.
B) Average product is below zero.
C) Average product is negative.
D) Marginal product is zero.

Question 40

It is profitable to hire units of labor as long as the value of marginal product:

A) is less than wage.
B) exceeds average product.
C) equals price.
D) exceeds wage.

Question 41

Suppose you are a manager of a factory. You purchase five (5) new machines at one million dollars each. If you can resell two of the machines for $500,000 and three of the machines for $200,000, what are the sunk costs of purchasing the machines?

A) $5 million
B) $500,000
C) $3.4 million
D) $1.6 million

Question 42

A production function:

A) defines the minimum amount of output that can be produced with inputs such as capital and labor.
B) defines the average amount of output that can be produced with inputs such as capital and labor.
C) represents the technology available for turning inputs into output.
D) is determined only by the expenditures on R&D.

Question 43

According to the table below, what is the marginal cost of producing 90 units of output?

A) 5.32
B) 8.75
C) 11.67
D) 21.00

Question 44

Which of the following cost functions exhibits cost complementarity?

A) -4Q₁Q₂ + 8Q₁.
B) -4Q₂ + 8Q₁.
C) 6Q₁Q₂ - Q₁.
D) 4Q₂Q₁ + 8Q₁.

Question 45

Costs that are forever lost after they have been paid are:

A) production costs.
B) fixed costs.
C) sunk costs.
D) variable costs.

Question 46

Which of the following is the most common source of technology?

A) independent R&D
B) licensing technology
C) publications or technical meetings
D) reverse engineering

Question 47

Given a cost function C(Q) = 200 + 14Q + 8Q², what is the marginal cost function?

A) 14 + 16Q
B) 14Q + 8Q²
C) 200 + 8Q²
D) 14 + 16Q²

Question 48

According to the table below, what is the average variable cost of producing 50 units of output?

A) 21
B) 34
C) 14
D) 20

Question 49

According to the table below, what is the total cost of producing 125 units of output?

A) 1,000
B) 2,050
C) 1,400
D) 2,400

Question 50

Costs that change as output changes are:

A) variable costs.
B) fixed costs.
C) sunk costs.
D) None of the statements is correct.

Question 51

For the cost function C(Q) = 200 + 3Q + 8Q² + 4Q³, what is the average fixed cost of producing six units of output?

A) 18.31
B) 212.61
C) 42.12
D) 33.33

Question 52

Which of the following cost functions exhibits economies of scope when three (3) units of good one and two (2) units of good two are produced?

A) C = 50 - 5Q₁Q₂ + 0.5Q₁² + Q₂².
B) C = 10 + 4Q₁Q₂ + Q₁² + Q₂².
C) C = 15 + 5Q₁Q₂ + 2Q₁ + 4Q₂.
D) C = 5 + Q₁Q₂ + Q₁²Q₂².

Question 53

For the cost function C(Q) = 1000 + 14Q + 9Q² + 3Q³, what is the marginal cost of producing the fourth unit of output?

A) $42
B) $295
C) $230
D) $116

Question 54

According to the table below, what is the average total cost of producing 160 units of output?

A) 12.98
B) 16.31
C) 22.04
D) 19.38

Question 55

What is implied when the total cost of producing Q₁ and Q₂ together is less than the total cost of producing Q₁ and Q₂ separately?

A) Economies of scale
B) Diminishing average fixed costs
C) Cost complementarity
D) Economies of scope

Question 56

Fixed costs exist only in:

A) the long run.
B) capital-intensive markets.
C) the short run.
D) labor-intensive markets.

Question 57

According to the table below, at what level of output is marginal cost minimized?

A) 90
B) 50
C) 125
D) 160

Question 58

Which curve(s) does the marginal cost curve intersect at the (their) minimum point?

A) Average total cost curve
B) Average fixed cost curve
C) Average variable cost curve
D) Average total cost curve and average variable cost curve

Question 59

For the multiproduct cost function C(Q₁, Q₂) = 100 + 2Q₁Q₂ + 4Q₁², what is the marginal cost function for good one?

A) MC₁ = 2Q₂ + 4Q₁ - Q₂².
B) MC₁ = 2Q₂ + 8Q₁.
C) MC₁ = 100 + 2Q₁Q₂ + 4Q₁².
D) MC₁ = 4Q₁² - 2Q₂².

Question 60

The minimum average cost of producing alternate levels of output, allowing for optimal selection of all variables of production is defined by the:

A) long-run average total cost curve.
B) short-run average fixed cost curve.
C) short-run marginal cost curve.
D) long-run marginal cost curve.

Question 61

It is profitable to hire labor so long as the:

A) MP_L is greater than wage.
B) MP_L is less than wage.
C) VMP_L is less than wage.
D) VMP_L is greater than wage.

Question 62

The Cobb-Douglas production function is:

A) Q = aK + bL.
B) Q = min{bK, cL}.
C) Q = max{bK, cL}.
D) Q = K^aL^b.

Question 63

The average product of labor depends on how many units of:

A) labor are used.
B) capital are used.
C) labor and capital are used.
D) None of the statements is correct.

Question 64

The isoquants are normally drawn with a convex shape because inputs are:

A) not perfectly substitutable.
B) perfectly substitutable.
C) perfect complements.
D) normal goods.

Question 65

Variable factors of production are the inputs that a manager:

A) may adjust in order to alter sales.
B) may adjust in order to alter production.
C) cannot adjust in the short run.
D) cannot adjust in the long run.

Question 66

If a firm is operating on the production function, then workers:

A) must be putting forth maximal effort.
B) may not be putting forth maximal effort.
C) are usually putting forth average effort.
D) are usually putting forth minimal effort.

Question 67

The demand for labor by a profit-maximizing firm is determined by:

A) MP_L = MC.
B) VMP_L = MC.
C) MP_L = W.
D) VMP_L = W.

Question 68

With a linear production function there is a:

A) perfect complementary relationship between all inputs.
B) perfect substitutable relationship between all inputs.
C) fixed-proportion relationship between all inputs.
D) variable-proportion relationship between all inputs.

Question 69

The short run is defined as the time frame:

A) in which there are no fixed factors of production.
B) in which there are fixed factors of production.
C) less than one year.
D) less than three years.

Question 70

An isoquant defines the combination of inputs that yield the producer:

A) higher levels of output than the desired level of output.
B) lower levels of output than the desired level of output.
C) the same level of output.
D) None of the statements is correct.

Question 71

As the usage of an input increases, marginal product:

A) initially increases then begins to decline.
B) initially decreases then begins to increase.
C) consistently decreases.
D) consistently increases.

Question 72

As long as marginal product is increasing, marginal product is:

A) less than average product.
B) greater than average product.
C) equal to average output.
D) equal to total product.

Question 73

The marginal product of an input is defined as the change in:

A) average output attributable to the last unit of an input.
B) total output attributable to the last unit of an input.
C) total input attributable to the last unit of an output.
D) average output attributable to the last unit of an output.

Question 74

The long run is defined as:

A) the horizon in which the manager can adjust all factors of production.
B) the horizon in which there are only fixed factors of production.
C) the horizon in which there are both fixed and variable factors of production.
D) greater than one year.

Question 75

Which of the following is NOT a measure of productivity?

A) Total product
B) Marginal product
C) Average advertising
D) Input-output ratio

Question 76

The demand for an input is:

A) sloping upward.
B) the VMP of the input.
C) determined by MP_L = W.
D) derived from input owner's profit-maximizing condition.

Question 77

The value of marginal product of an input is the value of the:

A) total output produced by total inputs.
B) average output produced by inputs.
C) output produced by the last unit of an input.
D) output produced by the first unit of an input.

Question 78

The marginal product of capital for the Cobb-Douglas production function is given by:

A) bK^a L^b-1.
B) aK^a-1 L^b.
C) aK^a-1 L^b-1.
D) bK^a L^b.

Question 79

The Leontief production function:

A) implies inputs are used in variable proportions.
B) implies inputs are used in fixed proportions.
C) is Q = max{bK, cL}.
D) is Q = aK + bL.

Question 80

The manager institutes an incentive structure to ensure:

A) workers are in fact working at the expected potential.
B) workers are in fact working at their utility-maximizing effort level.
C) the firm produces on the production function.
D) the firm produces above the production function.