Question 1

The function which shows combinations of inputs that yield the same output is called a(n)

Accepted Answer

An isoquant curve shows all the combinations of inputs that yield the same level of output. Isocost curve represents all the combinations of inputs that can be purchased with a particular amount of money. The production function shows the maximum output that can be produced with certain inputs. Production possibilities frontier represents the various combinations of two goods that a producer can produce with limited resources.

Question 2

A production function in which the inputs are perfectly substitutable would have isoquants that are

Accepted Answer

If the inputs are perfectly substitutable, then the isoquants are linear because any combination of inputs that produces a given level of output can be replaced by any other combination that also produces the same level of output. Therefore, there is a constant slope to the isoquants, and they must be straight lines.

Question 3

Use the following two statements to answer this question:
I. Isoquants cannot cross one another.
II. An isoquant that is twice the distance from the origin represents twice the level of output.

Accepted Answer

Statement I is true because isoquants are defined as curves that represent different combinations of inputs that yield the same level of output. If two isoquants were to cross, it would mean that the same combination of inputs could produce two different output levels, which violates the assumption of isoquants. Statement II is false because the distance of an isoquant from the origin does not necessarily correspond to its level of output. Isoquant maps are used to represent different levels of output, not distances from the origin.

Question 4

If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

Accepted Answer

The curve that is traced out when we hold output constant and vary the amounts of capital and labor is an isoquant. An isoquant represents all the combinations of capital and labor that can produce a given level of output.

Question 5

An upward sloping isoquant

Accepted Answer

The answer of An upward sloping isoquant
...

Question 6

Sarah's Pretzel Plant produces pretzels according to the function y(K, L) = 100  
  
. K is the number of ovens, and L is the number of labor hours Sarah uses to produce her pretzels. At the moment, Sarah uses 9 ovens. Also, she plans to hire 64 labor hours. Sarah can sell each unit of pretzels produced for $3.50. Fill in the table below. If Sarah increased her use of labor hours to 65, would the value of the marginal product of labor exceed the wage rate of $8.50?

Accepted Answer

The answer of Sarah's Pretzel Plant produces pretzels according to...

Question 7

As we move downward along a typical isoquant, the slope of the isoquant

Accepted Answer

As we move downward along a typical isoquant, the amount of one input decreases while the other input increases. This leads to diminishing marginal returns, making the isoquant slope become flatter. Therefore, the correct choice is A) becomes flatter.

Question 8

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the

Accepted Answer

The slope of an isoquant represents the rate at which the firm can substitute between capital and labor while holding output constant. Therefore, it shows the rate at which the firm can replace capital with labor without changing the output rate.

Question 9

An examination of the production isoquants in the diagram below reveals that:

Accepted Answer

The straight lines of the isoquants indicate that capital and labor are perfectly substitutable, as any combination of capital and labor that yields the same level of output can be used. The slope of these lines is constant except at the corners, indicating that the marginal rate of technical substitution (MRTS) is constant except at the points where the isoquants intersect the axes. Therefore, both option B and C are correct. Option A is incorrect because if capital and labor were used in fixed proportions, the isoquants would be L-shaped and not straight lines.

Question 10

Use the following two statements to answer this question:
i. If the marginal product of labor is zero, the total product of labor is at its maximum.
II If the marginal product of labor is at its maximum, the average product of labor is falling.

Accepted Answer

The answer of Use the following two statements to answer...

Question 11

An examination of the production isoquants in the diagram below reveals that:

Accepted Answer

The answer of An examination of the production isoquants in...

Question 12

If the isoquants are straight lines, then

Accepted Answer

Straight-line isoquants indicate that the marginal rate of technical substitution (MRTS) is constant, meaning that inputs can be substituted at a constant rate without altering the level of output. This is only possible if the slope of the isoquant remains constant, which translates into a constant MRTS. The other options are not necessarily true when isoquants are straight lines.

Question 13

Use the following statements to answer this question.
I. The numerical labels attached to indifference curves are meaningful only in an ordinal way.
II. The numerical labels attached to isoquants are meaningful only in an ordinal way.

Accepted Answer

Statement I is true because indifference curves represent a ranking of preferences, not a measurement of utility. Therefore, the numerical labels attached to indifference curves are only meaningful in terms of the ranking they represent, not in an absolute sense.
Statement II is false because isoquants represent levels of output that can be produced using different combinations of inputs. The numerical labels attached to isoquants represent an absolute level of output, not just a ranking. Therefore, the numerical labels attached to isoquants are meaningful in a cardinal as well as an ordinal way.

Question 14

A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that

Accepted Answer

Isoquants have a negative slope because a positive marginal product for both factors of production implies that to keep output constant (along an isoquant), an increase in the quantity of one factor requires a decrease in the quantity of the other factor. This trade-off results in a downward sloping isoquant.

Question 15

An isoquant

Accepted Answer

An isoquant is a curve that shows all the combinations of inputs that yield the same total output. Therefore, option C is the correct choice. The other options are incorrect because isoquant does not have to be linear, it can have a negative slope, it does not show the maximum total output as a function of the level of labor input, and it does not show all possible output levels that can be produced at the same cost.

Question 16

Two isoquants, which represent different output levels but are derived from the same production function, cannot cross because

Accepted Answer

Isoquants represent different levels of output for a given production function, and they cannot cross because it would imply that the same combination of inputs could produce two different levels of output, violating the principle of technical efficiency. Additionally, profit-maximizing firms will not use more inputs if those inputs decrease output, further supporting the concept that isoquants cannot cross.

Question 17

The marginal rate of technical substitution is equal to the

Accepted Answer

The marginal rate of technical substitution (MRTS) is defined as the rate at which one input can be substituted for another input, while holding the level of output constant. It is measured by the ratio of the marginal products of the inputs. Therefore, the correct answer is D.

Question 18

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

Accepted Answer

The marginal rate of technical substitution (MRTS) measures the rate at which one input can be reduced per additional unit of the other input, while holding output constant. It is a key concept in production theory and is represented graphically by the slope of the isoquant curve. Option A is incorrect because marginal rate of substitution (MRS) refers to the rate at which a consumer is willing to substitute one good for another, not in production. Option C is incorrect because slope of the isocost curve represents the rate at which a firm can trade off one input for another while keeping the total cost constant, not output. Option D is incorrect because the average product of an input is the total output produced by the input divided by the amount of the input used, and does not measure the rate of substitution between inputs.

Question 19

Trisha's Fashion Boutique production function for dresses is y(K, L) = K^1/2L^1/3, where K is the number of sewing machines and L is the amount of labor hours employed. Trisha pays $15 per labor hour and sells each dress for $87.50. Also, Trisha currently has 4 sewing machines. Fill in the table below. How many units of labor will Trisha employ before the value of the marginal product of labor is less than the cost of a labor hour?

Accepted Answer

The answer of Trisha's Fashion Boutique production function for dresses...

Question 20

Laura's Internet Services firm can design computer systems according to the function y(K, L) =  
  
, where K is the amount of gigabyte storage she has available and L is the amount of labor hours she employs. Currently, Laura has 125 gigabytes of storage. Sketch the change in the marginal product of labor curve for Laura's firm for values of L= 1, 2, 3, 4, and 5, if she increases her gigabyte storage capacity to 216.

Accepted Answer

The answer of Laura's Internet Services firm can design computer...

Quiz 6: Production

The function which shows combinations of inputs that yield the same output is called a(n)

A production function in which the inputs are perfectly substitutable would have isoquants that are

Use the following two statements to answer this question: I. Isoquants cannot cross one another. II. An isoquant that is twice the distance from the origin represents twice the level of output.

If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

An upward sloping isoquant

As we move downward along a typical isoquant, the slope of the isoquant

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the

An examination of the production isoquants in the diagram below reveals that:

Use the following two statements to answer this question: i. If the marginal product of labor is zero, the total product of labor is at its maximum. II If the marginal product of labor is at its maximum, the average product of labor is falling.

An examination of the production isoquants in the diagram below reveals that:

If the isoquants are straight lines, then

Use the following statements to answer this question. I. The numerical labels attached to indifference curves are meaningful only in an ordinal way. II. The numerical labels attached to isoquants are meaningful only in an ordinal way.

A firm uses two factors of production. Irrespective of how much of each factor is used, both factors always have positive marginal products which imply that

An isoquant

Two isoquants, which represent different output levels but are derived from the same production function, cannot cross because

The marginal rate of technical substitution is equal to the

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the