Question 1

In the Primary Metals industry,it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73.These two measures indicate that the primary metals industry is characterized by

Accepted Answer

The primary metals industry has an output elasticity of labor of 0.51 and an output elasticity of capital of 0.73, both of which are less than one. This indicates that the industry has increasing returns to scale, where a proportionate increase in both inputs leads to more than a proportionate increase in output.

Question 2

What is one reason "micro-managers" might be less successful than so-called "delegators"?

Accepted Answer

Micro-managers suffer from decreasing returns to scale because they have limited time and energy to devote to each task, and as they try to oversee every detail, they become overwhelmed and less effective. Delegators, on the other hand, distribute tasks among their team members and can focus on more high-level tasks, leading to greater efficiency and effectiveness. The success of a manager is not related to their intelligence, so option A is incorrect. Option B is not necessarily true for all delegators. Lastly, option D is not applicable as returns to scale refer to the relationship between inputs and outputs, not managerial style.

Question 3

Suppose the production function for a certain device is q = L + K.If a labor-saving technical change has occurred,which of the following could be the new production function?

Accepted Answer

A labor-saving technical change implies that the same level of output can now be produced with fewer units of labor, which means that the production function will now be more capital-intensive. Option A reflects this by increasing the weight of capital in the production function, while keeping the weight of labor the same. Options B and C involve a larger increase in either labor or capital, which are not necessary for a labor-saving technical change, and could result in overinvestment in one factor of production. Therefore, A is the best choice.

Question 4

Albert's Pretzel Baking Company used to have four workers who were each in charge of making their own pretzels from start to finish.Now,one worker mixes the dough,another shapes it,the third puts the unbaked pretzels into the oven and the fourth removes the finished product.Output has doubled.This is an example of

Accepted Answer

The change from each worker making their own pretzels from start to finish to each worker specializing in one task (mixing, shaping, baking, or removing) is an example of division of labor. This type of specialization can increase efficiency and productivity, as seen by the doubling of output. It is not a neutral technical change, as it involved a shift in the way tasks were organized and carried out by workers. It is also not necessarily a labor-saving technical change, as the same number of workers are still employed, but they are now focusing on specialized tasks. Economies of scale may be a result of this change, but it is not the primary explanation.

Question 5

Suppose the production function for T-shirts can be represented as q = L^0.25K^0.75.Show that the production function has constant returns to scale.

Accepted Answer

The answer of Suppose the production function for T-shirts can...

Question 6

Joey's lawncutting service recently traded in its push mowers for gasoline-powered mowers.Joey still requires one worker per lawnmower; however,more grass is now cut in the same amount of time as before.This is an example of

Accepted Answer

This is an example of neutral technical change because the technology (gasoline-powered mowers) increases productivity without changing the ratio of labor to capital.

Question 7

Does this production function,q = 10L^0.5K^0.3,experience increasing,decreasing or constant returns to scale?

Accepted Answer

The answer of Does this production function,q = 10L^0.5K^0.3,experience increasing,decreasing...

Question 8

In the food and kindred products industry,it is estimated that the elasticity of output with respect to labor is 0.43 and the elasticity of output with respect to capital is 0.48.These two measures indicate that the primary metals industry is characterized by

Accepted Answer

The sum of the elasticity of output with respect to labor (0.43) and the elasticity of output with respect to capital (0.48) is less than 1 (0.43 + 0.48 = 0.91), indicating decreasing returns to scale.

Question 9

Cobb-Douglas production functions can never possess varying returns to scale.

Accepted Answer

The Cobb-Douglas function takes the form q = L^α K^β,where the exponents are constant parameters.The returns to scale equals α + β which is constant for all q.

Question 10

-The above figure shows the isoquants for the production of steel.In which regions of production are there increasing,decreasing,and constant returns to scale?

Accepted Answer

The answer of 
-The above figure shows the isoquants for...

Question 11

If a farmer produces 1000 bushels of corn using ten acres of land and one tractor and is able to produce 2000 bushels of corn using twenty acres of land and one tractor,the farmer has

Accepted Answer

Increasing returns to scale means that as the farmer uses more inputs (land and tractor), the output (bushels of corn) increases at an increasing rate. In this case, the farmer is able to produce twice as many bushels of corn (2000) using twice as much land (20 acres) and the same amount of tractor. This indicates that the farmer is experiencing increasing returns to scale.

Question 12

Production occurs using the fixed-proportion combination of one worker for every one unit of capital.Draw the isoquants for this production function.After one unit of output is produced,does this production function exhibit constant,increasing,or decreasing returns to scale?

Accepted Answer

The answer of Production occurs using the fixed-proportion combination of...

Question 13

A firm can experience increasing,constant and decreasing returns to scale for various levels of output.

Accepted Answer

As output increases a firm can experience all types of returns to scale.

Question 14

How much do outputs increase when labor and capital increase from 1 to 2 units for the following production function ,q = 10L^0.5K^0.3?

Accepted Answer

The production function given is q = 10L^0.5K^0.3. When L and K both increase from 1 to 2, the output increases from q1 = 10(1)^0.5(1)^0.3 = 10 to q2 = 10(2)^0.5(2)^0.3 = 10(√2)(2^0.3). Calculating q2 gives approximately 17.4, so the increase in output is 17.4 - 10 = 7.4 units.

Question 15

The implementation of the assembly line is an example of how

Accepted Answer

The implementation of the assembly line allowed for the organization of production to become more efficient and streamlined, leading to improvements in productivity. This is an example of how changes in the organization of production can improve productivity.

Question 16

Over a five-year span,the ABC Co.reduced the amount of labor it hired.At the same time,the marginal productivity of labor increased.Which of the following COULD explain this observation?

Accepted Answer

All of the listed options (the law of diminishing marginal returns, labor saving technical change, and organizational innovation) could explain why the ABC Co. reduced the amount of labor it hired while experiencing an increase in marginal productivity. It is possible that the law of diminishing marginal returns occurred, meaning that as the company hired more labor, the additional output from each worker decreased. Alternatively, labor saving technical change or organizational innovation could have led to increased productivity, allowing the company to produce the same amount with less labor or to produce more with the same amount of labor.

Question 17

Show that increasing returns to scale can co-exist with diminishing marginal productivity.

Accepted Answer

The answer of Show that increasing returns to scale can...

Question 18

Provide a graph and an explanation to show that the production function Q = L^0.5K^0.5 has diminishing marginal product of labor but has constant returns to scale.

Accepted Answer

The answer of Provide a graph and an explanation to...

Question 19

Suppose the production function for a certain device is q = L + K.If neutral technical change has occurred,which of the following could be the new production function?

Accepted Answer

Neutral technical change refers to a change that affects all inputs in the same proportion, maintaining the ratio of inputs used in production. Option B, q = 5 * (L + K), represents a proportional increase in output from both inputs (labor, L, and capital, K), consistent with neutral technical change.

Question 20

A firm is currently producing 100 widgets using 4 units of labor and 12 units of capital.The firm's production function exhibits constant returns to scale.How many units of labor and capital are needed to produce 350 widgets?

Accepted Answer

Since the production function exhibits constant returns to scale, increasing the output by a factor requires increasing the inputs by the same factor. To increase production from 100 to 350 widgets (a factor of 3.5), both labor and capital must be increased by a factor of 3.5. Thus, labor (L) increases from 4 to 14 units (4 * 3.5 = 14) and capital (K) increases from 12 to 42 units (12 * 3.5 = 42).

Quiz 6: Firms and Production