Question 1

The creation of a new product is referred to as:

Accepted Answer

The creation of a new product is referred to as product innovation. Process innovation refers to improving existing processes or methods. Independent research and development may be a part of the process of creating a new product, but it does not encompass the entire process. Patent disclosure is a requirement for obtaining a patent, but it is not the same as creating a new product.

Question 2

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:

Accepted Answer

The production function is the mathematical representation of the relationship between inputs (such as capital and labor) and outputs. It shows the maximum output that can be produced given the quantities of inputs used. Therefore, it defines the maximum amount of output that can be produced with K units of capital and L units of labor. The other options are not relevant to this concept.

Question 3

Total product begins to fall when:

Accepted Answer

Total product begins to fall when the marginal product becomes zero or negative. This means that each additional input is contributing less to the production process than the previous one, resulting in a decrease in total output.

Question 4

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

Accepted Answer

The value marginal product of labor (VMPL) formula is VMPL = P * MPL. Given that P = $10 and MP_L (which is equivalent to MPL) = $25, VMPL = $10 * $25 = $250. Therefore, the best choice is D.

Question 5

For a cost function C = 100 + 10Q + Q², the average fixed cost of producing 10 units of output is

Accepted Answer

The answer of For a cost function C = 100...

Question 6

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

Accepted Answer

Mass production of an existing product is not a means of acquiring product and process innovations. It is simply a process of replicating an already existing product on a large scale to meet market demand. The other options - independent research and development, reverse engineering, and hiring employees of innovating firms - are all proven ways of acquiring product and process innovations.

Question 7

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

Accepted Answer

If the total product increases when the last unit of input is added, it means that the marginal product is positive. Marginal product is the additional output produced by adding one more unit of input, so if the total output increases, it implies that adding that unit of input was productive and increased the output.

Question 8

If the production function is Q = KL and capital is fixed at 1 unit, then the marginal product of labor when L = 25 is

Accepted Answer

The answer of If the production function is Q =...

Question 9

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

Accepted Answer

The answer of Given the following table, how many workers...

Question 10

Which of the following conditions is true when a producer minimizes the cost of producing a given level of output?

Accepted Answer

When a producer minimizes the cost of producing a given level of output, the producer sets the MRTS (marginal rate of technical substitution) equal to the ratio of input prices. This ensures that the producer is using the optimal mix of inputs to produce the desired level of output at the lowest possible total cost. Additionally, the marginal product per dollar spent on all inputs is equal, indicating that the producer is achieving the highest possible level of output for each dollar spent on inputs. Therefore, choice D is correct as both the MRTS and the marginal product per dollar spent on all inputs are equal.

Question 11

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

Accepted Answer

The answer of The feasible means of converting raw inputs...

Question 12

Firm managers should use inputs at levels where the:

Accepted Answer

Using inputs at levels where the marginal benefit equals marginal cost ensures efficiency and profit maximization. However, using inputs solely based on marginal benefit and cost may not ensure that the produced output is valuable or that the input is being used efficiently. On the other hand, using inputs where the value marginal product of labor equals wage ensures that the labor is being used efficiently and fairly compensated, but it may not ensure profit maximization. Therefore, using inputs where both the marginal benefit equals marginal cost and the value marginal product of labor equals wage ensures both efficiency and fairness, as well as profit maximization.

Question 13

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?

Accepted Answer

The average product of labor is calculated by dividing total output by the level of labor, as follows:

Average Product of Labor = Total Output / Level of Labor

In this case, Level of Labor = 10 and Total Output = 1200, so:

Average Product of Labor = 1200 / 10 = 120

The marginal product of labor (MPL) is the additional output that is produced when one more unit of labor is added, while holding all other factors of production constant. In this case, MPL = 200. When MPL is greater than the average product of labor (APL), the APL will increase. When MPL is less than APL, APL will decrease. When MPL equals APL, APL is at its maximum.

Since MPL (200) is greater than APL (120), APL will increase.

Question 14

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

Accepted Answer

The answer of Given the linear production function Q =...

Question 15

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

Accepted Answer

To make a profit, the value of marginal product (the additional value that each additional unit of labor adds to the production process) must exceed the cost of hiring that unit of labor, which is the wage. Therefore, it is profitable to hire units of labor as long as the value of marginal product exceeds the wage.

Question 16

The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at one unit.The maximum profits are

Accepted Answer

The firm's profit function is given by:π = PQ - wL - rKπ = 10Q - 5L - rSubstituting the production function into the profit function, we get:π = 10K^.5L^.5 - 5L - rSince capital is fixed at one unit, we have:π = 10K^.5L^.5 - 5L - rTaking the derivative of the profit function with respect to L and setting it equal to zero, we get:dπ/dL = 5K^.5L^-.5 - 5 = 0Solving for L, we get:L = 1Substituting L = 1 into the production function, we get:Q = K^.5L^.5 = K^.5Substituting Q = K^.5 into the profit function, we get:π = 10K^.5 - 5 - rSince capital is fixed at one unit, we have:π = 10K^.5 - 5 - r = 10 - 5 - r = 5Therefore, the maximum profit is $5.

Question 17

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

Accepted Answer

Variable factors are inputs that can be adjusted by a manager in the short run in order to alter production levels. Fixed factors cannot be adjusted in the short-term, and long-run factors refer to inputs that require more time and planning to adjust. Therefore, the best choice is B, variable factors.

Question 18

The production function for a competitive firm is Q = K^.5L^.5.The firm sells its output at a price of $10, and can hire labor at a wage of $5.Capital is fixed at one unit.The profit-maximizing quantity of labor is

Accepted Answer

The firm maximizes profit where the marginal product of labor (MPL) equals the wage rate divided by the price of output. MPL = 0.5K^0.5L^-0.5. Setting MPL = 5/10 and solving for L with K=1 gives L=1.

Question 19

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

Accepted Answer

The change in total output attributable to the last unit of an input is known as marginal product. It refers to the increase in output that results from adding one more unit of input, while holding all other inputs constant. The marginal product is important in determining the optimal level of inputs to use in order to maximize production and minimize costs.

Question 20

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

Accepted Answer

The Leontief production function output is determined by the minimum of the two inputs after being multiplied by their respective coefficients. Here, 5.5K = 5.5*40 = 220, and 6.7L = 6.7*35 = 234.5. The minimum of these two is 220, hence the output is 220.

Quiz 5: The Production Process and Costs