Question 1

Suppose a firm's technology is represented by the function Q = F(L,K)= 5L^0.25K^0.75.Does this firm experience economies of scale,diseconomies of scale or neither?

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Question 2

Suppose a firm's production function is given by Q = F(L,K)= 5LK,where L is the amount of labor and K is the amount of capital.The wage rate is $100 per unit of labor and the rental rate of capital is $50 per unit of capital.
a.What is the least-cost combination of capital and labor if the firm produces 1000 units of output?
b.What is the firm's long run cost function?
c.If the firm currently uses 10 units of capital,what is its short-run cost function?

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Question 3

Refer to Figure 8.7.Which of the following statements is true?

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Question 4

Suppose a firm's short-run production function is given by Q = 3√L,where L represents the number of hours of labor employed.The firm has a sunk cost of $500 and the wage rate is $18 per hour.What is the firm's short-run cost function?

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Question 5

______ occur when a single firm can produce two or more products more cheaply than can two separate firms.

Accepted Answer

Economies of scope occur when a single firm can produce two or more products more cheaply than can two separate firms. This is because the firm can share resources and infrastructure, such as production facilities, overhead costs, and marketing expenses, among its different products. This leads to cost savings and increased efficiency for the firm.

Question 6

Suppose a firm produces its output in two different plants.Production costs at plant 1 are given by C₁ = 4(Q₁)²,where Q₁ is the amount of production at plant 1.The production costs at plant 2 are given by C₂ = 2(Q₂)²,where Q₂ is the amount of production at plant 2.The corresponding marginal costs at each plant are MC₁ = 8Q₁ and MC₂ = 4Q₂.If the firm produces a total of 24 units of output,how much output should it produce at each plant?

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Question 7

Suppose a firm's technology is represented by the Cobb-Douglas production function F(L,K)= 5LK.The wage rate is $50 and the rental rate of capital is $10.What is the least-cost combination to produce 100 units of output?

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Question 8

Suppose that a firm produces both steel and electricity.It is cheaper for this firm to produce both goods than it would be if they were produced by two separate firms.Further,as this firm increases its production levels of both products,the average cost of producing steel rises,while the average cost of producing electricity remains constant.This firm experiences:

Accepted Answer

The firm experiences economies of scope because it is cheaper for it to produce both goods than it would be for two separate firms. The rising average cost of producing steel as production levels increase indicates diseconomies of scale in steel production, while the constant average cost of producing electricity suggests constant returns to scale in electricity production.

Question 9

Use an isocost-isoquant diagram to explain how a firm determines the least cost combination of labor and capital to produce a given level of output.What is true of the marginal product per dollar at the least cost combination of capital and labor? Why?

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Question 10

Using a graph,explain the relationship between average cost and marginal cost.

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Question 11

Diseconomies of scope occur when:

Accepted Answer

Diseconomies of scope refer to the situation where producing two or more products in a single firm is more expensive than producing them separately in different firms. This can occur due to a variety of reasons such as the need for different equipment or skills, increased complexity and coordination costs, and the inability to achieve economies of scale in each product line.

Question 12

Suppose that a firm produces both bottled water and carbonated soft drinks.It is cheaper for this firm to produce both goods than it would be if they were produced by two separate firms.Further,as this firm increases its production levels,the average costs of producing both bottled water and carbonated soft drinks fall.This firm experiences:

Accepted Answer

The situation described in the question is an example of economies of scope, as producing both bottled water and carbonated soft drinks together is cheaper than producing them separately. Additionally, the fact that the average costs of production decrease as the firm increases its production levels indicates economies of scale. Therefore, the correct choice is B - both economies of scope and economies of scale.

Quiz 8: Cost

Suppose a firm's technology is represented by the function Q = F(L,K)= 5L0.25K0.75.Does this firm experience economies of scale,diseconomies of scale or neither?