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:

Accepted Answer

The production function is a mathematical expression that shows the maximum output that can be produced with a given set of inputs, such as capital (K) and labor (L). It defines the relationship between inputs and the resulting output, and can help firms optimize their production process. The other options, such as technological constraint, research and development schedule, and total product, are not as specific to the relationship between input and output as the production function.

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?

Accepted Answer

The production function Q = min{K, L} takes the minimum value of K and L, so the output will be limited by whichever factor is in shorter supply. In this case, 4 units of labor is the limiting factor, as it is less than the 9 units of capital. Therefore, the output will be 4 units.

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?

Accepted Answer

The marginal product of capital is the derivative of the production function with respect to K, holding L constant. Taking the derivative of Q = 3K + 4L with respect to K, we get:
MPK = 3
Therefore, the marginal product of capital is 3 when 5 units of capital and 10 units of labor are employed. Hence, the answer is option 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?

Accepted Answer

The answer of Suppose the production function is given by...

Question 5

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 the improvement of an existing product or process, independent research and development refers to the development of new technologies or products by an organization without influence from government or other organizations, and patent disclosure refers to the process of revealing details about a new invention in order to obtain a patent.

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?

Accepted Answer

The answer of Suppose the production function is given by...

Question 7

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

Accepted Answer

Technology refers to the methods and processes used to transform inputs into outputs, making it the feasible means of conversion in production.

Question 8

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

Accepted Answer

The production function follows the Cobb Douglas form, which is Q = A(L^a)(K^b)(S^c)(U^d)(P1^e)(P2^f) where A is the total factor productivity, L, K, S, U, P1, and P2 are inputs, and a, b, c, d, e, and f are their respective elasticity of output. The given production function follows the same form, with L, K, S, U, P1, and P0 being the inputs and their respective elasticities being 1, 1.5, 1, 1, 1.5, and 0. Therefore, it is a Cobb Douglas production function.

Question 9

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

Accepted Answer

Mass production of existing products does not involve any innovation, it is simply producing a product that already exists. Therefore, it is not a means of acquiring product and process innovations.

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?

Accepted Answer

Since the production function is given as Q = min{K, L}, the output will be limited to the amount of the factor used in lesser quantity. When 10 units of labor and 9 units of capital are employed, the minimum of the two factors is 9. Therefore, the level of output produced is 9.

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:

Accepted Answer

The answer of You are an efficiency expert hired by...

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?

Accepted Answer

The marginal product of capital is the derivative of the production function with respect to capital. Taking the derivative of Q = 3K + 4L with respect to K gives us the marginal product of capital: MPK = 3. Plugging in 10 units of capital and 10 units of labor, we get MPK = 3. Therefore, the best choice is A.

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:

Accepted Answer

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

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:

Accepted Answer

The answer of You are an efficiency expert hired by...

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:

Accepted Answer

To minimize costs, the firm should equalize the ratio of marginal products to input prices. Here, MPL/wage = 8/4 = 2 and MPK/price of capital = 2/2 = 1. Since the ratio for labor is higher, the firm should use more labor and less capital.

Question 16

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

Accepted Answer

Variable factors are the inputs that can be adjusted in the short-run to alter production levels, while fixed factors are those inputs that cannot be easily changed in the short-run. Long-run factors refer to the inputs that can be adjusted in the long-run to alter production levels, but as the question specifically mentions altering production and not conducting long-term planning, B is the best choice.

Question 17

Which of the following statements is incorrect?

Accepted Answer

Fixed costs and sunk costs are two distinct concepts and cannot be compared in terms of their magnitude. Fixed costs are costs that do not vary with output, while sunk costs are costs that have already been incurred and cannot be recovered. The two concepts are not mutually exclusive, and it is possible for a fixed cost to also be a sunk cost. Therefore, choice C, which states that fixed costs are always greater than sunk costs, is incorrect.

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?

Accepted Answer

Since the production function is Q = min{K, 2L}, the output is given by the minimum value obtained when taking K and 2L. When 4 units of labor and 9 units of capital are employed, we have L = 4 and K = 9, therefore Q = min{9, 2(4)} = min{9, 8} = 8. Thus, the best choice is C, which corresponds to 8 units of output.

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?

Accepted Answer

The average product of labor is calculated by dividing the total output by the level of labor. So, with a total output of 1200 and a level of labor of 10, the average product of labor is 1200 / 10 = 120.

Question 20

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

Accepted Answer

In a Leontief production function, inputs are used in fixed proportions to produce output. Therefore, if the wage rate goes up, the cost-minimizing combination of capital and labor does not change because the firm cannot substitute between labor and capital.

Quiz 5: The Production Process and Costs