Question 1

Trisha's Fashion Boutique production function for dresses is y(K, L) =   , 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 2

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 3

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 4

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

When the marginal product of labor is zero, adding more labor does not increase output, indicating that total product is at its maximum. However, when the marginal product is at its maximum, the average product is not necessarily falling; it could still be rising or at its peak.

Question 5

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

Accepted Answer

An isoquant curve is a graph that shows all the possible combinations of inputs that produce the same level of output. It is also known as a production indifference curve or equal-product curve.

Question 6

Sarah's Pretzel Plant produces pretzels according to the function  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

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 8

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

Accepted Answer

As we move downward along a typical isoquant, the quantity of one input decreases while the quantity of the other input increases to maintain the same level of output. This implies that the marginal rate of technical substitution (MRTS) between the two inputs decreases, and therefore the slope of the isoquant becomes flatter. Therefore, the correct answer is A) becomes flatter.

Question 9

Figure 6.3.1
-Refer to Figure 6.3.1 above. The ability to produce output in this isoquant map shows:

Accepted Answer

Isoquant maps typically illustrate diminishing marginal returns, meaning as more units of labor or capital are added, the additional output produced from each new unit decreases. This is a fundamental concept in economics, reflecting the reality that, after a certain point, adding more of one input (while keeping others constant) yields progressively smaller increases in output.

Question 10

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 typically represented by the slope of an isoquant, which shows all possible combinations of inputs that produce a given level of output.

Question 11

An upward sloping isoquant:

Accepted Answer

The answer of An upward sloping isoquant:
...

Question 12

Laura's Internet Services firm can design computer systems according to the function  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  if she increases her gigabyte storage capacity to 216.

Accepted Answer

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

Question 13

The marginal rate of technical substitution is equal to the:

Accepted Answer

The marginal rate of technical substitution (MRTS) is a measure of how easily one input can be substituted for another input while holding output constant. It is calculated as the ratio of the marginal product of labor to the marginal product of capital (or vice versa). Therefore, the correct answer is D, which states that the MRTS is equal to the ratio of the marginal products of the inputs.

Question 14

Figure 6.3.1
-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 represent the various combinations of inputs that produce the same level of output, and if they crossed, it would mean that one input could produce two different levels of output, which is impossible. Statement II is false because the distance of an isoquant from the origin only represents the level of output relative to other isoquants; it doesn't necessarily mean that a point twice as far away from the origin produces twice the level of output.

Question 15

If the isoquants are straight lines, then:

Accepted Answer

Straight line isoquants indicate a constant marginal rate of technical substitution (MRTS), meaning that the ratio at which inputs can be substituted for each other remains constant regardless of the quantity of outputs produced. Therefore, B is the best choice.

Question 16

An isoquant:

Accepted Answer

An isoquant is a curve that shows all the combinations of inputs (such as labor and capital) that yield the same total output. It does not have to be linear, it can have a negative slope, and it does not necessarily show the maximum output as a function of labor input. Option E is incorrect because isoquants do not relate to cost, but to output level.

Question 17

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

Accepted Answer

If the inputs are perfectly substitutable, then they can be easily interchanged with each other without affecting the production output. This means that the isoquants would be linear, as the tradeoff between the two inputs can be represented by a constant slope. Therefore, the correct answer is C - linear.

Question 18

Tad's Baitshop currently uses no computers in determining inventory. The number of items that can be inventoried in a day is given by  where L is the number of labor hours used. If Tad purchases a computer to be used for inventory purposes, the number of items that can be inventoried in a day becomes  Use the information in the table below to sketch Tad's marginal product of labor curves before and after the use of the computer for inventory purposes.

Accepted Answer

The answer of Tad's Baitshop currently uses no computers in...

Question 19

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

An isoquant represents all the possible combinations of capital and labor that can produce a given level of output. So, if we hold the level of output constant and vary the amounts of capital and labor, we can trace out an isoquant curve. Therefore, the correct answer is B) an isoquant.

Question 20

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.

Quiz 6: Production

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:

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

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.

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