Question 1

If MPP _a \P _a = MPP _b \P _b , then the firm should increase the usage of both input a and input b.

Accepted Answer

The firm should not increase the usage of both inputs if the marginal product per price is equal for both inputs, as it indicates that the firm is already optimizing the allocation of resources between inputs a and b.

Question 2

The least costly combination of inputs is influenced by the relative prices of inputs.

Accepted Answer

If the price of one input is relatively lower than the others, it would be more cost-effective to use more of that input and less of the other relatively expensive inputs to produce the same level of output. Therefore, the relative prices of inputs play a significant role in determining the least costly combination of inputs.

Question 3

If the price of one input changes, the firm will change its use of that input only.

Accepted Answer

If the price of one input changes, the firm may also change its use of other inputs in response to the price change to optimize its production process and minimize costs.

Question 4

Most firms have very little flexibility in their choice of input proportions.

Accepted Answer

Most firms have some degree of flexibility in their choice of input proportions, although it may be limited by factors such as technology and contractual obligations with suppliers.

Question 5

If MPP _a \P _a > MPP _b \P _b , then the proportions of these two inputs is optimal.

Accepted Answer

The condition given does not ensure optimal input proportions; it only compares the marginal physical products per price unit of two inputs, not their optimal combination.

Question 6

A firm will tend to select the least costly input combination to produce its output.

Accepted Answer

This is known as the principle of cost minimization, which is a fundamental concept in economic theory. The firm will choose the input combination that minimizes the cost of producing a given output level, subject to the technology and factor prices it faces.

Question 7

The rule that states that the marginal revenue product equal to price does not hold when there are more than two inputs.

Accepted Answer

The rule that marginal revenue product equals price is not dependent on the number of inputs but on the condition of perfect competition in the output market. This rule applies regardless of the number of inputs used in production.

Question 8

Input choices in the present are often affected by past decisions.

Accepted Answer

Past decisions can shape our present circumstances and options, influencing the choices we make today.

Question 9

Marginal revenue product is essentially the additional revenue generating from selling one additional unit of output.

Accepted Answer

The answer of Marginal revenue product is essentially the additional...

Question 10

Firms should use a resource up to a point where MRP = P.

Accepted Answer

If a firm uses a resource up to a point where its marginal revenue product (MRP) equals its price (P), then it is maximizing its profits. Using the resource beyond that point would lead to lower profits, as the cost of the resource would be higher than the revenue it generates.

Question 11

Production technology determines the relationship of total cost to outputs.

Accepted Answer

Production technology refers to the methods, techniques, and equipment used to produce goods and services. It affects the efficiency and productivity of the production process, which in turn determines the relationship between the total cost of production and the level of output. Therefore, the statement is true.

Question 12

A rise in the price of an input can be expected to lead to a rise in its marginal physical product.

Accepted Answer

The answer of A rise in the price of an...

Question 13

If MRP > P, a firm should use less of that input.

Accepted Answer

If MRP (Marginal Revenue Product) is greater than P (Price of the input), a firm should use more of that input because it indicates that the additional revenue generated by using one more unit of the input exceeds the cost of that input, leading to increased profits.

Question 14

The "law" of diminishing returns rests on the "law" of variable input proportions.

Accepted Answer

The law of diminishing returns states that the marginal product of a variable input will eventually decrease as more of that input is added to a fixed input. This is based on the law of variable input proportions, which states that as one input is increased while the other inputs are held constant, the marginal product of that input will eventually decrease. Therefore, the law of diminishing returns is founded on the law of variable input proportions.

Question 15

If a firm is using optimal input proportions, it is minimizing its costs.

Accepted Answer

Optimal input proportions refer to the combination of inputs (such as labor and capital) that minimizes costs while producing a desired level of output. Therefore, if a firm is using optimal input proportions, it is indeed minimizing its costs.

Question 16

Cost minimization requires that a firm equate the ratio of marginal products of inputs to the ratio of input prices.

Accepted Answer

This statement is true. The condition for cost minimization is that the ratio of marginal products of inputs should be equal to the ratio of input prices. This is because if the ratio of marginal products is not equal to the ratio of input prices, the firm can lower its costs by changing the input mix.

Question 17

When marginal revenue product of an input is less than its price, the producers should use less of the input.

Accepted Answer

When the marginal revenue product (MRP) of an input is less than its price, it means that the additional revenue generated by using one more unit of the input is less than the cost of using that unit. Therefore, to maximize profit, producers should reduce the use of that input.

Question 18

If diminishing marginal returns are present for an input, then the marginal revenue product will be decreasing.

Accepted Answer

Diminishing marginal returns means that for each additional unit of input, the increase in output will start to decrease. This means that the additional revenue generated by that additional input (the marginal revenue product) will also start to decrease. So, if there are diminishing marginal returns, then the marginal revenue product will be decreasing.

Question 19

If the price of one input changes, generally the firm will change its use of both inputs.

Accepted Answer

Generally, a change in the price of one input will cause the firm to adjust its use of both inputs to maintain the same level of output at a lower cost. The firm will substitute the now relatively cheaper input for the now relatively more expensive input. However, the extent to which the firm will substitute one input for the other will depend on the production function and the elasticity of substitution between the two inputs.

Question 20

Input proportions are usually fixed by technological conditions alone.

Accepted Answer

Input proportions can be influenced by various factors, including economic and organizational considerations, not just technological conditions alone.

Quiz 7: Production, Inputs, and Cost: Building Blocks for Supply Analysis

If MPP a \P a = MPP b \P b , then the firm should increase the usage of both input a and input b.