Chapter 7 quiz

Suppose that the marginal product of a firm's labor is 10 units of output per hour. Also assume that the marginal product of the firm's capital is 30 units of output per hour. In this case, the marginal rate of technical substitution for labor with capital is:

1/3

Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long-run production function is Q = F(L,K) = 5√L√K. If the firm has 100 units of capital, what is its short-run production function?

Q = F(L) = 50√L

According to the Law of Diminishing Marginal Returns, as additional units of one input are employed as all other inputs are held constant, total output will eventually ______.

increase at a decreasing rate

Suppose a firm uses 200 units of capital and 1,000 workers to produce 10,000 units of output. When the firm employs 3,000 workers and uses 600 units of capital, output increases to 45,000 units. This firm exhibits:

increasing return to scales

Which of the following is NOT a property of isoquants?

isoquants may slope upward or downward

As long as a firm can freely dispose of any extra inputs it may have:

its production function must slope upward.

One reason that firms will experience increasing returns to scale is:

the specialization of inputs as scale increases.

The Cobb-Douglas production function F(L,K) = ALαKβ will exhibit decreasing returns to scale when:

α + β < 1.

Suppose that a firm uses both labor (L) and capital (K) as inputs. The firm's long-run production function is Q = F(L,K) = 5√L√K. The firm has 100 units of capital. If the firm uses an efficient production method, how much output does it produce in the short run if it hires 25 workers?

250 Units

Consider the Cobb-Douglas production function F(L,K) = ALαKβ. Which of the following statements is true?

Increases in α increase labor's productivity and raise MRTSLK.

Which of the following formulas represents the marginal rate of technical substitution of labor for capital?

MPL/MPK

Suppose a manager is deciding how to allocate workers between two plants. The marginal product of labor in plant 1 is 10 units of output. The marginal product of labor in plant 2 is 14 units of labor. What should the manager do?

Reallocate workers from plant 1 to plant 2, because MPL is greater in plant 2 than in plant 1.

Suppose a firm uses only capital and labor to produce output. When the firm doubles the amount of both inputs, output increases by less than double. This firm exhibits:

decreasing returns to scale.

Returns to scale is a ______ concept because ______.

long-run; it refers to changes in all of the firm's inputs

If hiring one more worker causes the average product of labor to fall, then:

the marginal product of labor is less than the average product of labor.