Microeconomic Theory, Ch. 6

The returns to scale of the production function Q = 50 L0.4 K0.2 are A) 50. B) .6. C) .8. D) 500.6.

.6.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. The firm currently produces q units. If all inputs doubled, the new level of output will equal A) 2^0.4 q1. B) 2^0.8 q1. C) 0.8 q1. D) 1.6 q1.

2^0.8 q1.

An organization that converts inputs (like Labor, Capital etc.) into output can be a A) firm. B) sole proprietorship. C) corporation. D) All of the above.

All of the above.

Efficient production occurs if a firm A) cannot produce its current level of output with fewer inputs. B) given the quantity of inputs, cannot produce more output. C) maximizes profit. D) All of the above.

All of the above.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is (are) TRUE? A) The production function has decreasing returns to scale. B) The marginal productivity of labor falls as labor increases in the short run. C) Capital and labor can be substituted for one another. D) All of the above.

All of the above.

Suppose the production of paved roadways can be represented as q = L0.5 + K0.5. Which of the following statements is (are) TRUE? A) Labor is subject to diminishing marginal productivity in the short run. B) Labor and capital are imperfect substitutes. C) The isoquants for paved roadways are convex. D) All of the above.

All of the above.

Jennifer is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the following statements is most accurate? A) Applicant B has a marginal product of 75 units. B) Applicant B has an average product of 77.5 units. C) Applicant A has a marginal product of 75 units. D) Applicant A has an average product of 87.5 units.

Applicant A has a marginal product of 75 units.

If the marginal productivity of labor is constant for all levels of output, then the average productivity of labor A) is constant. B) equals the marginal productivity of labor. C) Both A and B above. D) Either A or B above but not both.

Both A and B above.

What is one of the biggest differences between a sole proprietorship and a corporation? A) Sole proprietorships offer stock. B) Corporation shareholders elect the managers of the firm. C) Sole proprietorships have limited liability. D) Corporations are the only profitable firms.

Corporation shareholders elect the managers of the firm.

The table in the above figure shows the levels of output resulting from different levels of inputs. Which of the following conclusions can be drawn from this information? A) Increasing returns to scale exist between 100 and 200 units of output. B) Constant returns to scale exist throughout all levels of production. C) Labor is subject to diminishing marginal productivity in the short run. D) No firm conclusions can be drawn.

Increasing returns to scale exist between 100 and 200 units of output.

Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal the number of hours worked per day. Joey never works more than eight hours per day, and during that time his short-run production function is q = 0.2 * L. Which of the following statements is FALSE? A) Joey's marginal productivity equals his average productivity. B) Joey's marginal productivity diminishes by 0.2 for each additional hour worked. C) Joey's average productivity is constant. D) Joey's marginal productivity is constant.

Joey's marginal productivity diminishes by 0.2 for each additional hour worked.

One reason "micro-managers" might be less successful than so-called "delegators"? A) Delegators are smarter. B) Delegators enjoy increasing returns to scale. C) Micro-managers suffer decreasing returns to scale D) Micro-managers have constant returns to scale.

Micro-managers suffer decreasing returns to scale

Which of the following statements best describes a production function? A) The maximum profit generated from given levels of inputs. B) The maximum level of output generated from given levels of inputs. C) All levels of output that can be generated from given levels of inputs. D) All levels of inputs that could produce a given level of output.

The maximum level of output generated from given levels of inputs.

Suppose the production of VCRs can be represented by the following production function: q = L0.4 K0.4. Which of the following statements is TRUE? A) The production function has decreasing returns to scale. B) The production function has increasing returns to scale. C) The production function has constant returns to scale. D) Returns to scale vary with the level of output.

The production function has decreasing returns to scale.

Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following statements best illustrates the difference between the short run and the long run for Joey? A) Joey's friends say they will help him, but when he calls them, they say they have other things to do. B) When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother. C) Some customers pay Joey immediately; others wait till the following week. D) Joey has had to turn away some customers because he is already too busy.

When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn mower and split the work with his brother.

Let the production function be q=AL^a*K^b. The function exhibits decreasing returns to scale if A) a + b = 1. B) a+ b > 1. C) a + b < 1. D) Cannot be determined with the information given.

a + b < 1.

Let the production function be q=AL^a*K^b. The function exhibits constant returns to scale if A) a + b = 1. B) a + b > 1. C) a + b < 1. D) Cannot be determined with the information given.

a + b = 1.

Let the production function be q=AL^a*K^b. The function exhibits increasing returns to scale if A) a + b = 1. B) a + b > 1. C) a + b < 1. D) Cannot be determined with the information given.

a + b > 1.

Let the production function be q=AL^a*K^b. Returns to scale are equal to A) a * b. B) a + b. C) La + Kb. D) A * L.

a + b.

Isoquants that are downward-sloping straight lines exhibit A) an increasing marginal rate of technical substitution. B) a decreasing marginal rate of technical substitution. C) a constant marginal rate of technical substitution. D) a marginal rate of technical substitution that cannot be determined.

a constant marginal rate of technical substitution.

Technological efficiency is A) a necessary and sufficient condition for profit maximization. B) a sufficient but not necessary condition for profit maximization. C) a necessary but not sufficient condition for profit maximization. D) a theoretical construct with little connection to the real world

a necessary but not sufficient condition for profit maximization.

Returns to scale refers to the change in output when A) all inputs increase proportionately. B) labor increases holding all other inputs fixed. C) capital equipment is doubled. D) specialization improves.

all inputs increase proportionately.

Isoquants that are downward-sloping straight lines imply that the inputs A) are perfect substitutes. B) are imperfect substitutes. C) cannot be used together. D) must be used together in a certain proportion.

are perfect substitutes.

One way to explain the convexity of isoquants is to say that A) as labor increases and capital decreases, MPL rises while MPK falls. B) as labor increases and capital decreases, MPL falls while MPK rises. C) as labor increases and capital decreases, MPL and MPK both fall. D) as labor increases and capital decreases, MPL and MPK both rise.

as labor increases and capital decreases, MPL falls while MPK rises.

With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that A) capital and labor are perfect substitutes. B) capital and labor must be used together in a certain proportion. C) capital is not productive. D) labor is not productive.

capital is not productive.

Limited liability is a benefit to A) sole proprietorships. B) partnerships. C) corporations. D) All of the above

corporations.

In the food and kindred products industry, it is estimated that the elasticity of output with respect to labor is 0.43 and the elasticity of output with respect to capital is 0.48. These two measures indicate that the primary metals industry is characterized by A) decreasing returns to scale. B) constant returns to scale. C) increasing returns to scale. D) no returns to scale.

decreasing returns to scale.

Which entity produces the greatest proportion of U.S. gross national product? A) government B) non-profit organizations such as hospitals C) firms D) universities

firms

With respect to production, the short run is best defined as a time period A) lasting about six months. B) lasting about two years. C) in which all inputs are fixed. D) in which at least one input is fixed.

in which at least one input is fixed.

If a farmer produces 1000 bushels of corn using ten acres of land and one tractor and is able to produce 2000 bushels of corn using twenty acres of land and one tractor, the farmer has A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) no returns to scale.

increasing returns to scale.

In the Primary Metals industry, it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73. These two measures indicate that the primary metals industry is characterized by A) decreasing returns to scale. B) constant returns to scale. C) increasing returns to scale. D) no returns to scale.

increasing returns to scale.

Average productivity will fall as long as A) marginal productivity is falling. B) it exceeds marginal productivity. C) it is less than marginal productivity. D) the number of workers is increasing

it exceeds marginal productivity.

Economists typically assume that the owners of firms wish to A) produce efficiently. B) maximize sales revenues. C) maximize profits. D) All of the above.

maximize profits.

Decreasing returns to scale may occur as increasing the amount of inputs used A) increases specialization. B) always increases the amount of output produced. C) may cause coordination difficulties. D) increases efficiency.

may cause coordination difficulties.

The marginal rate of technical substitution always equals A) the slope of the total product curve. B) minus the ratio of the marginal products of inputs. C) the change in output due to a change in the amount of one input. D) the distance between two isoquants.

minus the ratio of the marginal products of inputs.

L-shaped isoquants imply that production requires that the inputs A) are perfect substitutes. B) are imperfect substitutes. C) cannot be used together. D) must be used together in a certain proportion.

must be used together in a certain proportion.

In the apparel and textile products industry, it is estimated that the elasticity of output with respect to labor is 0.70 and the elasticity of output with respect to capital is 0.31. These two measures indicate that the primary metals industry is most closely characterized by A) weak decreasing returns to scale. B) nearly constant returns to scale. C) strong increasing returns to scale. D) no returns to scale.

nearly constant returns to scale.

The above figure shows the short-run production function for Albert's Pretzels. The marginal productivity of labor equals the average productivity of labor A) for all levels of labor. B) at none of the levels of labor. C) only for the first worker. D) only for the fifth worker.

only for the first worker.

Returns to scale is a concept that operates A) only in the short run. B) only in the long run. C) in both the long run and the short run. D) in either the long run or the short run but never both.

only in the long run.

The above figure shows the isoquants for producing steel. Increasing returns to scale are A) present when producing less than 10,000 tons. B) present when producing less than 20,000 tons. C) present when producing less than 30,000 tons. D) never present.

present when producing less than 10,000 tons.

The above figure shows the isoquants for producing steel. Decreasing returns to scale are A) present when producing more than 10,000 tons. B) present when producing more than 20,000 tons. C) present when producing more than 30,000 tons. D) never present.

present when producing more than 20,000 tons.

Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to A) the amount of time it takes to acquire more customers. B) the amount of time it takes to hire an additional employee. C) the amount of time it takes to hire an additional employee and buy another lawn mower. D) the amount of time it takes to mow one lawn.

the amount of time it takes to hire an additional employee and buy another lawn mower.

In general, A) the marginal product curve never intersects the average product curve. B) the marginal product curve "chases" the average product curve. C) the average product curve "chases" the marginal product curve. D) the average product curve is identical to the marginal product curve.

the average product curve "chases" the marginal product curve.

If the average productivity of labor equals the marginal productivity of labor, then A) the average productivity of labor is at a maximum. B) the marginal productivity of labor is at a maximum. C) Both A and B above. D) Neither A nor B above.

the average productivity of labor is at a maximum.

The slope of an isoquant tells us A) how much output increases when both inputs are increased. B) the increase in MPL when capital increases. C) the decrease in capital necessary to keep output constant when labor increases by one unit. D) the decrease in capital necessary to keep MPL constant when labor increases by one unit.

the decrease in capital necessary to keep output constant when labor increases by one unit.

The steeper an isoquant is A) the greater is the marginal productivity of labor relative to that of capital. B) the greater is the substitutability between capital and labor. C) the greater is the need to keep capital and labor in fixed proportions. D) the greater is the level of output.

the greater is the marginal productivity of labor relative to that of capital

At any given point on the curve, the slope of the total product curve always equals A) the ratio of the marginal product and the average product. B) the change in input divided by the change in output. C) the average product of the input. D) the marginal product of the input

the marginal product of the input

To say that isoquants are convex is to say that A) the marginal rate of technical substitution falls as labor increases. B) capital and labor are perfect substitutes. C) labor, but not capital, is subject to the law of diminishing marginal returns. D) there are constant returns to scale.

the marginal rate of technical substitution falls as labor increases.

A production function tells the firm A) the maximum it can expect to produce with a given mix of inputs. B) the average it can expect to produce with a given mix of inputs. C) the minimum it can expect to produce with a given mix of inputs. D) the average level of production for other firms in the industry.

the maximum it can expect to produce with a given mix of inputs.

In the long run, all factors of production are A) variable. B) fixed. C) materials. D) rented.

variable.

An isoquant represents levels of capital and labor that A) have constant marginal productivity. B) yield the same level of output. C) incur the same total cost. D) All of the above.

yield the same level of output.