chapter 4

A firm has a production function satisfying constant returns to scale (there is free entry in the industry in which it operates). Their cost of producing 100 units of their product is $200,000.00. What is their cost of producing 500 units? $20,000,000.00 $1,000,000.00 $425,000.00 $40,000.00 $50,000.00

$1,000,000.00

A firm has a production function that has strictly increasing returns to scale. That is, for any combination of factors, say (L,K), f(2L,2K)>2f(L,K). Their cost of producing 500 units of their product is $100,000.00. From the following options, which can be the cost of producing 1000 units? $395,000.00 $215,000.00 $190,000.00 $210,000.00 $200,000.00

$190,000.00

The economic cost of education of a student is the summation of all the economic cost of the resources used by the student in order to obtain his or her education. This includes the time the student dedicates to study. Consider Juana's case. Her tuition is $32,000.00 per year; Juana works part time on a Bookstore and receives $10,000.00 a year for it; if she were going to drop out of college and work full time, Juana would receive $22,000.00 a year. The economic cost of Juana's education (per year) is? $12,000.00 $42,000.00 $32,000.00 $54,000.00 $44,000.00

$44,000.00

John manages his own company and receives $35,000 a year for it. The best salary that John would be able to find in a different company is $90,000 a year. The economic cost of John's labor is: $40,000 per year $90,000 per year $55,000 per year $125,000 per year $60,000 per year

$90,000 per year

Suppose that a firm has a production function f(L,K)=min{2L,K}. From the following combination of labor and capital (L,K), which one belongs to the same iso-quant as (3,90)? (90,4) (15,15) (3,5) (30,3) (5,6)

(5,6)

A firm has production function f(L,K,M)=L+K2+4M, where L is units of labor, K is units of capital, and M is units of materials. If this firm uses 100 units of labor, 40 units of capital, and 100 units of materials, what is the maximal number of units that they can produce? 2200 1250 2100 3200 1200

2100

Consider a firm whose production function is f(L,K)=5L1/2K1/2. Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). If K is equal to 1, for what level of labor is the Average Product of Labor equal to 1? 25 5 For no level of labor APL is equal to 1. 1 15

25

A call center has a production function: f(L,K)= 30L + 240K. What is the Marginal Product of Labor when L=1200 and K=1? 360000 240 30 360240 240

30

A call center has a production function: f(L,K)=40L+200K. The maximal number of calls that the call center may receive given that L=1 and K=2 is? 400 480 300 440 280

440

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Assume also that the price of capital r=10 and the price of labor w=3. Then, the average cost of producing q units is? AC(q)=114/q+9/8 AC(q)=88/q+1/12 AC(q)=24/q+3 AC(q)=24/q+1 AC(q)=24/q+q

AC(q)=24/q+1

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the average cost of producing q units is? AC(q)=1/3q+q2/3. AC(q)=5/q+q2/9. AC(q)=10/q+q2. AC(q)=2/3q+q/3. AC(q)=3/q+q/9.

AC(q)=5/q+q2/9.

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the average fixed cost of producing q units is? AF(q)=2/3q. AF(q)=5/q. AF(q)=1/3q. AF(q)=3/q. AF(q)=10/q.

AF(q)=5/q

Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). From the graph we learn that for the corresponding K: APL(5,K)=40 APL(L,K) is decreasing in all the range of L shown in the figure. APL(5,K)=205 APL(5,K)=100 APL(5,K)=52

APL(5,K)=40

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Assume also that the price of capital r=10 and the price of labor w=3. Then, the average variable cost of producing q units is? AVC(q)=1-96/q AVC(q)=q-96/q AVC(q)=1/12-32/q AVC(q)=9/8-6/q AVC(q)=3-96/q

AVC(q)=1-96/q

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the average variable cost of producing q units is? AVC(q)=q2/3. AVC(q)=q/3. AVC(q)=q2. AVC(q)=q2/9. AVC(q)=q/9.

AVC(q)=q2/9

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Assume also that the price of capital r=10 and the price of labor w=3. Then, the cost of producing q units is? C(q)=114+9q/8 C(q)=88+q/12 C(q)=24+3q C(q)=24+q C(q)=24+q2

C(q)=24+q

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the cost of producing q units is? C(q)=2/3+q2/3. C(q)=5+q3/9. C(q)=3+q2/9. C(q)=1/3+q3/3. C(q)=10+q3.

C(q)=5+q3/9

Consider a firm that has production function f(L,K)=5L1/3K2/3. What is the expression for the marginal rate of technical substitution MRTSLK at (L,K)? 2K/L K/2L K/10L 10K/L K/L

K/2L

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Then, the amount of labor necessary to produce q units is? L(q,1)=q2/9 L(q,1)=q3/27 L(q,1)=q2/27 L(q,1)=q3/3 L(q,1)=q3/9

L(q,1)=q3/27

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Then, the amount of labor necessary to produce q units is? L(q,12)= 3q/8-2 L(q,12)= q/3-32 L(q,12)= q/36-8 L(q,12)= q2/3-24 L(q,12)= q-24

L(q,12)= q/3-32

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Assume also that the price of capital r=10 and the price of labor w=3. Then, the marginal cost of producing q units is? MC(q)= 3 MC(q)=1/12 MC(q)=1 MC(q)= 9/8 MC(q)=2q

MC(q)=1

Consider a firm with production function f(L,K)=3L1/3K2/3. Assume that capital is fixed at K=1. Assume also that the price of capital r=5 and the price of labor w=3. Then, the marginal cost of producing q units is? MC(q)= 2q/3. MC(q)=q2/3. MC(q)=3q2. MC(q)=2q/9. MC(q)=q2.

MC(q)=q2/3.

A firm's production function associates with each combination of inputs (L,K): The maximal amount of capital that the firm is able to produce with (L,K). The maximal amount of output that the firm is able to produce with (L,K). The minimal amount of capital that the firm needs to produce with (L,K). The maximal amount of labor that the firm is able to produce with (L,K). The minimal amount of labor that the firm needs to produce with (L,K).

The maximal amount of output that the firm is able to produce with (L,K).

Consider a firm with production function f(L,K)=3L+8K. Assume that capital is fixed at K=12. Assume also that the price of capital r=10 and the price of labor w=3. Then, the variable cost of producing q units is? VC(q)=q-96 VC(q)=q/12-32 VC(q)=9q/8-6 VC(q)=q2-96 VC(q)=3q-96

VC(q)=q-96

Consider a Cobb-Douglas production function f(L, K)= ALαKβ, where A, α and β are positive constants. Then, f has increasing returns to scale if: a+B>1 a+B=0 a+B<1 a+B=1

a+B>1

Consider a firm whose production function is f(L,K)=ALaKb. Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). For which values of A, L,K, a, and b is the Average Product of Labor for this company equal to the Marginal Product of Labor? a=1 and any values of b, L, and K. a+b>1, a<1, and any values of b, L, and K. a=1/2, b=1/2, L=1, and K=3. a+b<1, a>0, b>0, and any values of L and K. a+b=1, b>0, and any values of L and K.

a=1 and any values of b, L, and K.

a firm has a production function f. if for each pair (L,K), f(2L, 2K), we say the firm has: none of above increasing returns to scale non-constant returns to scale decreasing returns to scale constant returns to scale

constant returns to scale

A call center has a production function: f(L,K)=40L+200K. If capital is fixed at K=2, what is the expression for the maximal production as a function of labor? f(L,2)=40L+40 f(L,2)=80L+400 f(L,2)=20L+200 f(L,2)=80L+800 f(L,2)=40L+400

f(L,2)=40L+400

A call center employs workers and automatic answering machines. Each worker is able to answer a maximum of 5 calls per hour (6 hours a day; a total of 30 calls per day); each automatic answering machine is able to answer a maximum of 10 calls per hour (24 hours a day; a total of 240 calls a day).Denote the number of workers employed by the company by L and the number of automatic answering machines employed by the company by K. The firm's daily production function is? f(L,K) = 240K f(L,K) = 30L + 240K f(L,K) = max {30L, 240K} f(L,K) = min {30L, 240K} f(L,K) = 30L

f(L,K) = 30L + 240K

From the following options, which one can be the production function of this restaurant? f(L,K)=50L f(L,K)=7LK f(L,K)=300min{L,K} f(L,K)=9L1/2K1/2 f(L,K)=50(L+K)

f(L,K)=50(L+K)

The following production function represents an industry in which there is free entry: f(L,K)=100L1/2K1/3. True False

false

Consider a newspaper with production function f(L,K)= 4min{L,K}, where L is the units of labor and K the units of capital they use. Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). Is the Average Product of Labor always equal to the Average Product of Capital for this firm? No. Yes.

no

Consider a newspaper with production function f(L,K)= 4min{L,K}, where L is the units of labor and K the units of capital they use. Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). The manager of this firm wants to buy more machines to increase the number of units of output produced by each employee, i.e., the Average Product of Labor. The manager's goal is to increase APL to 10 units of output per unit of labor. Is this possible without finding a new technology to produce? Yes. No.

no

The MRTSLK(L,K) for a certain firm is constant and equal to 2. Then, if the firm substitutes 2 units of labor for one unit of capital? Production decreases Production increases The Marginal product of labor decreases Production remains constant The Marginal product of labor increases

production increases

The Economic Profit is: Revenue + Economic Cost Revenue + Accounting Cost Revenue Revenue - Economic Cost Revenue - Accounting Cost

revenue - economic cost

The marginal rate of technical substitution of L for K at (L,K) is equal to? The partial derivative of the marginal revenue with respect to capital. The absolute value of the slope of the tangent to the iso-quant through (L,K) at (L,K) The ratio between MPK(L,K)/MPL(L,K). The negative of the slope of the tangent to the indifference curve through (L,K) at (L,K) The maximal amount of labor that can be substituted with an additional unit of capital so production remains constant.

the absolute value of the slope of the tangent to the iso-quant through (L,K) at (L,K)

Consider a call center with production function f(L,K)=30L+300K, where L is units of labor and K is units of capital. Denote by APL(L,K)=f(L,K)/L the so-called average product of labor (here f is the production function of the firm). Suppose that K=2. For which amounts of labor is the Average Product of Labor equal to 10? There is no level of labor for which APL is equal to 10. Between 21 and 30 Between 31 and 40 Between 11 and 20 Between 1 and 10

there is no level of labor for which APL is equal to 10

Consider a firm that has production function f(L,K)=5L1/3K2/3. Does this production function satisfy the law of decreasing marginal returns of capital? True False

true

The following production function satisfies constant returns to scale: f(L,K)=3LαK1-α. True False

true

The following production function satisfies increasing returns to scale: f(L,K)=100LK. True False

true

the following production functions satisfies increasing returns to scale: f(L,K)=100LK. T/F

true

Consider a Cobb-Douglas production function f(L, K)= AL2/3Kβ, where A and β are positive constants. Then, f has constant returns to scale if and only if: Aβ+2=1 β=1/3 A=2 A+β<1 A+β>1

β=1/3