eco 401 6

In the short run, average product is calculated as: ΔQ/ΔL ΔL/ΔQ Q/L L/Q

Q/L

The slope of the isocost line is equal to: −MPK/MPL −MPL/MPK −W/R −R/W

-W/R

The cost minimizing combination of labor and capital under perfect complements will always be where: The firm uses only labor or only capital. ​MRTSLK = W/R. The firm uses the same amounts of each input, labor and capital. The corner of the isoquant is tangent to the isocost line.

The corner of the isoquant is tangent to the isocost line.

13. If the wage rate increases: a. the slope of an isocost line becomes steeper and the isocost line rotates clockwise. b. the slope of an isocost line becomes flatter and the labor intercept of the isocost line rotates counterclockwise. c. a given isocost line shifts out, but its slope does not change. d. a given isocost line shifts in, but its slope does not change.

a

17. The production function Q = 4K + 2L: a. exhibits constant returns to scale. b. exhibits increasing returns to scale. c. exhibits decreasing returns to scale. d. exhibits decreasing returns to labor in the short run.

a

2. Capital cannot be adjusted in the short run because: a. there is not sufficient time to adjust it. b. it is too expensive to alter the capital stock. c. capital markets do not function well enough in the short run. d. in the short run the firm has yet to decide what product to produce, so it does not yet know what kind of capital it needs.

a

7. If labor is measured on the horizontal axis, capital is measured on the vertical axis, and if bundle A contains less labor than bundle B: a. the marginal rate of technical substitution (MRTS) is higher at bundle A than at bundle B. b. the marginal rate of technical substitution is lower at bundle A than at bundle B. c. the marginal rate of technical substitution is the same at bundle A and bundle B. d. the marginal rate of substitution depends upon the units in which the inputs are measured.

a

9. If labor and capital are perfect substitutes in production: a. isoquants are straight lines. b. isoquants are convex to the origin. c. isoquants are drawn as right angles. d. isoquants are kinked

a

12. The slope of isocost lines is constant because of the assumption that: a. the firm has already chosen which product to produce. b. the firm can buy as much capital or labor as it wants at fixed prices. c. the more inputs the firm uses, the more output it makes. d. the firm's goal is to minimize the cost of producing whatever quantity it chooses.

b

14. If the rental rate of capital decreases: a. the slope of an isocost line becomes flatter and the isocost line rotates counterclockwise. b. the slope of an isocost line becomes steeper and the isocost line rotates clockwise. c. the isocost line shifts out, but its slope does not change. d. the isocost line shifts in, but its slope does not change.

b

15. If a firm is employing one unit each of capital and labor to produce one unit of output and the firm's production exhibits increasing returns to scale: a. the input bundle of two units of labor and two units of capital will be on the isoquant containing all bundles that result in two units of output. b. the input bundle of two units of labor and two units of capital will be above the isoquant containing all bundles that result in two units of output. c. the input bundle of two units of labor and two units of capital will be below the isoquant containing all bundles that result in two units of output. d. the firm's output will increase by less than double when it doubles its inputs.

b

16. The production function Q = K0.75L0.75: a. exhibits constant returns to scale. b. exhibits increasing returns to scale. c. exhibits decreasing returns to scale. d. exhibits increasing returns to labor in the short run.

b

3. If the marginal product of labor is above the average product of labor: a. the average product of labor decreases. b. the average product of labor increases. c. the average product of labor increases up to a certain point but eventually begins to decrease. d. the average product of labor remains unchanged.

b

6. The firm's goal is to: a. maximize total revenue. b. minimize the cost of producing whatever quantity it has chosen to make. c. maximize output given a certain budget it has decided to allocate to production. d. support the labor force by hiring as many people as possible to produce the output quantity it has selected.

b

10. If labor and capital are perfect complements in production: a. isoquants are straight lines. b. isoquants are convex to the origin. c. isoquants are L-shaped right angles. d. isoquants are kinked but each region is downward sloping.

c

18. If technological change suddenly results in total factor productivity growth and the firm still wants to produce the same amount of output: a. costs will still be minimized using the same combination of inputs, since the firm still wants to remain on the same isoquant. b. the firm will use more inputs than before. c. the firm will spend less on production than before. d. the marginal rate of technical substitution (MRTS) at the new optimal bundle of inputs will be higher than before.

c

5. In the long run, because firms can adjust capital as well as labor: a. the firms will grow. b. production is more expensive because money must be spent on capital as well as labor. c. the impact of diminishing marginal returns to labor is reduced. d. firms are certain to fire workers as they are replaced with capital.

c

in the short run, the slope of the production function is equal to a. the marginal product of capital. b. the average product of capital. c. the marginal product of labor. d. the average product of labor.

c

11. With labor on the x-axis, if a firm's isocost line has a slope that is less than -1 (absolute value greater than 1): a. labor yields more output than capital. b. the wage rate is less than the rental rate of capital. c. labor yields less output than capital. d. the wage rate is greater than the rental rate of capital.

d

4. The length of the short run is: a. 6 months b. 1 year c. 1 week d. Variable across industries

d

8. Two firms use capital and labor to produce their good. Firm 1's isoquants are relatively straight, while firm 2's isoquants are sharply curved. Capital and labor are: a. complements for firm 1 and substitutes for firm 2. b. complements for both firm 1 and firm 2. c. substitutes for both firm 1 and firm 2. d. substitutes for firm 1 and complements for firm 2.

d

A graph representing all input combinations yielding the firm the same cost is a(n): Indifference curve. Isoquant. Budget constraint. Isocost line.

isocost line

The horizontal intercept of the isocost line is: ​C ​W ​C/W ​W/R

​C/W

The slope of the isoquant is always equal to (labor on horizontal axis): −MPL/MPK −MPK/MPL −W/R −R/W

−MPL/MPK