ECON 6.5

How much do outputs increase when labor and capital increase from 1 to 2 units for the following production function , q = 10L0.5K0.3? A) 7.4 units. B) 7 units. C) 8 units. D) None of the above.

A

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.

A

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.

A

Let the production function be q = ALaKb. 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

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.

A

Suppose the production of mp3 players can be represented by the following production function: q = L0.4K0.4. 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.

A

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.

A

The above figure shows the isoquants for producing steel. When producing less than 10,000 tons there are A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) diseconomies of scale.

A

The table in the above figure shows the levels of output resulting from different levels of inputs. At which level of input are there constant returns to scale? A) 400-600 units B) Constant returns to scale exist throughout all levels of production. C) Constant returns to scale do not exist at any level of production. D) No firm conclusions can be drawn.

A

The table in the above figure shows the levels of output resulting from different levels of inputs. Returns to scale are greatest at which level of output? A) 100-200 units B) 200-400 units C) 400-600 units D) There is insufficient information to answer the question.

A

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.

A

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

B

Let the production function be q = ALaKb. 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.

B

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.

B

Suppose the production of mp3 players can be represented by the following production function: q = L0.4K0.4. The firm currently produces q1 units. If all inputs doubled, the new level of output will equal A) 20.4 q1. B) 20.8 q1. C) 0.8 q1. D) 1.6 q1.

B

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

B

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.

B

The above figure shows the isoquants for producing steel. When producing more than 20,000 tons there are A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) economies of scale.

B

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.

C

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.

C

Let the production function be q = ALaKb. 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.

C

The above figure shows the isoquants for producing steel. When producing between 10,000 and 20,000 tons there are A) increasing returns to scale. B) decreasing returns to scale. C) constant returns to scale. D) economies of scale.

C

What is 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.

C

Does this production function, q = 10L0.5K0.3, experience increasing, decreasing or constant returns to scale? A) Decreasing because a 100% increase in inputs increases outputs by 80%. B) Increasing because an 80% increase in inputs increases outputs by 100%. C) Decreasing because 0.5 + 0.3 < 1. D) A and C.

D

Suppose the production of mp3 players can be represented by the following production function: 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.

D

A firm can experience increasing, constant and decreasing returns to scale for various levels of output.

True. As output increases a firm can experience all types of returns to scale.

Cobb-Douglas production functions can never possess varying returns to scale.

True. The Cobb-Douglas function takes the form q = Lα Kβ, where the exponents are constant parameters. The returns to scale equals α + β which is constant for all q.