Multiple Choice Questions

Suppose MPl =20 and MPk =40 and the rental tare on capital is $10. If the level of prodution is currently efficient, the wage rate must be?

$5

Suppose the production function for good q is given by q = 3K + 2 L where K and L are capital and labor inputs. Consider three statements about this function: I. The function exhibits constant returns to scale. II. The function exhibits diminishing marginal productivities to all inputs. III. The function has a constant rate of technical substitution.

1 and 3 are true but not 2

A firm whose production function displays increasing returns to scale will have a total cost curve that is?

A curve with a positive and continually decreasing slope

A firms marginal cost curve?

Always intersects its average cost curve at its minimum point.

Suppose a cost function is TC = Aq3 + bq2 + cq + d. Then the average cost is?

Aq2 + bq +c + c/d

As long as marginal cost is below average cost, average cost will be?

Falling

If production is given by Q=K^a(L^b), (a+b <1) doubling both inputs?

Increases output but does not double it

A fixed-proportion production function has isoquants that are?

L-Shaped

In order to maximize profits, a firm should produce at the output level for which?

Marginal revenue equals marginal cost

A technical innovation in the production of automobiles by Ford Motor Company's for 1 Million cars per year would necessarily?

Shift the "1 million car" isoquant toward the orgin

The Marginal Rate of Technical Substitution of labor for capital (MRTSlk) measures?

The amount by which capital input can be reduced while holding quantity produced constant when one more unit of labor is used

The marginal physical product of labor is defined as?

The extra output produced by employing one more unit of labor while holding other inputs constant

A firms marginal rate of technical substitution (MRTS) is represented graphically by?

The negative of the slope of the isoquant at the relevant point

If more and more labor is employed while keeping all other inputs constant, the marginal physical productivity of labor?

Will eventually decrease

A firms isoquant shows?

`The various combinations of capital and labor that will produce a given amount of output

If a firm is a price taker, its marginal revenue is?

Equal to market price