econ exam 2

In a production process, all inputs are increased by 10%; but output increases less than 10%. This means that the firm experiences

decreasing returns to scale.

When the price of wood (which is an input in the production of furniture) falls, the consumer surplus associated with the consumption of furniture

increases.

An isoquant

is a curve that shows all the combinations of inputs that yield the same total output.

The function which shows combinations of inputs that yield the same output is called a(n)

isoquant curve.

Which of the following is true about the demand for gasoline?

It is probably more price elastic in the long run because it is easier to find substitutes for gasoline in the long run.

According to the law of diminishing returns

the marginal product of an input will eventually decline.

If the isoquants are straight lines, then

the marginal rate of technical substitution of inputs is constant.

The marginal rate of technical substitution is equal to the

ratio of the marginal products of the inputs.

Price elasticity of demand measures the

sensitivity of quantity demanded to changes in price.

The marginal rate of technical substitution is equal to:

A) the absolute value of the slope of an isoquant. B) the r use 0.8 fewer units of capital.

Use the following two statements to answer this question: I."Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. IIDiminishing returns to all factors of production implies decreasing returns to scale.

Both I and II are false.

Which of the following is true regarding income along a price-consumption curve?

Income is constant

Use the following statements to answer this question: I.A price-consumption curve is derived by varying the price of asparagus. If the price-consumption curve is an upward sloping straight line, the demand curve for asparagus must be downward sloping. II.Fred consumes only food and clothing. Fred's Engel curve traces out the utility maximizing combinations of food and clothing associated with each and every income level.

I is true, and II is false.

Use the following two statements to answer this question: I.If the marginal product of labor is zero, the total product of labor is at its maximum. IIIf the marginal product of labor is at its maximum, the average product of labor is falling.

I is true, and II is false.

If we take the production function and hold the level of output constant, allowing the amounts of capital and labor to vary, the curve that is traced out is called:

an isoquant.

Joe's Organic Cereal Company produces granola breakfast cereal under a fixed proportion production system in which 22 ounces of cereal are packaged in each cardboard box. However, the plant production manager decides to reduce the amount of cereal per box to 20.5 ounces at the start of the next year. For the isoquant map, cereal is plotted in the vertical axis, and boxes are on the horizontal axis. What happens to the curves in the isoquant map as a result of this change?

Shift downward

Which of the following is NOT related to the slope of isoquants?

The fact that input prices are positive

When a good is price inelastic, consumer expenditures on the good

increase when price increases.

Which of the following claims is true at each point along a price-consumption curve?

Utility is maximized, and all income is spent.

A function that indicates the maximum output per unit of time that a firm can produce, for every combination of inputs with a given technology, is called

a production function.

The short run is

a time period in which at least one input is fixed

As we move downward along a typical isoquant, the slope of the isoquant

becomes flatter.

When the income-consumption curve has a positive slope throughout its entire length, we can conclude that

both goods are normal.

If input prices are constant, a firm with increasing returns to scale can expect

costs to go up less than double as output doubles

Which of the following describes the Giffen good case? When the price of the good

falls, the income effect is in the opposite direction to the substitution effect, and consumption falls. \

Recently, Skooterville has experienced a large growth in population. As a result, the demand curve for telephone service in Skooterville:

has shifted to the right.

The income-consumption curve

illustrates the utility-maximizing combinations of goods associated with every income level.

Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

less, less

A production function in which the inputs are perfectly substitutable would have isoquants that are

linear.

The slope of the total product curve is the

marginal product

The rate at which one input can be reduced per additional unit of the other input, while holding output constant, is measured by the

marginal rate of technical substitution.

The law of diminishing returns refers to diminishing

marginal returns.

An individual demand curve can be derived from the ________ curve.

price-consumption

Suppose the production of long-distance airline flights is described by a fixed proportion production process in which three crew members (i.e., labor) are required for each aircraft (i.e., capital). If the airline operates with four crew members per plane, then we know that:

production at this point is technically inefficient.

Joe owns a small coffee shop, and his production function is q = 3KL where q is total output in cups per hour, K is the number of coffee machines (capital), and L is the number of employees hired per hour (labor). If Joe's capital is currently fixed at K=3 machines, what is his short-run production function?

q = 9L

If capital is measured on the vertical axis and labor is measured on the horizontal axis, the slope of an isoquant can be interpreted as the

rate at which the firm can replace capital with labor without changing the output rate.

The marginal product of an input is

the addition to total output due to the addition of the last unit of an input, holding all other inputs constant.

In a certain textile firm, labor is the only short term variable input. The manager notices that the marginal product of labor is the same for each unit of labor, which implies that

the average product of labor is always equal to the marginal product of labor

If an Engel curve has a positive slope

the good on the horizontal axis is normal

As we move downward along a demand curve for apples,

the marginal utility of apples decreases.

The substitution effect of a price change for product X is the change in consumption of X associated with a change in

the price of X, with the level of utility held constant.

The law of diminishing returns assumes that

there is at least one fixed input.

You are currently using three printing presses and five employees to print 100 sales manuals per hour. If the MRTS at this point is 0.5 (capital is on the vertical axis of the isoquant map), then you would be willing to exchange ________ employees for one more printing press in order to maintain current output.

two

A firm's marginal product of labor is 4 and its marginal product of capital is 5. If the firm adds one unit of labor, but does not want its output quantity to change, the firm should

use 0.8 fewer units of capital.

A straight-line isoquant

would indicate that capital and labor are perfect substitutes in production.

An L-shaped isoquant

would indicate that capital and labor cannot be substituted for each other in production

The MRTS for isoquants in a fixed-proportion production function is:

zero or undefined.