Академический Документы
Профессиональный Документы
Культура Документы
2) An organization that converts inputs (like Labor, Capital etc.) into output is called a
A) firm.
B) sole proprietorship.
C) corporation.
D) All of the above.
Answer: D
Topic: The Ownership and Management of Firms
For the following, please answer "True" or "False" and explain why.
5) Only corporations benefit from limited liability.
Answer: True. Individuals in sole proprietorships and partnerships are personally responsible for debt.
Topic: The Ownership and Management of Firms
1
Topic: Production
2) With respect to production, the short run is best defined as a time period
A) lasting about six months.
B) lasting about two years.
C) in which all inputs are fixed.
D) in which at least one input is fixed.
Answer: D
Topic: Production
4) Joey cuts grass during the summer. He owns one lawn mower. For him, the short run is equal to
A) the amount of time it takes to acquire more customers.
B) the amount of time it takes to hire an additional employee.
C) the amount of time it takes to hire an additional employee and buy another lawn mower.
D) the amount of time it takes to mow one lawn.
Answer: C
Topic: Production
5) Joey cuts grass during the summer. He rents a lawn mower from his dad. Which of the following
statements best illustrates the difference between the short run and the long run for Joey?
A) Joey's friends say they will help him, but when he calls them, they say they have other things to do.
B) When Joey acquires more customers, he responds by working more hours. Next year, he will buy a lawn
mower and split the work with his brother.
C) Some customers pay Joey immediately; others wait till the following week.
D) Joey has had to turn away some customers because he is already too busy.
Answer: B
Topic: Production
For the following, please answer "True" or "False" and explain why.
2
1) The above figure shows the short-run production function for Albert's Pretzels. The marginal
productivity of labor
A) rises then falls as the amount of capital increases.
B) falls then rises as the amount of labor increases.
C) is greater than or equal to the average productivity of labor for all amounts of labor.
D) is less than or equal to the average productivity of labor for all amounts of labor.
Answer: D
Topic: Short-run Production
2) The above figure shows the short-run production function for Albert's Pretzels. The marginal
productivity of labor for the third worker is
A) 6.
B) 8.
C) 24.
D) not known from the information provided.
Answer: A
Topic: Short-run Production
3) The above figure shows the short-run production function for Albert's Pretzels. The marginal
productivity of labor equals the average productivity of labor
A) for all levels of labor.
B) at none of the levels of labor.
C) only for the first worker.
D) only for the fifth worker.
Answer: C
Topic: Short-run Production
4) The above figure shows the short-run production function for Albert's Pretzels. The law of diminishing
marginal productivity
A) appears with the second worker.
B) has not yet appeared for any of the levels of labor.
C) first appears with the fifth worker.
D) is refuted by this evidence.
Answer: A
Topic: Short-run Production
5) The above figure shows the short-run production function for Albert's Pretzels. The average product of
labor
A) increases first and then decreases.
B) decreases first and then increases.
3
C) decreases throughout.
D) increases throughout.
Answer: C
Topic: Short-run Production
6) If the average productivity of labor equals the marginal productivity of labor, then
A) the average productivity of labor is at a maximum.
B) the marginal productivity of labor is at a maximum.
C) Both A and B above.
D) Neither A nor B above.
Answer: A
Topic: Short-run Production
8) Total Product is
A) the change in total product resulting from an extra unit of labor, holding other factors constant.
B) the ratio of output to the number of workers used to produce that output.
C) the amount of output that can be produced by a given amount of labor.
D) equal to the marginal product of labor when the average product is increasing.
Answer: C
Topic: Short-run Production
11) If the marginal productivity of labor is constant for all levels of output, then the average productivity of
labor
A) is constant.
B) equals the marginal productivity of labor.
C) Both A and B above.
D) Either A or B above but not both.
Answer: C
Topic: Short-run Production
12) Joey cuts lawns during the summer. Let q equal the number of acres mowed per day, and let L equal
4
the number of hours worked per day. Joey never works more than eight hours per day, and during that time
his short-run production function is q = 0.2 * L. Which of the following statements is FALSE?
A) Joey's marginal productivity equals his average productivity.
B) Joey's marginal productivity diminishes by 0.2 for each additional hour worked.
C) Joey's average productivity is constant.
D) Joey's marginal productivity is constant.
Answer: B
Topic: Short-run Production
13) At any given point on the curve, the slope of the total product curve always equals
A) the ratio of the marginal product and the average product.
B) the change in input divided by the change in output.
C) the average product of the input.
D) the marginal product of the input.
Answer: D
Topic: Short-run Production
14) Which of the following statements best summarizes the law of diminishing marginal returns?
A) In the short run, as more labor is hired, output diminishes.
B) In the short run, as more labor is hired, output increases at a diminishing rate.
C) In the short run, the amount of labor a firm will hire diminishes as output increases.
D) As more labor is hired, the length of time that defines the short run diminishes.
Answer: B
Topic: Short-run Production
15) Which situation is most likely to exhibit diminishing marginal returns to labor?
A) a factory that obtains a new machine for every new worker hired
B) a factory that hires more workers and never increases the amount of machinery
C) a factory that increases the amount of machinery and holds the number of worker constant
D) None of these situations will result in diminishing marginal returns to labor.
Answer: B
Topic: Short-run Production
16) Thomas Malthus' prediction of mass starvation resulting from diminishing marginal returns has not
been fulfilled because
A) the law of diminishing marginal returns did not hold in this case.
B) Malthus ignored other factors like technological change.
C) relative to Malthus' day, larger percentage of today's labor works in the agricultural sector.
D) All of the above.
Answer: B
Topic: Short-run Production
For the following, please answer "True" or "False" and explain why.
17) Were it not for the law of diminishing marginal returns, we could grow the world's food supply from a
flowerpot.
Answer: True. Given the current state of technology, the law of diminishing marginal returns limits the
amount of additional output yielded from additional labor working the flowerpot. Revoking the "law"
would allow output to increase at a non-decreasing rate when more labor is applied to the flowerpot.
Topic: Short-run Production
18) A firm operating with diminishing total returns cannot be profit maximizing.
Answer: True. This firm could produce more output with fewer inputs. This cannot be profit maximizing.
Topic: Short-run Production
5
19) The actual time length of the short run is determined by when diminishing marginal returns start.
Answer: False. The actual time length of the short run is a function of how long it would take to adjust all
inputs.
Topic: Short-run Production
20) If marginal productivity is decreasing as more labor is hired, then average productivity must be
decreasing as well.
Answer: False. The change in average productivity is not determined by the change in marginal
productivity. Average productivity can be increasing even when marginal productivity is decreasing.
Average productivity can only be decreasing when marginal productivity is below average productivity.
Topic: Short-run Production
21) At low levels of production, marginal productivity of labor increases as labor increases. At high levels
of production, marginal productivity of labor decreases as labor increases. Are these two statements
contradictory? Explain.
Answer: No. At low levels of production, marginal productivity of labor can increase due to specialization.
Eventually, however, diminishing marginal productivity will commence.
Topic: Short-run Production
22) Explain the difference between diminishing returns to labor and diminishing marginal returns to labor.
Answer: Diminishing returns to labor means that an increase in the number of labor units will decrease the
amount of output. Diminishing marginal returns means that additional units of labor increase output at a
decreasing rate.
Topic: Short-run Production
23) Each additional worker produces two extra units of output until the first three units are produced for
some production function. After the third unit is produced each additional worker produces one extra unit
of output. What are the total product of labor, average product of labor and marginal product of labor for
the first five units of production associated with this production function?
Answer:
24) Consider the following short-run production function: q = 5 L2 - 1/3 L3. At what level of L do
diminishing marginal returns begin? At what level of L do diminishing returns begin?
Answer: MP = 10L L2. Marginal product peaks when L = 5 and equals zero when L = 10. Thus,
diminishing marginal returns begin when L = 5, and diminishing returns begin when L = 10.
Topic: Short-run Production
25) Describe the relationship between marginal productivity and average productivity. Use calculus or a
graph to support your answer.
Answer: AP = Q(L)/L. dAP/dL = ([L * MP] - Q) / L2 = MP - AP/L. Thus, if MP = AP, AP is constant. If
MP > AP, AP will rise. If MP < AP, AP will fall.
Topic: Short-run Production
26) Suppose the production function for T-shirts can be represented as q = L0.25 K0.75. Show that the
6
marginal productivity of labor diminishes in the short run.
Answer: In the short run, MPL = 0.25 * (q/L). The change in MP with respect to L equals d(MP)/dL = -0.25
* q/ . Thus, for all levels of labor hired, MP falls as L increases.
Topic: Short-run Production
1) At Joey's Lawncutting Service, a lawn mower cannot cut grass without a laborer. A laborer cannot cut
grass without a lawn mower. Which graph in the above figure best represents the isoquants for Joey's
Lawncutting Service when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: A
Topic: Long-run Production
2) In the above figure, Graph D with Capital on the vertical axis and labor on the horizontal axis implies
that
A) the marginal product of labor is increasing as more labor is employed.
B) the marginal product of labor is decreasing as more labor is employed.
C) the capital and labor are perfect substitutes.
D) capital and labor have to be employed in fixed proportions.
Answer: A
Topic: Long-run Production
3) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie (capital) or any
combination of both. Each minute of the instructor's time delivers the same amount of information as a
minute of the movie. Which graph in the above figure best represents the isoquants for lectures in
microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
7
B) Graph B
C) Graph C
D) Graph D
Answer: C
Topic: Long-run Production
4) Lectures in microeconomics can be delivered either by an instructor (labor) or a movie (capital) or any
combination of both. Yet, the it gets harder and harder to substitute more movies for an instructor the more
movies are already used. Which graph in the above figure best represents the isoquants for lectures in
microeconomics when capital per day is on the vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: B
Topic: Long-run Production
5) Which graph in the above figure represents the isoquants where, as the amount of labor used increases
and the amount of capital used decreases, the marginal product of labor rises when capital per day is on the
vertical axis and labor per day is on the horizontal axis?
A) Graph A
B) Graph B
C) Graph C
D) Graph D
Answer: D
Topic: Long-run Production
9) Suppose the production of paved roadways can be represented as q = L0.5 + K0.5. Which of the
following statements is (are) TRUE?
A) Labor is subject to diminishing marginal productivity in the short run.
8
B) Labor and capital are imperfect substitutes.
C) The isoquants for paved roadways are convex.
D) All of the above.
Answer: D
Topic: Long-run Production
10) L-shaped isoquants imply that production requires that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Answer: D
Topic: Long-run Production
11) Isoquants that are downward-sloping straight lines imply that the inputs
A) are perfect substitutes.
B) are imperfect substitutes.
C) cannot be used together.
D) must be used together in a certain proportion.
Answer: A
Topic: Long-run Production
15) With capital on the vertical axis and labor on the horizontal axis, vertical isoquants imply that
A) capital and labor are perfect substitutes.
B) capital and labor must be used together in a certain proportion.
C) capital is not productive.
D) labor is not productive.
Answer: C
Topic: Long-run Production
9
A) the slope of the total product curve.
B) the ratio of the marginal products of inputs.
C) the change in output due to a change in the amount of one input.
D) the distance between two isoquants.
Answer: B
Topic: Long-run Production
For the following, please answer "True" or "False" and explain why.
18) If inputs into production cannot be substituted for each other but have to be employed in fixed
proportions isoquants are straight, downward-sloping lines.
Answer: False. Isoquants are straight lines when inputs are perfect substitutes. When input relations are
fixed they are right angles.
Topic: Long-run Production
19) Suppose that additional units of capital affect the marginal productivity of labor. This is not unrealistic.
Word processors increase the marginal productivity of secretaries. On the other hand, robotic equipment
can completely replace a worker and, thereby, lower the marginal productivity of labor. Given this
possibility, determine the conditions under which isoquants will not be convex (i.e.: concave).
Answer: The slope of the isoquant equals - MPL / MPK. To be concave, the slope of the isoquant becomes
steeper as L increases. For this to be the case, MPL would have to increase more than MPK as labor
increases and capital falls. That means the decrease in capital causes MPL to rise more than the increase in
labor causes MPL to fall. The large inverse relationship implies that capital is replacing labor for this to be
the case.
Topic: Long-run Production
20) Suppose the production function for T-shirts can be represented as q = L0.25 K0.75. Show that the
isoquants for this function are convex.
Answer: The slope of the isoquant is - MPL / MPK = -K/3L. As L increases and K decreases, this value
becomes absolutely smaller implying a flatter slope.
Topic: Long-run Production
21) Suppose the production function for T-shirts can be represented as q = L0.25 K0.75. When K = 1 and q
= 2, what is the slope of the isoquant? If there is insufficient information to answer the question, describe
what information is needed.
Answer: Since the slope of the isoquant is -K/3L, one needs to know the level of L. Since K = 1 and q = 2,
L must equal 16. Thus, the slope of the isoquant at this point is -(1/48).
Topic: Long-run Production
10
2) 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.
Answer: C
Topic: Returns to Scale
3) 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.
Answer: A
Topic: Returns to Scale
4) 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.
Answer: A
Topic: Returns to Scale
5) 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.
Answer: A
Topic: Returns to Scale
11
B) a + b
C) La + Kb
D) A * L
Answer: B
Topic: Returns to Scale
7) 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.
Answer: B
Topic: Returns to Scale
8) 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.
Answer: C
Topic: Returns to Scale
9) 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.
Answer: A
Topic: Returns to Scale
10) Suppose the production of VCRs can be represented by the following production function:
q = L0.4 K0.4. 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.
Answer: D
Topic: Returns to Scale
11) Suppose the production of VCRs can be represented by the following production function:
q = L0.4 K0.4. 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.
Answer: A
Topic: Returns to Scale
12) Suppose the production of VCRs can be represented by the following production function:
q = L0.4 K0.4. 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.
12
D) 1.6 q1.
Answer: B
Topic: Returns to Scale
14) 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.
Answer: A
Topic: Returns to Scale
15) 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.
Answer: B
Topic: Returns to Scale
16) The above figure shows the isoquants for producing steel. Constant returns to scale are
A) present when producing less than 10,000 tons.
13
B) present when producing between 10,000 and 20,000 tons.
C) present when producing more than 20,000 tons.
D) never present.
Answer: B
Topic: Returns to Scale
17) 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.
Answer: B
Topic: Returns to Scale
18) 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.
Answer: A
Topic: Returns to Scale
19) 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.
Answer: C
Topic: Returns to Scale
20) The returns to scale of the production function Q = 50 L0.4 K0.2 are
A) 50.
B) .6.
C) .8.
D) 500.6.
Answer: B
Topic: Returns to Scale
For the following, please answer "True" or "False" and explain why.
21) Cobb-Douglas production functions can never possess varying returns to scale.
Answer: True. The Cobb-Douglas function takes the form q = LK, where the exponents are constant
parameters. The returns to scale equals + which is constant for all q.
Topic: Returns to Scale
22) A firm may express increasing, constant and decreasing returns to scale for various levels of output.
Answer: True. As output increases a firm can experience all types of returns to scale.
Topic: Returns to Scale
23) Show that increasing returns to scale can co-exist with diminishing marginal productivity.
Answer: The production function below illustrates this point. Diminishing marginal productivity describes
14
what happens to output when only labor increases; returns to scale describes what happens to output when
both capital and labor increase.
The first three rows illustrate diminishing marginal returns. Comparing rows 1 and 4 shows increasing
returns to scale.
Topic: Returns to Scale
24) Suppose the production function for T-shirts can be represented as q = L0.25 K0.75. Show that the
production function has constant returns to scale.
Answer: When L = L1 and K = K1, q = q1. Let L2 = _ L1 and K2 = _ K1 so that both L and K have increased
by the same proportion. Then, q2 = _L10.25 _K10.75 = _0.25+0.75 L10.25K10.75 = _q1. Thus, for any _,
output changes by the same proportion that the inputs changed.
Topic: Returns to Scale
25) Provide a graph and an explanation to show that the production function Q = L0.5 K0.5 has
diminishing marginal product of labor but has constant returns to scale.
Answer:
See the above figure. The MPL = .5 * L-0.5 K0.5 so as the amount of labor increases the MPL falls. The
convex shape of the isoquants illustrates the diminishing marginal product of labor. Doubling both capital
and labor will result in output doubling.
Topic: Returns to Scale
26) The above figure shows the isoquants for the production of steel. In which regions of production are
there increasing, decreasing, and constant returns to scale?
Answer: When output is less than 10,000 tons, there are increasing returns to scale. Between 10,000 and
20,000 tons, there are constant returns to scale. For output greater than 20,000 tons, there are decreasing
15
returns to scale.
Topic: Returns to Scale
27) Production occurs using the fixed-proportion combination of one worker for every one unit of capital.
Draw the isoquants for this production function. After one unit of output is produced, does this production
function exhibit constant, increasing, or decreasing returns to scale?
Answer:
See the above figure. The production function exhibits constant returns to scale
Topic: Returns to Scale
16
6.6 Productivity and Technical Change
1) Joey's lawncutting service recently traded in its push mowers for gasoline-powered mowers. Joey still
requires one worker per lawnmower; however, more grass is now cut in the same amount of time as before.
This is an example of
A) labor-saving technical change.
B) non-neutral technical change.
C) neutral technical change.
D) organizational change.
Answer: C
Topic: Productivity and Technical Change
2) Suppose the production function for a certain device is q = L + K. If a labor-saving technical change has
occurred, which of the following could be the new production function?
A) q = L + 5K
B) q = 5 * (L + K)
C) q = 5L + K
D) All of the above are possible.
Answer: A
Topic: Productivity and Technical Change
3) Suppose the production function for a certain device is q = L + K. If neutral technical change has
occurred, which of the following could be the new production function?
A) q = L + 5K
B) q = 5 * (L + K)
C) q = 5L + K
D) All of the above are possible.
Answer: B
Topic: Productivity and Technical Change
4) Albert's Pretzel Baking Company used to have four workers who were each in charge of making their
own pretzels from start to finish. Now, one worker mixes the dough, another shapes it, the third puts the
unbaked pretzels into the oven and the fourth removes the finished product. Output has doubled. This is an
example of
A) neutral technical change.
B) labor-saving technical change.
C) an organizational innovation.
D) economies of scale.
Answer: C
Topic: Productivity and Technical Change
5) Over a five-year span, the ABC Co. reduced the amount of labor it hired. At the same time, the marginal
productivity of labor increased. Which of the following COULD explain this observation?
A) the law of diminishing marginal returns
B) labor saving technical change
C) organizational innovation
D) All of the above.
Answer: D
Topic: Productivity and Technical Change
17
D) labor saving technical change increases economy-wide unemployment.
Answer: A
Topic: Productivity and Technical Change
For the following, please answer "True" or "False" and explain why.
9) Suppose firms A and B each make T-shirts. Firm A's production function is q = L0.5 K0.5. Firm B's
production function is q = 1.2 * L0.5 K0.5. If the two firms each hire the same amounts of capital and
labor, compare the two firms in terms of APL and MPL.
Answer: Firm B's APL and MPL will equal 1.2 times the APL and MPL of firm A.
Topic: Productivity and Technical Change
10) Explain how firms that each produce as efficiently as they can may not be equally productive.
Answer: Firm-specific characteristics may vary the level of productivity for firms even if all firms operate
as efficiently as each possibly can.
Topic: Productivity and Technical Change
18