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Chapter 4 Production Theory
MULTIPLE CHOICE
1. A production function is a table, a graph, or an equation showing the:
a.
least-cost method of producing output
b.
optimal combination of inputs
c.
maximum output that can be achieved from specified levels of inputs
d.
combinations of inputs that can be produced with equal costs
e.
optimal production technology that a firm should employ
2. When total product is at its maximum:
a.
average product is greater than marginal product
b.
average product is maximized
c.
average product equals marginal product
d.
marginal product equals 1
e.
average product equals 1
3. The average product of labor is defined as the:
a.
change in output divided by the change in labor input usage
b.
change in labor input usage divided by the change in output
c.
output divided by the labor input usage
d.
labor input usage divided by the output level
e.
output divided by the marginal product of labor
4. The marginal product of labor is defined by the:
a.
change in output divided by the change in labor input usage
b.
change in labor input usage divided by the change in output
c.
output divided by the labor input usage
d.
labor input usage divided by the output level
e.
output divided by the marginal product of labor
5. The marginal product of labor can be illustrated geometrically as the:
a.
slope of the total product curve with respect to labor
b.
slope of the total product curve with respect to capital
c.
slope of a chord from the origin out to the total product curve at the specified level
of labor
d.
inverse of the slope of a chord from the origin out to the total product curve at the
specified level of labor
e.
slope of the total product curve with respect to labor divided by the slope of the
total product curve with respect to capital
6. The average product of labor can be illustrated geometrically as the:
a.
slope of the total product curve with respect to labor
b.
slope of the total product curve with respect to capital
c.
slope of a chord from the origin out to the total product curve at the specified level
of labor
d.
inverse of the slope of a chord from the origin out to the total product curve at the
specified level of labor
e.
slope of the total product curve with respect to labor divided by the slope of the
total product curve with respect to capital
7. In the table below, the average product of labor at L = 10 is:
a.
−5
b.
0.5
c.
2
d.
3
e.
−1
8. In the table below, the average product of labor at L = 3 is:
a.
5
b.
8
c.
0.2
d.
2
e.
3
9. In the table below, the average product of labor at L = 6 is:
a.
8
b.
4
c.
6
d.
12
e.
3
10. In the table below, the marginal product of labor at L = 6 is:
a.
3
b.
2
c.
5
d.
4
e.
1
11. In the table below, the marginal product of labor at L = 4 is:
a.
7
b.
11
c.
17
d.
16
e.
6
12. In the table below, the marginal product of labor at L = 10 is:
a.
0.3
b.
3.33
c.
7
d.
4
e.
3
13. Whenever marginal product is positive and declining with increasing use of an input:
a.
total product is declining as input use increases
b.
average product is declining as input use increases
c.
marginal product is greater than average product
d.
marginal product is less than average product
e.
total product is increasing at a decreasing rate as input use increases
14. Whenever marginal product is increasing with increasing use of an input:
a.
total product is increasing at a decreasing rate
b.
total product is increasing at an increasing rate
c.
marginal product is less than average product
d.
average product is decreasing
e.
total product is declining as input use increases
15. When average product is at a maximum, marginal product is:
a.
zero
b.
increasing
c.
equal to average product
d.
greater than average product
e.
less than average product
16. Whenever average product is declining with increases in input usage:
a.
marginal product is less than average product
b.
total product is declining with increases in input
c.
total product is increasing with increases in input
d.
marginal product is greater than average product
e.
total product is at a maximum
17. The law of diminishing marginal returns states that:
a.
the marginal product of labor declines as all inputs are increased
b.
production functions exhibit decreasing returns to scale
c.
the marginal product of labor returns as more capital is used
d.
the marginal product of a factor eventually diminishes as more of the input is used,
holding other inputs fixed
e.
the marginal product of a factor always diminishes as more of the input is used,
holding other inputs fixed
18. Diminishing marginal returns:
a.
imply decreasing returns to scale
b.
occur at all combinations of input usage
c.
occur only for labor
d.
are consistent with increasing returns to scale
e.
are inconsistent with increasing returns to scale
19. The condition describing the profit-maximizing level of factor X is:
a.
MRPx = MEx
b.
MPx = Px
c.
MPx /Px = Poutput
d.
MPx /Poutput = Px
e.
MEx = Px
20. The optimal combination of two inputs, K and L, can be characterized by:
a.
PKMPK = PLMPL
b.
MPK = MPL
c.
PLMPK = PKMPL
d.
MPK /MPL = PL /PK
e.
none of the above
21. Output is produced according to Q = 4L + 6K, where L is the quantity of labor input and K is
the quantity of capital input. If the price of K is $12 and the price of L is $6, then the cost
minimizing combination of K and L capable of producing 60 units of output is:
a.
L = 5 and K = 6.66
b.
L = 7.5 and K = 5
c.
L = 6 and K = 6
d.
L = 0 and K = 10
e.
L = 15 and K = 0
22. Output is produced according to Q = 4LK, where L is the quantity of labor input and K is the
quantity of capital input. If the price of K is $10 and the price of L is $5, then the cost
minimizing combination of K and L capable of producing 32 units of output is:
a.
L = 8 and K = 1
b.
L = 4 and K = 2
c.
L = 2 and K = 2
d.
L = 2 and K = 4
e.
L = 1 and K = 8
23. Happiness can be produced with wine and roses according to Q = W1/2R1/4, where W is
bottles of wine and R is bouquets of roses obtained per month. If wine costs $20 per bottle
and roses cost $60 per dozen, the happiness-maximizing combination of wine and roses
costing $360 in total is:
a.
W = 18 bottles, R = 0 bouquets
b.
W = 15 bottles, R = 1 bouquets
c.
W = 12 bottles, R = 2 bouquets
d.
W = 9 bottles, R = 3 bouquets
e.
W = 6 bottles, R = 4 bouquets
24. If rice can be produced using water and seed according to Q = WS, where water, W, costs $3
and seed, S, costs $3, what is the cost minimizing combination of water and seed capable of
producing 144 units of rice?
a.
W = 64, S = 0
b.
W = 0, S = 64
c.
W = 1, S = 64
d.
W = 8, S = 8
e.
W = 12, S = 12
25. An isoquant represents combinations of inputs that:
a.
produce the same level of output
b.
produce increasing amounts of output
c.
minimize costs
d.
maximize output
e.
create wealth
26. Isoquants usually slope downward (from left to right) because:
a.
marginal products are usually positive
b.
marginal products are always positive
c.
marginal products will eventually decrease
d.
marginal products are always increasing
e.
average products are usually less than marginal products
27. The marginal rate of technical substitution between two inputs:
a.
shows the rate at which one input can be traded for another, holding output
constant
b.
shows the efficient combination of inputs
c.
increases as we move down an isoquant
d.
shows the rate at which output can be increased by using more of both inputs
e.
shows the rate at which output decreases when using less of one of the inputs
28. The marginal rate of technical substitution is defined by:
a.
MRTS1,2 = MP1 /MP2
b.
MRTS1,2 = MP1MP2
c.
MRTS1,2 = MP1/P1
d.
MRTS1,2 = P1/P2
e.
MRTS1,2 = MP2/P2
29. Lines that separate the economically relevant portion of an isoquant map from the irrelevant
portion are:
a.
isocost lines
b.
ridge lines
c.
opportunity lines
d.
relevance lines
e.
budget lines
30. If labor is on the vertical axis and capital is on the horizontal axis, the slope of an isocost
line is given by:
a.
−PL /PK
b.
−PK /PL
c.
−PKPL
d.
−MPL /MPK
e.
−MPK /MPL
31. Lines that represent bundles of inputs that cost the same total amount are called:
a.
total cost curves
b.
isocost curves
c.
cost curves
d.
isoquants
e.
isoprofit curves
32. Increasing returns to scale:
a.
occur only where marginal returns are increasing
b.
cannot occur if all inputs have diminishing returns
c.
imply imperfect capital market returns
d.
result from just-in-time production
e.
are consistent with diminishing marginal returns by all inputs
33. If output is produced according to Q = 3K + 4L, then this production process exhibits:
a.
increasing returns to scale
b.
decreasing returns to scale
c.
first increasing and then decreasing returns to scale
d.
constant returns to scale
e.
first decreasing and then increasing returns to scale
34. If output is produced according to Q = K1/2 + 3L1/2, then this production process exhibits:
a.
increasing returns to scale
b.
decreasing returns to scale
c.
first increasing and then decreasing returns to scale
d.
constant returns to scale
e.
first decreasing and then increasing returns to scale
35. If output is produced according to Q = (KL)3/4, then this production process exhibits:
a.
increasing returns to scale
b.
decreasing returns to scale
c.
first increasing and then decreasing returns to scale
d.
constant returns to scale
e.
first decreasing and then increasing returns to scale
36. Output elasticity can be defined as the:
a.
percentage change in output divided by the (equal) percentage change in all inputs
b.
change in output divided by the change in all inputs
c.
change in inputs divided by the change in output
d.
change in output divided by the change in one input
e.
percentage change in output divided by the (average) percentage change in all
inputs
37. If output is produced according to Q = 30L + 12K, then the output elasticity is:
a.
2
b.
0
c.
1
d.
0.5
e.
21
38. Cast-Steel Chairs produces office chairs using steel and labor with Q = 1/2L0.4 S0.6. If labor
costs $10 per hour and steel costs $60 per unit, what is the optimal combination of labor and
steel if Cast-Steel’s budget is $10,000?
a.
S = 75 units, L = 550 hours
b.
S = 0 units, L = 1,000 hours
c.
S = 25 units, L = 850 hours
d.
S = 50 units, L = 700 hours
e.
S = 100 units, L = 400 hours
39. If you have used the Lagrangian technique to determine the output maximizing combination
of inputs for a fixed total expenditure on inputs, then the Lagrangian multiplier can be
interpreted as the:
a.
inverse of the marginal product of the most productive input
b.
inverse of the marginal cost of producing one more unit
c.
marginal product of the most productive input
d.
marginal cost of producing one more unit
e.
marginal product of the most productive input multiplied by marginal cost
40. If you have used the Lagrangian technique to determine the cost minimizing combination of
inputs capable of producing a given output, then the Lagrangian multiplier can be
interpreted as the:
a.
inverse of the marginal product of the most productive input
b.
inverse of the marginal cost of producing one more unit
c.
marginal product of the most productive input
d.
marginal cost of producing one more unit
e.
marginal product of the most productive input multiplied by marginal cost
41. If output is produced according to Q = 4K1/2L1/2, the price of K is $3, and the price of L is
$1, then the marginal cost of output at the optimal input combination that costs $120 in total
is:
a.
$0.5(3)1/2
b.
$0.5
c.
$3
d.
$0.3
e.
$0.15
42. If output is produced according to Q = 12K1/2L1/2, the price of K is $2, the price of labor, L,
is $2, and the price of Q is $100, the marginal profit at the optimal combination of inputs
that cost $100 is:
a.
$99.67
b.
$299
c.
$598
d.
$0
e.
$597
43. George’s shoe store buys and sells shoes in pairs. If George’s isoquants are drawn with
quantity of right shoes on the vertical axis and quantity of left shoes on the horizontal axis,
what do they look like? They are:
a.
curves that get flatter as the number of left shoes increases
b.
curves that get steeper as the number of left shoes increases
c.
straight lines that have a negative slope
d.
L-shaped
e.
horizontal straight lines
44. The law of diminishing marginal returns is obvious because, if it didn’t hold, it would be
possible to:
a.
feed everyone in the world by intensively cultivating one acre of land
b.
manufacture all of the cars in the world using just one of the world’s existing
factories
c.
increase total output of a product without employing additional inputs
d.
all of the above
e.
answers a and b, but not c
45. Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 30
employees and served 120 customers. This year, it had 35 employees and served 135
customers. What is the marginal product of labor?
a.
2
b.
3
c.
4
d.
5
e.
none of the above
46. Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 30
employees and served 120 customers. This year, it had 35 employees and served 135
customers. The average product of labor is at a maximum when the number of customers:
a.
is less then 120
b.
is equal to 120
c.
is between 120 and 135
d.
is equal to 135
e.
is greater than 135
47. Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 60
employees and served 120 customers. This year, it had 70 employees and served 140
customers. What is the marginal product of labor?
a.
2
b.
3
c.
4
d.
5
e.
none of the above
48. Hedge Fun is a landscaping firm that specializes in topiary. Last year, the firm had 60
employees and served 120 customers. This year, it had 70 employees and served 140
customers. The average product of labor is at a maximum when the number of customers is:
a.
less then 120
b.
equal to 120
c.
between 120 and 140
d.
equal to 140
e.
greater than 140
49. A straight line drawn from the origin is tangent to a short-run production function with only
one input, labor. At the quantity of labor where the tangency occurs:
a.
the average product of labor is at a maximum
b.
the marginal product of labor is at a maximum
c.
the marginal product of labor is increasing
d.
the average product of labor is increasing
e.
the total product of labor is at a maximum
50. An American economist visiting India observed that the roads were maintained by large
numbers of workers with picks and shovels and other hand tools, while the same work is
done in the United States by relatively small numbers of workers and mechanized devices.
He correctly concluded that the reason for this difference is that:
a.
production by Indian workers is not efficient
b.
workers in India are more productive than workers in the United States
c.
workers in the Unites States are paid more than Indian workers
d.
machinery that is used in the United States is not available in India
e.
none of the above
