econ

Exam 2 Questions – Ch 6–8

Exam 2 consists of 50 true/false questions.

Chapter 6

1. In the short run, the general form of the production function is Q = f(L).

2. In the short run, the only way firms can increase production is by hiring more workers.

3. In the long run, the only way firms can increase production is by utilizing more capital.

4. The amount of time represented by the “long run” varies across firms and industries.

5. In the short run, the total product of labor is equivalent to the output produced by the firm.

6. Even in the short run, the marginal product of labor depends on the amount of capital utilized by the firm.

7. If in the short run, increasing the labor force from 12 to 16 workers increases laptops produced from 150 to 182, the marginal product of labor is 32 laptops.

8. In the table below, which represents the number of laptops produced with the indicated number of workers and two assembly lines, the marginal product of the second worker is 11 laptops.

9. In the table below, which represents the number of laptops produced with the indicated number of workers and two assembly lines, the marginal product of the eighth worker is 8 laptops.

10. In the table below, which represents the number of laptops produced with the indicated number of workers and two assembly lines, the marginal product of labor begins to diminish with the fifth worker.

11. In the table below, which represents the number of laptops produced with the indicated number of workers and two assembly lines, the average product of labor begins to diminish with the sixth worker.

L Q

0 0

1 9

2 22

3 39

4 60

5 80

6 99

7 112

8 120

9 126

10 130

12.In the diagram below, A represents the maximum average product of labor.

13. In the diagram below, C represents the point at which the marginal product of labor begins to diminish.

14. In the diagram below, X must be on the MPL (not APL) curve, which crosses the APL curve at Y.

15. In the diagram below, the marginal product of labor is increasing with additional workers until point Y.

16. In the diagram below, X represents the maximum average product of labor.

17. In the diagram below, the total product of labor begins to decrease with additional workers at point Y.

18. The law of diminishing returns results from combining increasing amounts of a variable input with the same amount of a fixed input.

19. The law of diminishing returns implies that the marginal product of labor is always diminishing, regardless of how much labor is employed.

20. In the short run, capital is subject to the law of diminishing marginal returns.

21. In the long run, fixed inputs become variable (even before we’re all dead).

22. In the table below, which represents production levels using the indicated amounts of capital and labor, all output levels in the same color represent combinations of capital and labor that are on the same isoquant.

23. In the table below, which represents production levels using the indicated amounts of capital and labor, diminishing marginal returns still holds within a given row or column.

				L
		10	20	30	40	50
	1	200	360	500	600	680
	2	360	600	760	880	990
K	3	500	760	990	1,120	1,200
	4	600	880	1,120	1,300	1,360
	5	680	990	1,200	1,360	1,480

24. In the graph below, Q1 > Q2 > Q3.

25. In the graph below, the curved shape of the isoquants reflects diminishing marginal productivity of inputs.

26. The left graph below represents a fixed-proportions production function.

27. The right graph below represents perfect substitutability of capital & labor.

28.The production function Q = 3L + K indicates that a machine is perfectly substitutable with three workers.

29. The production function Q = 200 × min(L, 3K) indicates that exactly three workers are required to operate each machine utilized.

30. The production function Q = 200 × min(L, 3K) indicates that each machine utilized produces 200 units of output when operated by a sufficient number of workers.

31. If MPL = 2 and MPK = 9, MRTS = –2/9.

32. If MRTS = –4/3, then trading off four machines for three workers keeps output constant.

33. The slope of an isoquant at an input mix for which MPL = 3 and MPK = 5 is –5/3.

34. The MRTS between points (L, K) = (20, 4) and (30, 3) on the same isoquant is –1/10.

35. Along an isoquant that does not reflect perfect complementarity or substitutability of inputs, MRTS is constant.

36. For a Cobb-Douglas production function with APL = 6 and α = 0.5, MPL = 3.

37. For a Cobb-Douglas production function with MPK = 25 and β = 0.6, APL = 15.

38. MRTS = –K/L for any Cobb-Douglas production function with α = β.

39. For a Cobb-Douglas production function, when A doubles, MRTS doubles.

40. For a Cobb-Douglas production function, if α = 0.7 and β = 0.4, MRTS = –7/4 K/L.

41. For a Cobb-Douglas production function, if α = 0.2 and β = 0.6, MRTS = –1/4 K/L.

42. For a Cobb-Douglas production function, MRTS is always a function of K/L.

43. A production function exhibits constant returns to scale if increasing (or decreasing) the amount of all inputs used by a specific proportion raises (or lowers) output by the same proportion.

44. For production functions exhibiting increasing returns to scale, raising the amounts of both labor and capital used by 50% raises output by more than 50%.

45. For production functions exhibiting decreasing returns to scale, reducing the amounts of both labor and capital used by 50% reduces output by more than 50%.

46. Returns to scale tend to increase as production increases.

47. Returns to scale do not depend on α or β when production functions have inputs that are perfect complements or substitutes.

48. For Cobb-Douglas production functions, returns to scale do not depend on output level.

49. For Cobb-Douglas production functions, returns to scale are increasing when α > β, decreasing when α < β, and constant when α = β.

50. In the graph below, returns to scale are increasing whenever Q2 > Q1.

51.For the production function Q = A × f(L, K), increases in A affect the productivity of L and K by the same proportion.

52. Total factor productivity growth is reflected by outward shifts in isoquants.

Chapter 7

53. Cost minimization by firms is tantamount to finding the point on a specific isoquant that represents the lowest production costs.

54. Fixed cost represents the cost of capital in the short run.

55. In the short run, variable cost represents the cost of labor.

56. Capital owned by firms do not add to production costs, since no monetary outlay is required to acquire it.

57. The cost of entrepreneurial labor, i.e. not accounted for by wage payments, is the wage that would have been otherwise been earned by that labor.

58. If you attended the Penn St-Iowa football game, the value of staying for the second half was a direct function of the amount you paid for the game ticket.

59. In the short run, depreciation of capital owned by the firm is an opportunity cost that is relevant for production decisions.

60. In the long run, depreciation of capital owned by the firm is a sunk cost that is irrelevant for production decisions.

61. In the short run, once a target output level has been chosen, the amount of labor to use in production is predetermined because capital is fixed.

62. For the production function q = 8K0.5L0.5, if K = 16 in the short run, the labor demand function is L* = q2/128.

63. For the production function q = 8K0.5L0.5, if K = 16 in the short run, L* = 25 is the cost-minimizing number of workers to use for producing q = 160.

64. The long-run cost of producing any particular output level is at most the same as in the short run, since any level of capital, including that used in the short run, can be chosen in the long run.

65. For total cost of $500, w = $10, and r = $25, the labor intercept of the isocost line is 25 workers.

66. For total cost of $500, w = $10, and r = $25, the capital intercept of the isocost line is 20 machines.

67. For total cost of $500, w = $10, and r = $25, the slope of the isocost line is –2.5.

68. A decrease in w, with r unchanged, steepens the isocost line.

69. A decrease in r, with w unchanged, steepens the isocost line.

70. The isocost line tangent to a specific isoquant is the lowest isocost line that makes contact with that isoquant.

71. If w = $15 and r = $9, cost minimization requires that the input mix used in production satisfies MPL/MPK = 5/3.

72. If w = $15, r = $9, and MPL = MPK, minimizing production costs requires using more capital and less labor than currently.

73. If w = $12 and r = $18, any input mix that satisfies MPL/MPK = 2/3 will minimize the cost of producing a specific target output level.

74. If w = $12 and r = $18, and MPL/MPK = 1/2, minimizing production costs requires using more labor and less capital than currently.

75. Substituting labor for capital in production increases MPL.

76. Substituting labor for capital in production increases MPK.

77. For the production function q = 6K3/4L1/4 with w = $10 and r = $30, MPL/MPK = K/4L.

78. For the production function q = 6K3/4L1/4 with w = $10 and r = $30, long-run cost-minimization requires that MPL/MPK = 1/3.

79.For the production function q = 6K3/4L1/4 with w = $10 and r = $30, long-run cost-minimization requires that K* = 3L*.

80. For the production function q = 6K3/4L1/4 with w = $10 and r = $30, producing q = 420 at minimum cost requires that L* = 70.

81. For the production function q = 6K3/4L1/4 with w = $10 and r = $30, the capital demand function is K* = q/24.

82. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, MPL/MPK = 9K/L.

83. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, long-run cost-minimization requires that MPL/MPK = 9.

84. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, long-run cost-minimization requires that K* = (9/8)L*.

85. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, producing q = 168 at minimum cost requires that L* = 21.

86. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, producing q = 168 at minimum cost requires that K* = 63.

87. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, the labor demand function is L* = q/24.

88. For the production function q = 8K0.5L0.5 with w = $36 and r = $4, the cost function is C = 3q.

89. For a production function with inputs that are not perfect substitutes or complements, as w/r decreases, the cost-minimizing K*/L* increases.

90. For a Cobb-Douglas production function, as target output increases at the same w and r, the costminimizing K*/L* stays the same.

91. For any constant returns to scale Cobb-Douglas production function, the cost-minimizing input mix involves spending the same amount on labor & capital.

92. When inputs are perfectly complementary, the cost-minimizing K*/L* does not depend on w/r.

93. When inputs are perfectly substitutable, the cost-minimizing K*/L* does not depend on w/r.

94. For the production function q = 11 × min[2L, 3K], the labor demand function is L* = q/22.

95. For the production function q = 11 × min[2L, 3K], the capital demand function is L* = q/66.

96. For the production function q = 11 × min[2L, 3K], the cost-minimizing K*/L* = 3/2.

97. For the production function q = 2L + 3K, the input demand functions are L* = q/2 & K* = q/3.

98. For the production function q = 2L + 3K, the cost-minimizing K*/L* = 2/3.

99. A large increase in the minimum wage is likely to cause unemployment among low-skilled workers by steepening the isocost line.

100. A small increase in the minimum wage is unlikely to cause unemployment, even among lowskilled workers, because it might not actually alter the isocost line slope (i.e. actual wage costs).

Chapter 8

101. If C rises from $100 to $170 when Q increases from 12 to 17, MC = $10.

102. In the table below, for which FC = $420, TC = $620 when Q = 1.

103. In the table below, for which FC = $420, MC = $60 when Q = 2.

104. In the table below, for which FC = $420, AFC = $140 when Q = 3. 105. In the table below, for which FC = $420, AVC = $90 when Q = 4.

106. In the table below, for which FC = $420, ATC = $160 when Q = 6.

107. In the table below, for which FC = $420, MC is minimized at Q = 1.

108. In the table below, for which FC = $420, AVC is minimized at Q = 3.

109. In the table below, for which FC = $420, ATC is minimized at Q = 7.

Q VC

1 200

2 320

3 330

4 360

5 400

6 540

7 700

8 880

9 1,080

110. As firm output increases, MC falls whenever MPL is decreasing and rises whenever MPL is increasing.

111. As firm output increases, AFC is always rising.

112. As firm output increases, AVC falls when MC is declining and then starts to rise when MC begins to increase.

113. As firm output increases, ATC falls as long as it remains larger than MC and then starts to rise once MC surpasses it.

114. Both AVC and ATC reach their minimum values at their points of intersection with MC.

115. The LRTC curve represents the solution to the long-run cost minimization problem of the firm for every possible output level.

116. In the graph of the LRTC curve below, LRMC is decreasing until Q2 and increasing thereafter.

117. MC eventually has to increase as firm output rises, even in the long run.

118. In the diagram below, diseconomies of scale occur while LRAC is decreasing.

119. In the diagram below, diseconomies of scale occur once LRMC starts to increase.

120. In the diagram below, the minimum efficient scale occurs at the point of intersection between LRMC and LRAC.

121. The minimum efficient scale corresponds to any output level over which LRAC is constant.

122. The LRAC is a lower boundary of all possible short-run ATC curves.

123. Each short-run ATC curve is tangent to the LRAC at one quantity & above the LRAC for all other quantities.

124. Each point on the LRAC curve represents a different short-run ATC curve corresponding to the cost-minimizing level of capital used to produce that quantity.

125. Each point on the LRAC curve represents the minimum point of a different short-run ATC curve.

126. Economies of scope result from learning-by-doing.

127. Economies of scope result when producing one good lowers the cost of producing a different good.

128. Gibson guitars are an example of a good that, because of the different quality grades of wood harvested simultaneously, provides economies of scope.

129. LCD TVs are an example of a good for which, because of the different-sized glass panels produced simultaneously, production exhibits a learning curve.

130. A learning curve is simply the downward-sloping portion of the LRAC curve.

131. Learning curves and economies of scale are distinct but can be experienced simultaneously.

132. Streetcar production is subject to economies of scale.

133. Streetcar production is subject to economies of scope.

134. Streetcar production is subject to learning-by-doing.

135. Transportation cost advantages were one source of the learning curve for Oregon Iron Works.

136. Transportation cost differentials contributed significantly to the fate of Oregon Iron Works.