A firm is making a long-run planning decision. It wants to decide on the optimal size of plant and labor force. It is considering building a medium-sized plant and hiring 100 workers. Engineering estimates suggest that at those levels, the marginal product of capital will be 100 and the marginal product of labor will be […]
The certainty equivalent approach to accounting for risk in capital budgeting involves A) adjusting the discount rate used to calculate net present values. B) adjusting the expected cash flows. C) estimating the coefficient of variation. D) estimating the standard deviation of the net present values. ANSWER B
The above figure shows the short run cost curves for a typical firm in a competitive market. If price = 4, then the firm A) is earning positive profits. B) should produce 35 units. C) should shut down. D) None of above. ANSWER C
For each of the following functions, describe returns to scale. a. Q = K + L b. Q = K1/2L3/4 c. Q = K2L ANSWER a. Constant returns to scale. b. Decreasing returns to scale. c. Increasing returns to scale.
Which of the following is an example of risk in capital budgeting on a global basis? A) exchange rate changes B) tariff changes C) expropriation D) All of the above ANSWER D
The above figure shows the market for rice in Japan. S2 represents the domestic supply curve, and S1 represents the world supply curve. A $1 per unit tariff has the same effect on producer and consumer surplus as a quota of A) 10 units. B) 20 units. C) 30 units. D) 40 units. ANSWER […]
How would you choose to estimate a production function for a single plant? How would you choose to estimate a production function for a number of firms in an industry? Explain. What will be an ideal response? ANSWER Estimating a production function for a single plant generally uses time-series analysis, because it is possible […]
The risk adjusted discount rate A) is the sum of the risk-free rate and the risk premium. B) includes risk in the denominator of the present value calculation. C) includes risk in the numerator of the present value calculation. D) All of the above ANSWER D
What are the major issues that must be considered in measuring inputs for regression analysis of production functions? What will be an ideal response? ANSWER How is labor to be measured? Can it be measured in hours, and if not, how can the labor actually used in production be expressed? How are materials to […]
What does the expansion path represent? What will be an ideal response? ANSWER The expansion path represents the cost-minimizing choice of inputs, given constant input prices, for different levels of output.
