As opposed to general equilibrium analysis, partial equilibrium analysis looks A) at an equilibrium and changes to it in a single, isolated market. B) at how changes in all other markets effect a particular market. C) at how equilibrium is determined in all markets simultaneously. D) at either price or quantity movements. ANSWER A […]
Johnny has worked as a CPA for five years and wants to open his own public accounting practice. The cost of his college degree in accounting represents A) the opportunity cost of this endeavor. B) a sunk cost. C) an expense. D) a variable cost. ANSWER B
Suppose the production function for a certain device is q = L + 2K. If a 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 = 2L + 4K D) All of the […]
A firm can experience increasing, constant and decreasing returns to scale for various levels of output. Indicate whether the statement is true or false ANSWER True . As output increases a firm can experience all types of returns to scale.
In the food and kindred products industry, it is estimated that the elasticity of output with respect to labor is 0.43 and the elasticity of output with respect to capital is 0.48. These two measures indicate that the primary metals industry is characterized by A) decreasing returns to scale. B) constant returns to scale. C) […]
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 […]
Suppose the production function for T-shirts can be represented as q = L0.25K0.75. Show that the production function has constant returns to scale. What will be an ideal response? ANSWER When L = L1 and K = K1, q = q1. Let L2 = m ∗ L1 and K2 = m ∗ K1 so […]
If a farmer produces 1000 bushels of corn using ten acres of land and one tractor and is able to produce 2000 bushels of corn using twenty acres of land and one tractor, the farmer has A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) no returns to […]
How much do outputs increase when labor and capital increase from 1 to 2 units for the following production function , q = 10L0.5K0.3? A) 7.4 units B) 7 units C) 8 units D) None of the above. ANSWER A
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
