Suppose the production of mp3 players can be represented by the following production function: q = L0.4K0.4. 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. D) 1.6 q1. ANSWER B
In the Primary Metals industry, it is estimated that the elasticity of output with respect to labor is 0.51 and the elasticity of output with respect to capital is 0.73. These two measures indicate that the primary metals industry is characterized by A) decreasing returns to scale. B) constant returns to scale. C) increasing returns […]
Does this production function, q = 10L0.5K0.3, experience increasing, decreasing or constant returns to scale? A) Decreasing because a 100% increase in inputs increases outputs by 80%. B) Increasing because an 80% increase in inputs increases outputs by 100%. C) Decreasing because 0.5 + 0.3 < 1. D) A and C. ANSWER D
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) […]
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
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
What is the MRTS for a firm with the following production function, q = 10L0.5K0.3? A) MRTS = 5K/3L B) The firm will substitute a constant 3 units of capital for 5 units of labor. C) The MRTS does not exist because labor and capital are perfect complements. D) None of the above. ANSWER […]
How much labor does a firm require to produce q = 1000 when capital is fixed at 5 and they have a production function equal to q = 200L0.5K0.5? A) L = 5 B) L = 2.5 C) L = 200 D) L = 2.25 ANSWER A
How much capital does a firm require to produce q = 3200 when labor is 4 and they have a production function equal to q = 200L0.5K0.5? A) K = 64 B) K = 8 C) K = 16 D) K = 25 ANSWER A