Managerial Economics Applications Strategy And Tactics 12th Edition by James R. McGuigan – Test Bank

Managerial Economics Applications Strategy And Tactics 12th Edition by James R. McGuigan – Test Bank

Chapter 7—Production Economics

MULTIPLE CHOICE

1. What’s true about both the short-run and long-run in terms of production and cost analysis?
a. In the short-run, one or more of the resources are fixed
b. In the long-run, all the factors are variable
c. The time horizon determines whether or not an input variable is fixed or not
d. The law of diminishing returns is based in part on some factors of production being fixed, as they are in the short run.
e. All of the above

ANS: E PTS: 1

2. The marginal product is defined as:
a. The ratio of total output to the amount of the variable input used in producing the output
b. The incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. The percentage change in output resulting from a given percentage change in the amount
d. The amount of fixed cost involved.
e. None of the above

ANS: B PTS: 1

3. Fill in the missing data to solve this problem.

Variable Total Average Marginal
Input Product Product Product
4 ? 70 —-
5 ? ? 40
6 350 ? ?
What is the total product for 5 units of input, and what is the marginal product for 6 units of input?
a. 320 and 30
b. 350 and 20
c. 360 and 15
d. 400 and 10
e. 430 and 8

ANS: A PTS: 1

4. The following is a Cobb-Douglas production function: Q = 1.75K0.5∙L0.5. What is correct here?
a. A one-percent change in L will cause Q to change by one percent
b. A one-percent change in K will cause Q to change by two percent
c. This production function displays increasing returns to scale
d. This production function displays constant returns to scale
e. This production function displays decreasing returns to scale

ANS: D PTS: 1
5. Suppose you have a Cobb-Douglas function with a capital elasticity of output (α) of 0.28 and a labor elasticity of output (β) of 0.84. What statement is correct?
a. There are increasing returns to scale
b. If the amount of labor input (L) is increased by 1%, the output will increase by 0.84%
c. If the amount of capital input (K) is decreased by 1%, the output will decrease by 0.28%
d. The sum of the exponents in the Cobb-Douglas function is 1.12.
e. All of the above

ANS: E PTS: 1

6. The Cobb-Douglas production function is: Q = 1.4*L0.6*K0.5. What would be the percentage change in output (%∆Q) if labor grows by 3.0% and capital is cut by 5.0%?
[HINT: %∆Q = (EL * %∆L) + (EK * %∆K)]
a. %∆Q = + 3.0%
b. %∆Q = + 5.0%
c. %∆Q = – 0.70%
d. %∆Q = – 2.50%
e. %∆Q = – 5.0%

ANS: C PTS: 1

7. If the marginal product of labor is 100 and the price of labor is 10, while the marginal product of capital is 200 and the price of capital is $30, then what should the firm?
a. The firm should use relatively more capital
b. The firm should use relatively more labor
c. The firm should not make any changes – they are currently efficient
d. Using the Equimarginal Criterion, we can’t determine the firm’s efficiency level
e. Both c and d

ANS: B PTS: 1

8. The marginal rate of technical substitution may be defined as all of the following except:
a. the rate at which one input may be substituted for another input in the production process, while total output remains constant
b. equal to the negative slope of the isoquant at any point on the isoquant
c. the rate at which all combinations of inputs have equal total costs
d. equal to the ratio of the marginal products of X and Y
e. b and c

ANS: C PTS: 1

9. The law of diminishing marginal returns:
a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. none of the above

ANS: D PTS: 1

10. The combinations of inputs costing a constant C dollars is called:
a. an isocost line
b. an isoquant curve
c. the MRTS
d. an isorevenue line
e. none of the above

ANS: A PTS: 1