Ch 5 - The Production Process and Costs

Which of the following describes the maximum output that can be produced with a fixed set of inputs?

Production function

The ________ run is a period of time during which a manager can change all factors of production.

long

If, in the short run, capital is fixed and equal to K = 2A, what is the short-run production function?

Q = f(L) = F(K*, L)

Which of the following defines the maximum amount of output that can be produced with a given set of inputs?

total product

In a production function, the input that refers to machinery is called

capital

Marginal Product of Labor (MPL) is given by:

MPL = ΔQ/ΔL

Which of the following describes the maximum output that can be produced with a fixed set of inputs?

Q = F{K,L}, where K is capital and L is labor

The ________ run is a period of time during which at least one factor of production is fixed.

short

If a worker's marginal product of labor (MPL) equals 115 and the firm sells its product for $6.00, what is the value marginal product of labor (VMPL)?

VMPL =

$690

Which of the following is a scheme used by managers to ensure maximum worker effort?

incentive structures

If the cost of each additional unit of labor is w, a firm will employ additional workers until _____________________ in the range of diminishing marginal product

VMPL= w

The MPL of the 5th worker is 9 units, the MPL of the 6th worker is 7 units and the MPL of the 7th worker is 4 units. This is an example of which of the following?

Decreasing marginal returns

Suppose the linear production function of a firm is given by Q = F(K, L) = aK + bL, where a and b are constants. Suppose it takes workers (L) 4 hours to produce what a machine (K) can make in 1 hour. Which of the following equations correctly states the production function of the firm?

Q = 4K +L

In the production process, the manager must do which of the following?

- Ensure the firm operates on the production function

- Establish the correct level of inputs

A firm that always employs two workers for each unit of capital follows which type of production function?

Leontief

The downward-sloping portion of the VMPL defines the demand for __________ by a profit maximizing firm. It slopes downward due to ___________.

labor; diminishing marginal returns

A production function that assumes that inputs are relatively substitutable is called a ______.

Cobb-Douglas production function

Jack operates a small, farm-to-table, organic rice packaging plant. Jack hired another employee and saw output fall from 300 to 297 boxes of rice per day. What is this an example of?

Negative marginal returns

Suppose the linear production function for a firm is given by:Q = F(K,L,) = 3K + 2L.If the firm employs 3 machines and 5 workers, output is equal to

19

What is the marginal product of capital (MPK) for the following Cobb-Douglas production function?

Q = F(K, L) = KαLβ

αKα-1Lβ

What is another name for the Leontief production function?

Fixed proportions production function

Which of the following is a Cobb-Douglas production function?

Q = F(K,L) = Kα Lβ

Q = F(K,L) = K0.25L0.75

What is the marginal product of capital (MPK) for the following linear production function?

Q = F(K,L) = αK + βL

α

What must be true about combinations of labor and capital along a given isoquant?

They all must produce the same amount of output

What is the term given to the ratio of the marginal products of labor and capital?

Marginal rate of technical substitution

What is the analytical tool that defines a combination of inputs that yields the same output?

Isoquant

When inputs are somewhat substitutable,

- isoquants are somewhere in between Leontief and linear.

- the rate at which the manager can substitute among inputs changes along an isoquant.

For a linear production function, Q = αK + βL, what is the marginal rate of technical substitution (MRTS)?

β/α

A line that represents the combinations of inputs that will cost the producer the same amount of money is called a(n)_____.

isocost line

According to the law of diminishing marginal rate of technical substitution, as a producer uses __________ of an input, ___________ of the other input must be used to achieve the same level of output.

less; more

Which of the following represents an isocost line?

C = wL + rK

To minimize the cost of producing a given level of output, the marginal product per dollar spent should be _______ for all inputs.

equal

Suppose capital, K, is on the vertical axis and labor, L, is on the horizontal axis in a graph. Which of the following would be true if the price of labor, w, increased?

The isocost line rotates clockwise

Costs that do not change when output changes are called

fixed

To minimize the cost of producing a given level of output, the marginal product per dollar spent should be _____ for all inputs.

identical

The sum of all variable and fixed costs is the firm's _____.

cost function

Which of the following production functions imply isoquants that have a diminishing marginal rate of technical substitution?

Cobb-Douglas

Graphically, what is the distance between total cost (TC) and variable cost (VC)?

fixed cost

When average total cost (ATC) is at its minimum, marginal cost (MC) __________ average total cost (ATC).

equals

What happens to average fixed cost (AFC) as output declines?

AFC increases

The difference between average total cost (ATC) and average variable cost (AVC) is average __________ cost.

fixed