Question

M6 In the short run, a firm should expand the use of a variable input until a. Its marginal product is zero. b. Its marginal revenue product is zero. c. Its marginal revenue product is at a maximum. d. Its marginal revenue product equals the input’s marginal cost. e. None of the above answers is correct. M7 Firm X sells output at P = $4 per unit and pays labor a wage of $20 per hour. The marginal product of labor is given by: MPL = 30 - .1L. The profit-maximizing quantity of labor is: a. L = 100 hours. b. L = 180 hours. c. L = 250 hours. d. L = 300 hours. e. L = 320 hours. M8 In the long run, do firms face trade-offs in how they produce? f. No, they have fully adjusted to all relevant factors; there are no more trade-offs. g. No, their options to modify production are limited. h. Yes, but the trade-offs only involve fixed inputs. i. Yes, because they have the maximum flexibility to trade off inputs. j. Yes, but only when there is a major change in technology. M9 In the long run, the firm produces a given level of output at least cost by a. Equating the ratios of marginal products to input prices across all inputs. b. Ensuring equality of marginal products across inputs. c. Using a greater proportion of the cheaper input. d. Intensively applying more and more labor to its fixed plant. e. None of these answers is correct. M10: Which of the following is likely to be a cause of increasing returns to scale? a. A change to production methods not feasible at low levels of output. b. Increased specialization of labor. c. A one-time fall in labor costs. d. Answers a and b are both correct. e. Answers a, b, and c are all correct. M11 Under constant returns to scale, a. A given percentage change in one input implies an equal change in total output. b. A given percentage change in all inputs implies constant marginal products for all inputs. c. A given percentage change in all inputs causes an equal percentage change in output. d. The production function varies linearly with all inputs. e. A constant level of output is achieved with various combinations of inputs. M12 In the long-run, a profit-maximizing firm produces such that a. The marginal products of all inputs are zero. b. The ratios of marginal products to input prices are equal across all inputs. c. Each input’s marginal revenue product equals the input’s marginal cost. d. Marginal products are equal for all inputs. e. Both b and c are correct. M13 The slope of an isoquant is referred to as the a. Marginal efficiency of production. b. Marginal product of each input. c. Marginal rate of technical substitution. d. Marginal rate of factor efficiency. e. Ratio of input prices.

Answer 1

6) Solution: its marginal revenue product equals the input's marginal cost

Explanation: In the short run, the appropriate optimality condition is: MRP P MP_{L = MC}

7) Solution: L=250

Explanation: P·MPL = MC; thus 4(30 - .1L) = 20. It gives L = 250 hours

8) Solution: Yes, because they have the maximum flexibility to trade off inputs

Explanation: The firms face trade-offs in the long run in how they produce

9) Solution: Equating the ratios of marginal products to input prices across all inputs.

Explanation: The firm in the long run produces a given level of output at least cost by equating the ratios of marginal products with the prices of input across all inputs

10) Solution: Answers a and b are both correct

Explanation: A production methods change is not feasible at low levels of output. Also increased specialization of labor results to increasing returns to scale

11) Solution: A given percentage change in all inputs causes an equal percentage change in output.

Explanation: Under constant returns to scale a percentage change in all inputs results to a similar percentage change in output.

12) Solution: Both b and c are correct

Explanation: During the long run, P·MPL = MC; thus it gives MPL/PL = MPK/PK

13) Solution: Marginal rate of technical substitution

Explanation: The isoquant slope is also known as marginal rate of technical substitution