Chapter 5 Production

Q: Scale:

the levels of all the firms inputs

question

What is a firms production function?

answer

A function showing the maximum output the firm can produce for any combination of inputs

question

Short Run

answer

A period of time in which the amount of one or more of the inputs cannot be changed

question

Long run

answer

A period of time sufficiently long to allow the firm to vary all of its inputs

question

Fixed inputs

answer

Inputs that cannot be changed in the short run

question

Variable inputs

answer

inputs the manager can adjust to alter production

question

Total Product

answer

total output by using units of inputs

question

marginal product

answer

is the additional output produced by an additional unit of an input, holding other inputs fixed

question

The law of Diminishing marginal returns

answer

Principle that says as the use of an input increases with other inputs fixed, a point will be reached beyond which total product will increase at a decreasing rate.

question

When the MP of labor is positive, then the total output

answer

increases

question

When the MP of labor is zero then the total output

answer

reaches maximum

question

Optimal use of one input

answer

Deciding how many workers hire is often a primary function for a manager

question

If MRPl> MCl, the firm should hire

answer

question

IF MRPL<MCL, the firm should hire

answer

less

question

Production in the long run

answer

all inputs are variable

question

Scale:

answer

the levels of all the firms inputs

question

A chance in scale:

answer

a given percentage change in all inputs

question

Returns to scale:

answer

the percentage change in output resulting from a given percentage change in inputs

question

increasing returns to scale

answer

a given % change in all inputs results in a greater % chance in output

question

constant returns to scale

answer

a given % change in all inputs results in an equal % change in output

question

decreasing returns

answer

a given % change in all inputs results in a smaller % change in output

question

Output Elasticity

answer

A measure of the responsiveness of output to the change in all inputs

question

For increasing returns to scale, the output elasticity is

answer

greater than one

question

For constant returns to scale, the output elasticity is

answer

equal to one

question

For decreasing returns to scale, the output elasticity is

answer

less than one.

question

Variables inputs are defined as any resource that:

answer

can be changed as output changes

question

In the short run, is it possible for a firm to change inputs?

answer

Not completely, one or more inputs are fixed

question

The law of diminishing returns occurs with each additional unit of a variable input when:

answer

marginal product of the variable input begins to decline

question

Marginal revenue product of labor (MRPl) is defined as

answer

change in total revenue divides by change in labor

question

If marginal labor cost> marginal revenue product of labor, then the firm:

answer

should hire less labor

question

If a + b >1

answer

increasing returns to sales

question

If a + b = 1

answer

constant returns to scale

question

Optimal Input Combination Rule

answer

1. The Ratios of marginal products to input costs much equal across all inputs
and
2. total expenditure of using L and K must equal to total budget

question

True or False : If the objective of the firm is to maximize profit, the firm must balance input productivity and input cost

answer

True

1 of 33

question

What is a firms production function?

answer

A function showing the maximum output the firm can produce for any combination of inputs

question

Short Run

answer

A period of time in which the amount of one or more of the inputs cannot be changed

question

Long run

answer

A period of time sufficiently long to allow the firm to vary all of its inputs

question

Fixed inputs

answer

Inputs that cannot be changed in the short run

question

Variable inputs

answer

inputs the manager can adjust to alter production

question

Total Product

answer

total output by using units of inputs

question

marginal product

answer

is the additional output produced by an additional unit of an input, holding other inputs fixed

question

The law of Diminishing marginal returns

answer

Principle that says as the use of an input increases with other inputs fixed, a point will be reached beyond which total product will increase at a decreasing rate.

question

When the MP of labor is positive, then the total output

answer

increases

question

When the MP of labor is zero then the total output

answer

reaches maximum

question

Optimal use of one input

answer

Deciding how many workers hire is often a primary function for a manager

question

If MRPl> MCl, the firm should hire

answer

question

IF MRPL<MCL, the firm should hire

answer

less

question

Production in the long run

answer

all inputs are variable

question

Scale:

answer

the levels of all the firms inputs

question

A chance in scale:

answer

a given percentage change in all inputs

question

Returns to scale:

answer

the percentage change in output resulting from a given percentage change in inputs

question

increasing returns to scale

answer

a given % change in all inputs results in a greater % chance in output

question

constant returns to scale

answer

a given % change in all inputs results in an equal % change in output

question

decreasing returns

answer

a given % change in all inputs results in a smaller % change in output

question

Output Elasticity

answer

A measure of the responsiveness of output to the change in all inputs

question

For increasing returns to scale, the output elasticity is

answer

greater than one

question

For constant returns to scale, the output elasticity is

answer

equal to one

question

For decreasing returns to scale, the output elasticity is

answer

less than one.

question

Variables inputs are defined as any resource that:

answer

can be changed as output changes

question

In the short run, is it possible for a firm to change inputs?

answer

Not completely, one or more inputs are fixed

question

The law of diminishing returns occurs with each additional unit of a variable input when:

answer

marginal product of the variable input begins to decline

question

Marginal revenue product of labor (MRPl) is defined as

answer

change in total revenue divides by change in labor

question

If marginal labor cost> marginal revenue product of labor, then the firm:

answer

should hire less labor

question

If a + b >1

answer

increasing returns to sales

question

If a + b = 1

answer

constant returns to scale

question

Optimal Input Combination Rule

answer

1. The Ratios of marginal products to input costs much equal across all inputs
and
2. total expenditure of using L and K must equal to total budget

question

True or False : If the objective of the firm is to maximize profit, the firm must balance input productivity and input cost

answer

True

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Chapter 5 Production

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