Chapter 5 Production - Custom Scholars
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# Chapter 5 Production

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
more
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
more
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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