Microeconomic Theory Exam 3 Conceptual Question - Custom Scholars
Order Now
Home » Flash Cards » Microeconomic Theory Exam 3 Conceptual Question

Microeconomic Theory Exam 3 Conceptual Question

question
What is a production function?
answer
a function showing the highest output a firm can produce for every specified level combination of inputs
question
How does a long-run production funtion differ from a short-run production function?
answer
In the short-run, one of the inputs is fixed, usually capital
question
Why is the marginal product of labor more likely to increase initially in the short run as more of the variable input is hired?
answer
The marginal product is likely to increase because when there are more workers, each is able to specialize on an aspect of the production process.
question
Why does production eventually experience diminishing marginal returns to labor in the short-run?
answer
The marginal product of labor will eventually dimishish because there will be at least one fixed factor of production, such as captial. With capital fixed, the workplace will eventually become so congested that the productivity of additional workers will decline. As more workers are added, they will need to share the fixed capital, which will cause the marginal product of labor to diminish as the capital is spread across too many workers.
question
You are an employer seeking to dill a vacant position on an assembly line. As you more concerned with the average product of labor or the marginal product of labor for the last person hired?

If you observe that your average product is beginning to decline, should you hire any more workers? What does this situation imply about the marginal product of your last worker hired?
answer
You should be more concerned with the marginal product of the last worker hired because the marginal product measures the effect on output of hiring another worker. This can help determine the revenue generated by hiring another worker, which can be compared to the cost of hiring another worker.

Where average product declines is where average product is equal to marginal product. When average product declines, the marginal product of the last worker hired is lower than the average product of previously hired workers. Although adding more workers results in a further decline of average product, total product continues to increase, so it may still be advantageous to hire another worker.
question
What is the difference between a production function and an isoquant?
answer
A production function describes the maximum output that can be achieved with any given combination of inputs. An isoquant indentifies all of the different combinations of the inputs that can be used to produce one particular level of output.
question
Faced with constantly changing conditions, why would a frim ever keep any factors of production fixed? What criteria determine whether a factor is fixed or variable?
answer
Whether a factor is fixed or not depends on the time horizon. All factors are fixed in the short-run and all factors are variable in the long-run. Some factors are fixed in the short-run whether the firm likes it or not because it takes time to adjust the level of the variables, such as factory space or employee contracts.
question
Isoquants can be convex, linear, or L-shaped. What does deach of these shapes tell you sbout the nature of the production function and the MRTS?
answer
Convex -
Imply that within some range, some number of units of one input can be substituted for a unit of the other input so that output is maintained at the same level. MRTS is diminishing as you move along the isoquant.

Linear -
Imply that the slope, or MRTS, is constant, meaning that the same number of units of one input can always be exchanged for a unit of the other input so that output is maintained.

L-Shaped -
Imply that the inputs are perfect complements, or that the firms is producing under a fixed level of technology. In this case, the firm cannot give up one input in exchange for the other and still maintain the same level of output.
question
What is the marginal rate of technical substitution (MRTS)?
answer
MRTS is the amount by which the quantity of one input can be reduced when the other input is increased by one unit, while maintaining the same level of input.
question
Explain why the marginal rate of technical substitution is likely to diminish as more and more labor is substituted for capital.
answer
As the quantities of the inputs are changed the marginal product of each input will change. As more and more labor is added, the marginal product of labor will diminish. Because capital has been reduced. each unit of campit is likely to be more productive. Thus, as more units of labor will be required to replace each unit of capital. Fewer units of capital need to be given upfor each unit of labor added to keep output constant.
question
Is it possible to have diminishing returns to a single factor of production and constant returns to scale at the same time?
answer
Yes -
Diminishing returns to a single factor occurs because all other inputs are fixed. Thus as more and more of the variable factor is used, the additions to output eventually decrease because there are no increases in the other factor. Returns to scale, on the other hand, deals with the increase in output when ALL factors are increased by the same proportion. While each factor of production exhibits diminishing returns, output may more than double, less than double, of exactly double when all factors are doubled.
question
Can a firm have a production function that exhibits increasing returns to scale, constant returns to scale, and decreasing returns to scal as output increases?
answer
Many firms have production funtions that exhibit first increasing, then constant, and ultimately decreasing returns to scale. At low levels of output, a proportional increase in all inputs may lead to a larger-than-proportional increase in output. As the firm grows, the opportunities for specialization may diminish, and the firm operates at peak efficiency. At some level of output, the firm will be so large that when inputs are doubles, output will less than double.
question
True or False:
a. If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.
b. A firm that has a positive accounting profit does not necessarily have positive economic profit.
c. If a firm hires a currently unemployed worker, the opportunity cost of utilizing the worker's services is zero.
answer
a. True - Since there is no monetary transation, there is no accounting cost. However, since the owner of the business could be employed elsewhere, there is an economic cost. The economic cost is positive, reflecting the opportunity cost of the owner's times and would be equal to the owner's time in his next best alternative.

b. True - Accounting profit only considers the monetary costs. Since there may be some opportunity costs that were not fully realized as explicit monetary costs, it is possible that when the opportunity costs are added in, economic profit will become negative.

c. False - From the firm's POV, the wage paid to the worker is an explicit cost. The firm's opportunity cost is equal to the wage because it could have hired someone else at the same wage. The opportunity cost from the worker's POV is the value of their time which is unlikely to be zero and is equal to the worker's next best alternative.
question
Why are isocost lines straight lines?
answer
The isocost line represents all possible combinations of two inputs that may be purchased for a given total cost. The slope of the isocost line is the negative ratio of the input prices. If the input prices are fixed, their ratio is constant and the isocost line is therefore straight. Only if the ratio of the input prices changes as the quantities change is the isocost line not straight.
question
Assime that the marginal cost of production is increasing. Can you determine whether the average variable cost is increasing or decreasing?
answer
No -
When the marginal cost is increasing, the average cost can either be increasing or decreasing
question
Assume that the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?
answer
Yes -
The average variable cost is increasing. If marginal cost is above average cost, each additional unit costs more to produce than the average of the previous units, so the average variable cost is pulled upward.
question
If the firm's average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?
answer
Because average total cost is equal to average fixed cost plus average variable cost.
question
If a firm enjoys economies of scale up to a certain output level, the cost then increases proportionately with output, what can you say about the shape of the long-run average cost curve?
answer
When a firm experiences economics of scale, its long-run average cost curve is downward sloping. When costs increase proportionately with output, the firm's long-run average cost curve is horizontal. So this firm's long-run average cost curve has a rounded L-shape; first it falls the it becomes horizontal as output increase.
question
As output increases, a firm notices that average productivity of labor decreases. At the same time, it will notice that average fixed costs _________.
answer
decreases
question
SRATC is typcially U-shaped because as output increases, AFC decreases, but _____ increases.
answer
AVC
question
When a small firm in my inductry produces at minimum SRATC, its cost per unit is equal to that of a much larger firm producing as its minimum SRATC. This is evidence that returns to scale are ________.
answer
constant
question
In the short-run, __________ is asumed to be the fixed input.
answer
capital
question
In the short-run, on the K L graph, the slope of the expansion path is ___________.
answer
horizontal
question
A line that connects all of the possible tangency points in the long-run is known as the _______________________________.
answer
long-run expansion path
question
If doubling all inputs results in tripling output, then the slop of the LRAC curve is ____________.
answer
decreasing
question
A business owner believes that toal cost is minimized if they set MPL=MPK figuring they are getting just as much additional output from a unit of capital as from a unit of labor. This is indeed cost minimizing only if __________.
answer
w=r
question
A business firm is paying 10 times as much for a unit of labor as they do for a unit of capital. If MPL=MPK, then, in the long-run, the firm should _____________ its capital-labor ratio.
answer
increase
question
Capital and labor are perfect substitues in a business firm's production process. If w=2 and r=1, a firm will employ only _________.
answer
capital
question
When the average product is decreasing, margianl product
answer
is less than average product
question
According to the law of diminishing returns
answer
the marginal product of an input will eventually decline
question
A firm uses two factors of production. Both factors always have positive marginal products which imply that
answer
isoquants have a negative slope
question
The marginal rate of technical substitution is equal to the
answer
ratio of the marginal products of the inputs
question
A straight-line isoquant would indicate that
answer
capital and labor are perfect substitutes in production
question
An L-shaped isoquant would indicate that
answer
capital and labor cannot be substituted for each other in production
question
Inceasing returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by a factor of more than x
question
Decreasing returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by a factor of less than x
question
Constant returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by the same factor of x
question
An isocost line reveals the
answer
input combinations that can be purchased with a given outlay of funds
question
When an isocost line is just tangent to an isoquant, then
answer
output is being produced at minimum cost
question
A firm's long run expansion path is
answer
a curve that shows the last-cost combination of inputs needed to produce each level of output for given input prices
question
If a firm's MRTS is 3, this implies
answer
the marginal product of labor is three times the marginal product of capital
question
The short-run expansion path for this production system is
answer
a horizontal line
1 of 42
question
What is a production function?
answer
a function showing the highest output a firm can produce for every specified level combination of inputs
question
How does a long-run production funtion differ from a short-run production function?
answer
In the short-run, one of the inputs is fixed, usually capital
question
Why is the marginal product of labor more likely to increase initially in the short run as more of the variable input is hired?
answer
The marginal product is likely to increase because when there are more workers, each is able to specialize on an aspect of the production process.
question
Why does production eventually experience diminishing marginal returns to labor in the short-run?
answer
The marginal product of labor will eventually dimishish because there will be at least one fixed factor of production, such as captial. With capital fixed, the workplace will eventually become so congested that the productivity of additional workers will decline. As more workers are added, they will need to share the fixed capital, which will cause the marginal product of labor to diminish as the capital is spread across too many workers.
question
You are an employer seeking to dill a vacant position on an assembly line. As you more concerned with the average product of labor or the marginal product of labor for the last person hired?

If you observe that your average product is beginning to decline, should you hire any more workers? What does this situation imply about the marginal product of your last worker hired?
answer
You should be more concerned with the marginal product of the last worker hired because the marginal product measures the effect on output of hiring another worker. This can help determine the revenue generated by hiring another worker, which can be compared to the cost of hiring another worker.

Where average product declines is where average product is equal to marginal product. When average product declines, the marginal product of the last worker hired is lower than the average product of previously hired workers. Although adding more workers results in a further decline of average product, total product continues to increase, so it may still be advantageous to hire another worker.
question
What is the difference between a production function and an isoquant?
answer
A production function describes the maximum output that can be achieved with any given combination of inputs. An isoquant indentifies all of the different combinations of the inputs that can be used to produce one particular level of output.
question
Faced with constantly changing conditions, why would a frim ever keep any factors of production fixed? What criteria determine whether a factor is fixed or variable?
answer
Whether a factor is fixed or not depends on the time horizon. All factors are fixed in the short-run and all factors are variable in the long-run. Some factors are fixed in the short-run whether the firm likes it or not because it takes time to adjust the level of the variables, such as factory space or employee contracts.
question
Isoquants can be convex, linear, or L-shaped. What does deach of these shapes tell you sbout the nature of the production function and the MRTS?
answer
Convex -
Imply that within some range, some number of units of one input can be substituted for a unit of the other input so that output is maintained at the same level. MRTS is diminishing as you move along the isoquant.

Linear -
Imply that the slope, or MRTS, is constant, meaning that the same number of units of one input can always be exchanged for a unit of the other input so that output is maintained.

L-Shaped -
Imply that the inputs are perfect complements, or that the firms is producing under a fixed level of technology. In this case, the firm cannot give up one input in exchange for the other and still maintain the same level of output.
question
What is the marginal rate of technical substitution (MRTS)?
answer
MRTS is the amount by which the quantity of one input can be reduced when the other input is increased by one unit, while maintaining the same level of input.
question
Explain why the marginal rate of technical substitution is likely to diminish as more and more labor is substituted for capital.
answer
As the quantities of the inputs are changed the marginal product of each input will change. As more and more labor is added, the marginal product of labor will diminish. Because capital has been reduced. each unit of campit is likely to be more productive. Thus, as more units of labor will be required to replace each unit of capital. Fewer units of capital need to be given upfor each unit of labor added to keep output constant.
question
Is it possible to have diminishing returns to a single factor of production and constant returns to scale at the same time?
answer
Yes -
Diminishing returns to a single factor occurs because all other inputs are fixed. Thus as more and more of the variable factor is used, the additions to output eventually decrease because there are no increases in the other factor. Returns to scale, on the other hand, deals with the increase in output when ALL factors are increased by the same proportion. While each factor of production exhibits diminishing returns, output may more than double, less than double, of exactly double when all factors are doubled.
question
Can a firm have a production function that exhibits increasing returns to scale, constant returns to scale, and decreasing returns to scal as output increases?
answer
Many firms have production funtions that exhibit first increasing, then constant, and ultimately decreasing returns to scale. At low levels of output, a proportional increase in all inputs may lead to a larger-than-proportional increase in output. As the firm grows, the opportunities for specialization may diminish, and the firm operates at peak efficiency. At some level of output, the firm will be so large that when inputs are doubles, output will less than double.
question
True or False:
a. If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is positive.
b. A firm that has a positive accounting profit does not necessarily have positive economic profit.
c. If a firm hires a currently unemployed worker, the opportunity cost of utilizing the worker's services is zero.
answer
a. True - Since there is no monetary transation, there is no accounting cost. However, since the owner of the business could be employed elsewhere, there is an economic cost. The economic cost is positive, reflecting the opportunity cost of the owner's times and would be equal to the owner's time in his next best alternative.

b. True - Accounting profit only considers the monetary costs. Since there may be some opportunity costs that were not fully realized as explicit monetary costs, it is possible that when the opportunity costs are added in, economic profit will become negative.

c. False - From the firm's POV, the wage paid to the worker is an explicit cost. The firm's opportunity cost is equal to the wage because it could have hired someone else at the same wage. The opportunity cost from the worker's POV is the value of their time which is unlikely to be zero and is equal to the worker's next best alternative.
question
Why are isocost lines straight lines?
answer
The isocost line represents all possible combinations of two inputs that may be purchased for a given total cost. The slope of the isocost line is the negative ratio of the input prices. If the input prices are fixed, their ratio is constant and the isocost line is therefore straight. Only if the ratio of the input prices changes as the quantities change is the isocost line not straight.
question
Assime that the marginal cost of production is increasing. Can you determine whether the average variable cost is increasing or decreasing?
answer
No -
When the marginal cost is increasing, the average cost can either be increasing or decreasing
question
Assume that the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?
answer
Yes -
The average variable cost is increasing. If marginal cost is above average cost, each additional unit costs more to produce than the average of the previous units, so the average variable cost is pulled upward.
question
If the firm's average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?
answer
Because average total cost is equal to average fixed cost plus average variable cost.
question
If a firm enjoys economies of scale up to a certain output level, the cost then increases proportionately with output, what can you say about the shape of the long-run average cost curve?
answer
When a firm experiences economics of scale, its long-run average cost curve is downward sloping. When costs increase proportionately with output, the firm's long-run average cost curve is horizontal. So this firm's long-run average cost curve has a rounded L-shape; first it falls the it becomes horizontal as output increase.
question
As output increases, a firm notices that average productivity of labor decreases. At the same time, it will notice that average fixed costs _________.
answer
decreases
question
SRATC is typcially U-shaped because as output increases, AFC decreases, but _____ increases.
answer
AVC
question
When a small firm in my inductry produces at minimum SRATC, its cost per unit is equal to that of a much larger firm producing as its minimum SRATC. This is evidence that returns to scale are ________.
answer
constant
question
In the short-run, __________ is asumed to be the fixed input.
answer
capital
question
In the short-run, on the K L graph, the slope of the expansion path is ___________.
answer
horizontal
question
A line that connects all of the possible tangency points in the long-run is known as the _______________________________.
answer
long-run expansion path
question
If doubling all inputs results in tripling output, then the slop of the LRAC curve is ____________.
answer
decreasing
question
A business owner believes that toal cost is minimized if they set MPL=MPK figuring they are getting just as much additional output from a unit of capital as from a unit of labor. This is indeed cost minimizing only if __________.
answer
w=r
question
A business firm is paying 10 times as much for a unit of labor as they do for a unit of capital. If MPL=MPK, then, in the long-run, the firm should _____________ its capital-labor ratio.
answer
increase
question
Capital and labor are perfect substitues in a business firm's production process. If w=2 and r=1, a firm will employ only _________.
answer
capital
question
When the average product is decreasing, margianl product
answer
is less than average product
question
According to the law of diminishing returns
answer
the marginal product of an input will eventually decline
question
A firm uses two factors of production. Both factors always have positive marginal products which imply that
answer
isoquants have a negative slope
question
The marginal rate of technical substitution is equal to the
answer
ratio of the marginal products of the inputs
question
A straight-line isoquant would indicate that
answer
capital and labor are perfect substitutes in production
question
An L-shaped isoquant would indicate that
answer
capital and labor cannot be substituted for each other in production
question
Inceasing returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by a factor of more than x
question
Decreasing returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by a factor of less than x
question
Constant returns to scale demonstrate that
answer
as inputs are increased by a factor of x, output is increased by the same factor of x
question
An isocost line reveals the
answer
input combinations that can be purchased with a given outlay of funds
question
When an isocost line is just tangent to an isoquant, then
answer
output is being produced at minimum cost
question
A firm's long run expansion path is
answer
a curve that shows the last-cost combination of inputs needed to produce each level of output for given input prices
question
If a firm's MRTS is 3, this implies
answer
the marginal product of labor is three times the marginal product of capital
question
The short-run expansion path for this production system is
answer
a horizontal line
Continue to order Get a quote

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more
Live Chat+1(978) 822-0999EmailWhatsApp

Order your essay today and save 20% with the discount code BEGOOD

Order Now
seoartvin escortizmir escortelazığ escortbacklink satışbacklink saleseskişehir oto kurtarıcıeskişehir oto kurtarıcıoto çekicibacklink satışbacklink satışıbacklink satışbacklink