Problem 1: A firm used a combination of inputs that was to the left of its isocost line, it would indicate that
a. it is exceeding its budget.
b. it is not spending all of its budget.
c. it is operating at its optimal point because it is saving money.
d. None of the above.
Problem 2: When the exponents of a Cobb-Douglas production function sum to more than 1, the function exhibits
a. constant returns.
b. increasing returns
c. decreasing returns.
d. either increasing or decreasing returns.
Problem 3: What does the following Cobb-Douglas production function, Q = 1.8L0.74K0.36, exhibit
a. increasing returns.
b. constant returns.
c. decreasing returns.
d. Both A and B.
Problem 4: Marginal rates of technical substitution (MRTS) represent
a. the optimum combinations of inputs.
b. cost minimizing combinations of inputs.
c. the degree to which one input can replace another without output changing.
d. All of the above.
Problem 5: If a firm is using two inputs, X and Y, is using them in the most efficient manner when
a. MPX = MPY.
b. PX = PY and MPX = MPY.
c. MPX/PY = MPY/PX.
d. MPX/MPY = PX/PY.
e. none of the above
Problem 6: Which of the following would indicate when Stage II ends and Stage III begins in the short-run production function?
a. when AP = 0
b. when MP = 0
c. when MP = AP
d. when MP starts to diminish
e. none of the above
Problem 7: In economic theory, if an additional worker adds less to the total output than previous workers hired, it is because
a. there may be less that this person can do, given the fixed capacity of the firm.
b. he/she is less skilled than the previously hired workers.
c. everyone is getting in each other's way.
d. the firm is experiencing diminishing returns to scale.
e. none of the above
Problem 8: A major advantage of the ________ production function is that it can be easily transformed into a linear function, and can be analyzed with the linear regression method.
a. cubic
b. power
c. quadratic
d. linear
e. None of the above.
Problem 9: ________ functions are very useful in an analyzing production functions, which exhibit both increasing and decreasing marginal products.
a. Cobb-Douglas
b. Straight-line
c. Quadratic
d. Cubic
e. None of the above.
Problem 10: In the short run, finding the optimal amount of variable input involves which relationship?
a. MP = MC
b. AP = MP
c. MP = 0
d. MRP = MFC
e. none of the above