Exam 4: Cost and Production

The introduction of new technology and changes in organization are:

What is a production function?

_____ gives the slope of an isocost line where labor (L) and capital (K) are the two inputs measured on the X and Y axes respectively.

Jeff owns a garage and has 3 mechanics to help him.With the tools used being fixed in the short run, his production function is given by 5 + 2L = Y , where L is the number of mechanics and Y is the number of cars they can fix.If Jeff hires a fourth mechanic, what will be the marginal product of the new mechanic hired?

The profit-maximizing rule of production is to produce the level of output where price is equal to marginal cost.Since the marginal cost (MC) curve is U-shaped, the price line running horizontal to the X-axis intersects the MC curve at two points.How is the profit maximization rule applied in this case?

Discuss the relation between average variable cost (AVC) and marginal cost (MC) curves.

Define returns to scale.

The following figure shows the cost curves of a firm producing good X. -Refer to Figurer. Identify the supply curve of the firm.

A firm uses two inputs, labor (L) and capital (K) in the production of umbrellas.It can invest $50,000 in the purchase of the two inputs annually.The firm hires 5 units of capital at $1,000 per unit.If the going annual wage rate is $4,500, calculate the number of workers employed by the firm.(Assume that the firm spends the entire budget on K and L.)

The market price of the product produced by Jones Inc., is $6 per unit, which is higher than the average cost of $4 per unit at the profit maximizing output level.The average variable cost of production is $3.5 per unit.If demand for its product declines due to introduction of cheaper substitutes and the market price of the product falls to $3.8 per unit, which of the following statements will be true?

The greater the curvature of the isoquant:

How is the optimal level of input usage to produce a certain output identified with the help of isocosts and isoquants?

Suppose the price level of a product is gradually declining due to fall in demand.When will a producer of this product decide to shut down in the short run?

Let the marginal product of labor and capital be denoted by MPL and MPK respectively.The price of labor and capital are given by PL and PK respectively.Which of the following equations gives the condition for producing a given level of output at the least cost combination of inputs?

A manufacturer of towels finds that his returns to scale are constant.Which of the following conclusions can be drawn?

The following figure shows two isocost lines ( $I S _ { 1 }$ and $I S _ { 2 }$ ) and two isoquants for the production of 200 and 350 tons of corn.The axes show the quantities of the two types of fertilizers used in corn production. -Refer to Figure .Which of the following statements will be true?

An isoquant is the locus of the different combinations of inputs that produce the same level of output.

Explain how isocosts allow firms to arrive at the most efficient input mix for producing a particular level of output.

The cost of two inputs A and B are $100 and $200 per unit per month.A firm can afford to invest $10,000 per month on these inputs.The firm uses 30 units of A.Given a linear isocost such that the entire budget is exhausted, the firm will use 10 units of B.

The relationship between inputs used by a firm and output produced is given by the cost function.