Question 2: Consider a small bakery where the owner hires additional workers. Initially, each new worker contributes significantly to increasing the total output, but after a certain point, the addition of each new worker leads to a smaller increase in total output. This scenario represents the principle of A) Diminishing Marginal Returns B) Increasing Marginal Returns C) Constant Average Product D) Increasing Average Product

Question 2: Consider a small bakery where the owner hires additional workers. Initially, each new worker contributes significantly to increasing the total output, but after a certain point, the addition of each new worker leads to a smaller increase in total output. This scenario represents the principle of A) Diminishing Marginal Returns B) Increasing Marginal Returns C) Constant Average Product D) Increasing Average Product

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose a firm has increasing returns to scale. The firm then increases its use of all inputs. Which of the following statements is correct? Group of answer choices The firm’s output will decrease. Its long run average total cost will decrease. The firm’s output will increase. Its long run average total cost will increase. The firm’s output will increase. Its long run average total cost will remain the same. The firm’s output will increase. Its long run average total cost will decrease. The firm’s output will decrease. Its long run average total cost will increase.
Suppose that a firm’s production function is Q =10 K^(3/4)L^(1/4). The cost of a unit of labor is $1 and the cost of a unit of capital is $3. The manager of this firm is interested in finding the following information: a) Type of returns to scale and the marginal products of labor and capital. b) The marginal rate of technical substitution of labor for capital. Graph the isoquant map. c) The firm is currently producing 100 units of output. Find the optimal cost-minimizing quantities of labor and capital. Graphically illustrate this optimal solution using isoquants and isocost lines. What is the minimum total cost? d) The manager now wants to know the K/L ratio to produce anyoutput level at the minimum total cost. Represent graphically the expansion path in the long run.
A firm's short-run production function is displayed in the figure below. The firm's variable input is labor. Assume that when Əq (L) 4 units of labor are being used, the slope of the short-run production function reaches its maximum value of 7 (i.e. ƏL 7 when L = 4). As the level of labor increases beyond L = 4, the short-run production function is always becoming less Əq (L) steep (i.e. it is concave). The slope of the production function is equal to 5 when L = 5 (i.e. = 5 when L = 5). If 6 units ƏL Əq (L) of labor are being used, the slope of the production function is 3 (i.e. = 3 when L = 6). If the firm has to pay a wage ƏL of $15 (w = 15) for each unit of labor and can sell each unit of output at a price of $3 (p = 3), what is the firm's profit- maximizing level of output (q) in the short-run? 9₁ 18 14 8 0 4 5 6 q(L) L 7 / 8
Suppose a firm uses a single input to produce a single output according to a production function f(x) = 10√x where x is the number of units of input. The output initially sells for £120 per unit. The input costs £20 per unit. A change in the market causes the product price to increase from £120 per unit to £200 per unit, all else equal. How does this change in product price affect the firm's profit maximizing level of profits? a. Profits increase by £16,000 Ob. Profits do not change Profits increase by £8,000 d. None of the other answers is correct Profits increase by £9,000 f. Profits increase by £18,000 g. Profits increase by £50,000 h. Profits increase by £32,000 C. e.
Question 5: Suppose a brewery uses a Cobb-Douglas production function for his production. He studies the production process and finds the following. An additional machine-hour of fermentation capacity would increase output by 500 bottles per day (i. e. MPK = 500). An additional man-hour of labor would increase output by 1000 bottles per day (i. e. MPL = 1000). The price of a man- hour of labor is $50 per hour. The price of a machine-hour of fermentation capacity is $5 per hour. 1. Is the brewery currently minimizing its cost of production? Check using the minimization condition. 2. It turns out, the brewery is not optimally chossing the factors of production. To lower its production cost, which factor of production should the brewery increase and which factor should he decrease? 3. Suppose that the price of a machine-hour of fermentation capacity rises to $25 per hour. How does this change the answer from part 1?
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Answer and give 1 sentence explanation.
If a firm has the production function q = f(L, K) = L + 2K, then its technology exhibits: constant returns to scale increasing returns to scale None of the above. decreasing returns to scale increasing marginal product
Firm D has production function F(K,L) = aK+2L. Very briefly, what is the interpretation of a in this function?
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13) A firm's total cost function is TC = 0.5Q², where Q is the output level. What is the returns to scale of the firm's production function? A) Increasing returns to scale. B) Decreasing returns to scale. C) Constant returns to scale. D) Negative returns. E) None of the above.
Ike’s Bikes is a major manufacturer of bicycles. Currently, the company produces bikes using only one factory. However, it is considering expanding production to two or even three factories. The following table shows the company’s short-run average total cost (SRATC) each month for various levels of production if it uses one, two, or three factories. (Note: Q equals the total quantity of bikes produced by all factories.) Number of Factories Average Total Cost (Dollars per bike) Q = 100 Q = 200 Q = 300 Q = 400 Q = 500 Q = 600 1 360 200 160 240 400 720 2 540 300 160 160 300 540 3 720 400 240 160 200 360 Suppose Ike’s Bikes is currently producing 600 bikes per month in its only factory. Its short-run average total cost is per bike. Suppose Ike’s Bikes is expecting to produce 600 bikes per month for several years. In this case, in the long run, it would choose to produce bikes usingone factory . On the following graph, plot…