Overview
2. If the single-input producer choice set is convex, the marginal product of labor curve must have a negative slope that is getting steeper with increases in labor input.
a. True
b. False
ANSWER: False
RATIONALE: It must be downward sloping — but it could be increasingly shallow as labor input increases. As long as it is downward sloping, the slope of the production frontier is getting shallower — giving us the convexity of the producer choice set.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
3. The law of diminishing marginal product holds so long as the input is not a Giffen good.
a. True
b. False
ANSWER: False
RATIONALE: There are no such things as “Giffen goods” for inputs — because there are no such things as income or wealth effects in the producer model.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
4. In the one-input model, the marginal product of labor curve falls below the horizontal axis only if the production frontier slopes down.
a. True
b. False
ANSWER: True
RATIONALE: The marginal product of labor is the slope of the production frontier. The only way the marginal product of labor curve can become negative is therefore for the production frontier to slope down.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
5. The output level is constant along any isoprofit line.
a. True
b. False
ANSWER: False
RATIONALE: Profit is constant along isoprofit lines.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
6. For price-taking producers, isoprofit curves are always parallel to one another.
a. True
b. False
ANSWER: True
RATIONALE: Profit is given by — which can be solved for The slope term is — which is constant for price takers.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
7. In the one-input model, profit is always maximized where marginal revenue product is equal to the input price.
a. True
b. False
ANSWER: False
RATIONALE: This is only true if the true profit-maximizing production plan is at an “interior” solution. But, if the producer choice set is non-convex, the profit maximizing plan might involve no production (or infinite production) — and in those cases, marginal revenue product is not equal to input price.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
8. In the one-input model, the cost curve is the inverse of the production frontier if and only if the input price is 1.
a. True
b. False
ANSWER: True
RATIONALE: The production frontier has the input on the horizontal axis and the output on the vertical. The cost curve has output on the horizontal and dollars on the vertical. If each input unit costs $1, then the cost curve is simply the inverse of the production frontier. Otherwise, it is the inverse multiplied by the price of the input.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
9. A competitive (price-taking) firm will produce so long as its economic profit is sufficiently above zero to enable the firm to pay the owners of the firm for their time and effort.
a. True
b. False
ANSWER: False
RATIONALE: Economic profit is equal to revenue minus all economic costs — including the cost of compensating the owners for their time and effort. Thus, the firm will produce so long as profit is at least zero.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
10. Labor demand curves always slope down.
a. True
b. False
ANSWER: True
RATIONALE: Labor demand curves are portions of the diminishing part of marginal revenue product curves — and all marginal revenue product firms in a world of scarcity must eventually be diminishing.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
11. If income effects are sufficiently strong, it may be the case that labor demand curves slope up.
a. True
b. False
ANSWER: False
RATIONALE: There are no income effects in the producer model — and thus no vehicle for demand curves to slope up as they do for Giffen goods in the consumer model.
POINTS: 1
DIFFICULTY: A-Section Material
QUESTION TYPE: True / False
HAS VARIABLES: False
DATE CREATED: 2/11/2015 10:53 PM
DATE MODIFIED: 2/11/2015 10:53 PM
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