ECON 2010 Lecture Notes - Lecture 10: Consumer Choice, Production Function, Isoquant

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22 Mar 2017

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Read chapter 7 and 8 in the text. Output is generated through the use of inputs, such as land, labour, and capital: are combined together in various amounts or combinations using the rule of transformation that is currently available. This rule of transformation of inputs into outputs is known as technology. The input have prices that must be paid in order to obtain the services of the factors of production. The general functional relationship for output can be summarized as follows: q = f(k, l, ld, t) where, q = quantity or total product, k = capital, l = labour, ld = land, t = technology. The relationship above is known as production function. The production function is the relationship between inputs and outputs. Production function gives the maximum amount of output that can be produced at a given level of input.

Related Questions

The law of eventually diminishing marginal returns: (Points : 1)

a. states that each and every increase in the amount of the variable factor employed in the production process will yield diminishing marginal returns.
b. is a mathematical theorem that can be logically proved or disproved
c. is the rate at which one input may be substituted for another input in the production process
d. None of the above

The marginal product is defined as: (Points : 1)

a. the ratio of total output to the amount of the variable input used in producing the output
b. the incremental change in total output that can be produced by the use of one more unit of the variable input in the production process
c. the percentage change in output resulting from a given percentage change in the amount of the variable input X employed in the production process with Y
d. None of the above

The rate at which one input X may be substituted for another input Y in a production process, while total output remains constant, is: (Points : 1)

a. the slope of the isoquant curve
b. the marginal rate of technical substitution

c. equal to MPx/MPy

d. all of the above
e. none of the above

Marginal revenue product is: (Points : 1)

a. defined as the amount that an additional unit of the variable input adds to the total revenue
b. equal to the marginal factor cost of the variable factor times the marginal revenue resulting from the increase in output obtained
c. equal to the marginal product of the variable factor times the marginal product resulting from the increase in output obtained
d. a and b
e. a and c

Marginal factor cost is defined as the amount that an additional unit of the variable unit of the variable input adds to ____________. (Points : 1)

a. marginal cost
b. variable cost
c. marginal rate of technical substitution
d. total cost
e. none of the above

In the Cobb-Douglas production function Q=aL^?1.K^?2 ______________. (Points : 1)

a. the marginal product of labor (L) is equal to ?1
b. the average product of labor (L) is equal to ?2
c. if the amount of labor input (L) is increased by 1 percent, then output will increase by ?1 percent
d. a and b
e. a and c

The short-run cost function is: (Points : 1)

a. where all inputs to the production process are available
b. relevant to decisions in which one or more inputs to the production process are fixed
c. not relevant to optimal pricing and production output decision facilities
d. crucial in making optimal investment decisions in new production facilities
e. none of the above

Theoretically, in a long-run cost function: (Points : 1)

a. all inputs are fixed
b. all inputs are considered variable
c. some inputs are always fixed
d. capital and labor are always combined in fixed proportions

A linear total cost function implies that: (Points : 1)

a. marginal costs are constant as output increases
b. average total costs are continually decreasing as output increases
c. a and b
d. none of the above

1. The cost-benefit approach to deciding whether or not to undertake any activity argues that you should engage in the activity if:
a. The marginal cost of the activity exceeds the marginal benefit of the activity.
b. The marginal benefit of the activity exceeds the marginal cost of the activity.
c. There are benefits associated with the activity
d. There are costs associated with the activity

2. In the circular flow model, the household sector:
a. Demand goods and services in output markets, while the business sector supplies them.
b. Supplies goods and services in output markets, while the business sector demands them.
c. Demands and supplies goods and services in output markets.
d. Neither demands nor supplies goods and services in output markets.

3. In resource markets, households operate on the ________ side and business firms operate on the ______ side; these activities represent ______for households and _______ for business firms.
a. Demand; supply; income; revenue
b. Demand; supply; expenditures; revenue
c. Supply; demand; expenditures; costs
d. Supply; demand; income; costs

4. Ice cream sales and the incidence of polio were strongly correlated prior to the development of the polio vaccine. Assuming that eating ice cream caused polio is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus

5. Assuming that everyone is better off when a bridge is built in Alaska to serve a small community is an example of the:
a. Fallacy of composition
b. Fallacy of division
c. Fallacy of false cause
d. Fallacy of ceteris paribus

6. A production possibilities frontier for two outputs is drawn assuming that:
a. Opportunity cost is fixed, but the quantity and quality of resources changes
b. Both outputs use the same quantity of each resource, but the technology differs
c. The amount of resources currently available for production is fixed
d. The technology available can only be applied to producing one of the outputs

7. When wants and needs exceed the resource available to satisfy them:
a. Scarcity exists and society must rely on the government to allocate resources.
b. Scarcity exists and society must rely on free markets to allocate resources.
c. Scarcity exists and decisions must be made about how to allocate limited resources among competing uses.
d. Scarcity does not exist so it is not necessary to allocate resources.

8. If Carl is able to produce a greater number of baskets per hour than Sheila, then:
a. Carl cannot have a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets

9. If Carl's opportunity cost per basket is 4 bowls, but Sheila's opportunity cost per basket is 3 bowls, then:
a. Carl has a comparative advantage in the production of baskets
b. Carl has an absolute advantage in the production of baskets
c. Sheila has an absolute advantage in the production of baskets
d. Sheila has a comparative advantage in the production of baskets

10. Which of the following is not an example of the factor of production or economic resource referred to as capital?
a. An office building
b. Computers used by a tax preparation business
c. Lawnmowers owned by a landscaping firm
d. Money used to start a new business.

lavenderhippopotamus513

A bowed out PPF reflects which of the following ideas?

i.increasing opportunity cost

ii. resources are not equally productive in all activities

iii. prices of goods increase over time

		I only
		I and iii
		ii and iii
		I and ii

1 point

QUESTION 2

With no international trade, a country ________ consume at a point outside of its PPF; with international trade, a country ________ consume at a point outside of its PPF.

		can; cannot
		cannot; can
		cannot; cannot
		can; can

1 point

QUESTION 3

If the production possibilities frontier between two goods is a straight line, then the

		the line does not qualify as a production possibilities frontier because the unattainable production points are too close to the inefficient production points.
		opportunity cost is not a ratio.
		increasing opportunity costs.
		resources are equally productive in both goods.

1 point

QUESTION 4

As an economy produces more of one of the goods on a bowed out production possibilities frontier, what happens to the opportunity cost of producing the good?

		It might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		It decreases.
		It increases.
		It remains constant.

1 point

QUESTION 5

"Comparative advantage" is defined as a situation in which one person can produce

		more of a good than another person.
		a good for a lower dollar cost than another person.
		a good for a lower opportunity cost than another person.
		more of all goods than another person.

1 point

QUESTION 6

When a production possibilities frontier is bowed outward, as more of one good is produced, its opportunity cost

		increases.
		decreases.
		might increase, decrease, or remain constant depending on how much people value the additional units of the good.
		remains constant.

1 point

QUESTION 7

A bowed out production possibility frontier shows that the

		opportunity cost relationship is linear.
		the opportunity cost of a good is constant as more of the good is produced.
		the opportunity cost of a good increase as more of the good is produced.
		the opportunity cost of a good decrease as more of the good is produced.

1 point

QUESTION 8

Which of the following statements is correct?

		The production possibilities frontier shows that there are no limits to production.
		Any point on or within the PPF is production efficient.
		If capital is idle, the economy is producing at its full potential.
		A tradeoff is a limit that forces an exchange or a substitution of one thing for something else.

1 point

QUESTION 9

A major earthquake occurs in the central part of the United States. What impact would this have on the nation's production possibilities frontier and why?

		A tradeoff would occur to replace the resources and goods destroyed.
		It would shift inward because some of the nation's resources, such as capital and labor, would be destroyed.
		It would shift outward because unemployment would be reduced.
		Nothing would happen because the nation would still have the same capabilities.

1 point

QUESTION 10

When a nation is producing on its production possibilities frontier, if more resources are used to produce one good, then the production of other goods

		must increase.
		must decrease.
		must remain the same.
		must change but they might increase or decrease.

1 point

QUESTION 11

Moving along a country's PPF, a reasonable opportunity costs increase is that

		unemployment increases as a country produce more and more of one good.
		unemployment decreases as a country produces more and more of one good.
		some resources are better suited for producing one good rather than the other.
		technology declines as a country produce more and more of one good.

1 point

QUESTION 12

A reason the production possibilities frontier exists is

		scarcity of resources and unlimited technology.
		unemployment.
		scarcity of resources.
		unlimited resources and technology.

1 point

QUESTION 13

Moving from one point to another on a production possibilities frontier implies

		increasing the production of one good and decreasing the production of another.
		increasing the production of both goods.
		decreasing the production of both goods.
		holding the production levels of both goods constant.

1 point

QUESTION 14

Specialization and trade make a country better off because with trade the country can consume at a point

		outside its production possibilities frontier.
		on its trading partner's production possibilities frontier.
		inside its production possibilities frontier.
		on its production possibilities frontier.

1 point

QUESTION 15

The production possibilities frontier is the

		the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced when technology is changing.
		the minimum output that can be produced when resources are used inefficiently.
		the boundary between the combinations of goods and services that can be produced and the combinations that cannot be produced, given the available factors of production and the state of technology.
		maximum output that can be produced at an opportunity cost of zero.

1 point

QUESTION 16

The opportunity cost of economic growth is ________ and the benefit of economic growth is ________.

		decreased current consumption; decreased future consumption
		decreased current consumption; increased future consumption
		increased current consumption; increased future consumption
		increased current consumption; decreased future consumption

1 point

QUESTION 17

In terms of a nation's production possibilities frontier, what impact does international trade have?

		International trade shifts the nation's production possibilities frontier outward.
		International trade shifts the production possibilities frontier outward for the goods that are exported and inward for the goods that are imported.
		International trade shifts the nation's production possibilities frontier inward.
		International trade allows the nation to consume at a point outside its production possibilities frontier.

1 point

QUESTION 18

The production possibilities frontier illustrates the

		goods and services that people want.
		limits to people's wants.
		resources the economy possesses, but not it is the level of technology.
		maximum combinations of goods and services that can be produced.

1 point

QUESTION 19

As we move along the production possibilities frontier,

		the possibilities of tradeoffs diminish.
		the production of one good increases as the production of the other good decreases.
		more of both goods can be produced.
		a tradeoff is not possible because nations need all goods.

1 point

QUESTION 20

What is the opportunity cost of economic growth?

		Eliminate scarcity
		Land.
		Capital goods.
		Consumption of goods.

1 point

QUESTION 21

Which of the following statements is correct?

i.As the economy grows, the opportunity costs of economic growth decrease.

ii. Economic growth has no opportunity cost.

iii. The opportunity cost of economic growth is current consumption forgone.

		ii only
		iii only
		I only
		I and iii

1 point

QUESTION 22

Does economic growth depend upon which of the following?

i. Increasing the quantity of labor.

ii. Lowering the prices of goods and services.

iii. Advancing technology.

		ii only.
		I only.
		I and iii.
		iii only.

1 point

QUESTION 23

When drawing a production possibilities frontier, which of the following is held constant?

		the amount of money in the economy
		the prices of goods and services
		the quantity of the goods and services that are produced
		the available factors of production and the state of technology

1 point

QUESTION 24

To increase its economic growth, a nation should

		encourage spending on goods and services.
		increase in current consumption.
		encourage education because that increases the quality of labor.
		limit the number of people in college because they produce nothing.

1 point

QUESTION 25

The opportunity cost of one more slice of pizza in terms of sodas is the

		some pizza slices we have to give up to get one extra soda.
		the total number of sodas that we have divided by the total number of pizza slices that we have.
		the total number of pizza slices that we have divided by the total number of sodas that we have.
		the number of sodas we have to give up to get one extra pizza slice.

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ECON 2010 Lecture Notes - Lecture 10: Consumer Choice, Production Function, Isoquant

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