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Assign_#3.1

Uploaded by

vimalraj
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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UNIVERSITY OF SOUTHERN CALIFORNIA

Marshall School of Business


ECON 351x: Microeconomics for Business

Prof. Safarzadeh Student Name:_________________


Assignment #3.1 Student ID:_________________

Answer questions 1-5 using the following information. The relation between labor input and
output is given as:

Labor Input Output


0 0
1 10
2 24
3 40
4 52
5 60
6 64
7 63

1- total product of the 5 units of labor is


a- 12 units c- 60 units
b- 8 units d- the most efficient
e- the least efficient

2- marginal physical product of the 5th unit of labor is


a- 12 units c- 60 units
b- 8 units d- the most efficient
e- the least efficient

3- average product of the 5 units of labor is


a- 12 units c- 60 units
b- 8 units d- the most efficient
e- the least efficient

4- if the price of the product is $2 per unit, the value of the physical product of the 5th of labor is
a- $16 c- $24
b- $120 d- $30
e- none of the above

5- if the price of the product is $2 per unit and wages are $20, the business will hire
a- two units of labor c- four units of labor
b- three units of labor d- five units of labor
e- six units of labor
6- for a business, if the value of the marginal product of labor (MRPL) is more than wages,
a- the business will hire more labor
b- the business will fire labor
c- the business will not change the number of existing labors.
d- the business will train labor
e- none of the above

7- for a business, if the value of the marginal product of labor (MRPL) is less than wages,
a- the business will hire more labor
b- the business will fire labor
c- the business will not change the number of existing labors.
d- the business will train labor.
e- none of the above

8- for a business, if the value of the marginal product of labor (MRPL) is equal to wages,
a- the business will hire more labor
b- the business will fire labor
c- the business will not change the number of existing labors.
d- the business will train labor
e- none of the above

9- A manufacturer is producing 150 units of output a day by hiring 80 units of labor and 95 units
of capital. The manufacturer observes that a one-unit new hiring in labor increases output to 156
and a one-unit new hiring in capital increases output to 162. Market prices of labor and capital
are $10 and $15, respectively.
a- the firm should hire more labor
c- the firm should use more capital
b- the firm should not change labor/capital combination.
d- the firm should raise the price.

10- Use the following two statements to answer this question:


I. Production functions describe what is technically feasible when the firm operates efficiently.
II. The production function shows the least cost method of producing a given level of output.
a. Both I and II are true.
b. I is true, and II is false.
c. I is false, and II is true.
d. Both I and II are false.

11. In economics, the short run is:


a. less than a year.
b. less than three years.
c. however long it takes to produce the planned output.
d. a time period in which at least one input is fixed.
e. a time period in which at least one set of outputs has been decided upon.
12. One of the factors contributing to the fact that labor productivity is higher in the U.S. than in
the China is:
a. China's larger stock of capital.
b. the higher capital/labor ratio in China.
c. the higher capital/labor ratio in the U.S.
d. China's smaller stock of fossil fuels.
e. the fact that much labor in the U.S. is in management.

13. Which of the following production functions exhibits constant returns to scale?
a. q = KL
b. q = KL0.5
c. q = K + L
d. q = log(KL)

14. Which of the following production functions exhibits constant returns to scale?
a. q = L.7K.2
b. q = LK0.5
c. q = L.75K.35
d. q = log(KL)

15. Which of the following statement(s) is True


a. in the first phase of production process output increases at a decreasing rate.
b. in the first phase of production process output increases at a constant rate.
c. in the first phase of production process output increases at an increasing rate.
d. in the first phase of production process output increases then decreases.

16. Which of the following statement(s) is True


a. in the second phase of production process output increases at a decreasing rate.
b. in the second phase of production process output increases at a constant rate.
c. in the second phase of production process output increases at an increasing rate.
d. in the second phase of production process output increases then decreases.

17. Which of the following statement(s) is True


a. in the third phase of production process output decreases at a decreasing rate.
b. in the third phase of production process output decreases at a constant rate.
c. in the third phase of production process output decreases at an increasing rate.
d. in the third phase of production process output decreases then increases.

18. Which of the following statement(s) is True


a. the first phase of the production process is due to division of labor.
b. the first phase of the production process is due to economies of scale.
c. the first phase of the production process is due to labor specialization.
d. all the above
19. Which of the following statement(s) is True
a. the second phase of the production process is due to division of labor.
b. the second phase of the production process is due to economies of scale.
c. the second phase of the production process is due to the law of diminishing return.
d. the second phase of the production process is due to economies of scale.

20. The law of diminishing return states that ____


a. other thing the same, as the number of labor increases output increases.
b. other thing the same, as the number of labor increases output increases with an increasing rate.
c. other thing the same, as the number of labor increases output increases with a decreasing rate.
d. other thing the same, as the number of labor increases output increases then decreases.

II. The relationship between labor input and output is given as Q = 180L2 - L3
1- Find the labor input that maximizes output.
2- Find marginal physical product of labor. What does it mean?
3- Find the optimum labor input if the average wage in this industry is $700.00 and the price of
the product is $15.00.
4- Find the labor elasticity of the output at the optimum point. What does it mean?
5- Suppose the business above has a fixed cost of $10000.00. Write the profit maximizing
problem of the firm and find the optimum solution.
6- How does the solution in item (5) differ from the one in item (3)?

III. The short-run production function of a firm is estimated to be Q = 60L2 - 2L3. At the present
time the firm has no more than 15 labor working in the production process. To satisfy the high
market demand, the management has decided to produce as much output as possible.
1- Find the maximum output subject to the constraint that the firm is facing.
2- find the number of labors employed and the optimum quantity of output.
3- Facing the prospect of even more demand in the market, the management has decided to
increase the number labor by 50%. Solve the optimizing problem of the firm using the new
constraint on labor.
4- What will be your advice to the management on the optimum number of labor?

IV. A firm employing two inputs, labor (L) and capital (K), at market prices of $40 and $20,
respectively. The firm has a production technology given as Q = 10L.5K.5. The firm is selling
its product at $320 per unit. In the short run the firm is hiring only 81 units of capital.

1- Write the short-run production function of the firm.


2- In the short-run, how many labor is the optimum level of labor input for this firm?
3- In the long-run the firm can change labor and capital inputs. However, the firm has a cost
constraint of $1,200,000 to be spent on labor and capital. How many labors and capital will be
hired at the optimum production level.
4- What is the output at the optimum production?

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