85) If input prices are constant, a firm with increasing returns to scale can ex
ID: 1099004 • Letter: 8
Question
85) If input prices are constant, a firm with increasing returns to scale can expect
A) costs to double as output doubles.
B) costs to more than double as output doubles.
C) costs to go up less than double as output doubles.
D) to hire more and more labor for a given amount of capital, since marginal product
increases.
E) to never reach the point where the marginal product of labor is equal to the wage.
86) A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the
following production function C = L0.5 + M0.75. This production function exhibits
A) decreasing returns to scale for all output levels.
B) constant returns to scale for all output levels.
C) increasing returns to scale for all output levels.
D) no clear pattern of returns to scale.
87) Consider the following statements when answering this question;
I. If a technology exhibits diminishing returns then it also exhibits decreasing return to
scale.
II. If a technology exhibits decreasing returns to scale then it also exhibits diminishing
returns.
A) I is true, and II is false. B) I is false, and II is true.
C) Both I and II are true. D) Both I and II are false.
88) The textbook discusses the carpet industry situated in the southeastern U.S., and the authors
indicate that smaller carpet mills have __________ returns to scale while larger mills have
__________ returns to scale.
A) increasing, decreasing B) increasing, constant
C) constant, decreasing D) constant, increasing
89) Which scenario below would lead to lower profits as we double the inputs used by the firm?
A) Increasing returns to scale with constant input prices
B) Constant returns to scale with constant input prices
C) Constant returns to scale with rising input prices (perhaps because the firm is not a
price-taker in the input markets)
D) all of the above
90) 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)
91) Does it make sense to consider the returns to scale of a production function in the short run?
A) Yes, this is an important short-run characteristic of production functions.
B) Yes, returns to scale determine the diminishing marginal returns of the inputs.
C) No, returns to scale is a property of the consumer?s utility function.
D) No, we cannot change all of the production inputs in the short run.
92) Use the following statements to answer this question:
I. We cannot measure the returns to scale for a fixed-proportion production function.
II. Production functions with inputs that are perfect substitutes always exhibit constant
returns to scale.
A) I and II are true. B) I is true and II is false.
C) II is true and I is false. D) I and II are false.
Explanation / Answer
85.C
86.A
87.D
88.D
89.C
90.C
91.D
92.D
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