econ212 quiz 4 - turns to scale or constant returns to...

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Econ 212 Quiz 4 True/False Indicate whether the statement is true or false. ____ 1. The production set of a firm is the set of all products the firm can produce. ____ 2. A production isoquant is a locus of combinations of inputs that are equally profitable. ____ 3. The economist’s distinction between the long run and the short run captures the idea that quantities of some factor inputs can be varied in the short run but not in the long run. ____ 4. If the production function is f ( x 1 , x 2 ) = x 1 x 2 , then there are constant returns to scale. ____ 5. It is possible to have decreasing marginal products for all inputs, and yet have increasing returns to scale. ____ 6. The production function f ( x , y ) = x + y has constant returns to scale. Problem 7. Firm A has the production function f ( x , y ) = x 1.40 y 1.90 ; firm B has a production function f ( x , y ) = 1.80( x 0.80 + y 0.80 ) whenever x > 0 and y > 0. Show your answer separately for firm A and B. a. When the amounts of both inputs are positive, these firms have increasing returns to scale, decreasing re-
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Unformatted text preview: turns to scale or constant returns to scale? b. What are the marginal products for factor x and y? c. Are the marginal products for factor x increasing, decreasing or constant as factor x increases? 8. On separate axes, draw typical production isoquants for each of the following production functions. a. f ( x , y ) = min{ 2 x , y }. b. f ( x , y ) = xy . Econ 212 Quiz 4 Answer Section TRUE/FALSE 1. ANS: F 2. ANS: F 3. ANS: F 4. ANS: F 5. ANS: T 6. ANS: T PROBLEM 7. ANS: a. Firm A Increasing returns to scale. Marginal products: MPx = 1.40x .40 y 1.90 MPy = 1.9x 1.40 y 0.90 MPx increase as x increases. Firm B f(kx,ky) = 1.8 (k 0.8 *x 0.8 + k 0.8 y 0.8 ) = k 0.8 f(x,y) decreasing return to scale MPx = 1.8*.8(x-.2 ) decreasing as factor x increases MPy = 1.8*.8(y-.2 ) 8. ANS: a. The isoquants have a kink at the line 2 x = y. b. These are rectangular hyperbolas....
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This note was uploaded on 01/26/2010 for the course ECONOMICS EC212 taught by Professor Yu during the Spring '08 term at Mt. Holyoke.

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econ212 quiz 4 - turns to scale or constant returns to...

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