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Unformatted text preview: Chapter 07 - Technology and Production Part III: Production Decisions Chapter 7: Technology and Production Main Concepts and Learning Objectives This chapter focuses on production. The chapter begins with analysis of short-run production functions with one variable input. The chapter then uses the skills that were developed in Chapter 4 (utility maximization) to analyze long run output maximization with two variable inputs. This analytical framework is used to analyze returns to scale, productivity and technological change. Students who master the material presented in this chapter will be able to: • Define production efficiency • Apply the skills developed for analyzing individual decisions (to combine goods to produce utility (summarized in the budget line / indifference curve graph)) to analyze firm decisions to employ inputs to produce output. • Correctly draw and position average product and marginal product on the same graph. • Use information about marginal products to determine whether a resource has been allocated efficiently to two competing uses. • Use the concept of Marginal Rate of Technical Substitution to analyze production input decisions. • Use information about a Cobb Douglass production function to analyze returns to scale 7-1 Chapter 07 - Technology and Production Multiple Choice Quiz (10 questions) covering main points: 1. A strategy for deploying inputs to produce output is inefficient if a. it would be possible to replace some of the workers with machinery or electronic equipment. b. it is possible to produce more output with the same inputs by organizing or deploying the same inputs in a different manner. 2. A firm’s production function is Q = 2KL, where K is the number of square feet of workspace and L is the number of man hours available to produce output. Which of the following statements is correct? a. With 1000 square feet, 3 workers can produce 6,000 items. b. With 2000 square feet, 5 workers can produce 6,000 items c. With 1000 square feet, 5 workers can produce 10,000 items d. Both a and c. 3. The Law of Diminishing Marginal Returns can be described as the Law of Eventually Diminishing Returns because it states that a. marginal product of the variable input decreases at every possible value of the variable input.. b. marginal product of the variable input eventually begins to decrease as the quantity of the variable input is increased. c. marginal product of the fixed input eventually begins to decrease as the quantity of the variable input is increased. d. none of the above 4. Sally has two art projects due tomorrow. She has 5 hours to complete both projects. She plans to spend 3 hours working on the first project and 2 hours working on the second project. She believes that the last minute spent working on the first project will add 3 points to Project # 1 score, and the last minute spent working on the second project will add 20 points to the Project # 2 score. Which of the following statements is...
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- Spring '11
- Marginal product, Economics of production, Production and manufacturing, Technology and Production