Managerial Economics 8th Edition Samuelson Test Bank 1

Managerial Economics 8th Edition
Samuelson Solutions Manual

Full download at link:
Solution Manual: https://testbankpack.com/p/solution-manual-for-

managerial-economics-8th-edition-samuelson-marks-1118808940-
9781118808948/
Test Bank: https://testbankpack.com/p/test-bank-for-managerial-

economics-8th-edition-samuelson-marks-1118808940-
9781118808948/
CHAPTER 5: Production
MULTIPLE CHOICE
1. A firm’s production function shows:

a) the maximum level of output the firm can produce for any combination of inputs.
b) the least-cost combination of inputs that can be used to produce a given level of output.
c) the average cost associated with the production of various levels of output.
d) the profit-maximizing level of output that can be produced with a given level of inputs.
e) the marginal cost of producing an extra unit of output by employing an extra unit of an
input.
ANSWER: a
SECTION REFERENCE: Basic Production Concepts
LO: Explain the production function.
DIFFICULTY LEVEL: Medium
2. The short-run is best defined as the time period in which:

a) all inputs to production can be varied
b) the amount of output cannot be varied
c) one or more inputs to production are fixed
d) the marginal cost of production is low
e) all inputs to production remain fixed
ANSWER: c
SECTION REFERENCE: Production in the short run
5-1
Production
LO: Discuss how to find the optimal use of a single input in the short run.
DIFFICULTY LEVEL: Easy
3. Which of the following is true in the long-run?

a) A firm can vary all the inputs used in production.
b) A firm can vary only one of the inputs used in production.
c) All inputs used in production are fixed in the long-run.
d) The level of output produced can be varied only over a limited range.
e) The marginal cost is at a minimum.
ANSWER: a
The following table shows the total output produced in a factory at various levels of
employment of labor. The firm sells each unit of output at $2 and each worker is paid a
wage of $32.
Table 5-1
Number of
Total output
workers
1 8
2 18
3 30
4 41
5 50
6 56
7 60
8 61
9 62
4. Refer to Table 5-1. What is the marginal product of the 5th worker?
a) 9 units
b) 2 units
c) 8 units
d) 6 units
e) 11 units
ANSWER: a
5-2
Chapter 5
5. Refer to Table 5-1. Diminishing returns to labor occurs beyond:

a) 4 workers.
b) 3 workers.
c) 5 workers.
d) 9 workers.
e) 8 workers.
ANSWER: b
6. Which of the following correctly defines the marginal product of labor?

a) It is the additional output produced by an additional unit of labor, all other factors held
constant.
b) It is the additional output produced by a proportionate increase in capital and labor, the
demand for the product held constant.
c) It is the additional labor required to produce one additional unit of output, other inputs
held constant.
d) It is calculated as the total output divided by the total units of labor employed in
production.
e) It is the addition to total cost from employing an additional unit of labor.
ANSWER: a
7. The marginal product of labor initially rises as more labor is employed because of:
a) division and specialization of labor.
b) constant returns to scale.
c) total factor productivity.
d) an increase in profits from the additional output produced.
e) a fall in the cost of hiring additional labor.
ANSWER: a
8. What does the law of diminishing marginal returns state?
5-3
Production
a) When all inputs to production are increased in equal proportions, output will eventually
decrease.
b) When one input is increased, with all other inputs unchanged, the marginal product of the
input will eventually decline.
c) When one input is held constant, and all other inputs are increased, output will eventually
decrease.
d) When one input is increased, and all other inputs are held constant, output will increase at
an increasing rate.
e) When all inputs to production are increased in equal proportions, the addition to output
will increase at an increasing rate.
ANSWER: b
9. When the marginal product of a variable input is zero, it implies that the firm is at the point
where the total product is:
a) increasing at an increasing rate.
b) also equal to zero.
c) at its maximum.
d) decreasing at an increasing rate.
e) increasing at a decreasing rate.
ANSWER: c
10. The marginal revenue product of labor is equal to the product of:
a) the marginal product of labor and the quantity of labor employed.
b) the wage rate and the marginal product of labor.
c) the wage rate and marginal revenue per unit of output
d) marginal product of labor and total revenue of the firm.
e) the marginal revenue per unit of output and the marginal product of labor
ANSWER: e
5-4
Chapter 5
The following table shows the total output per hour produced in a factory at various levels of
employment of labor. The firm sells each unit of output at $2 and each worker is paid a
wage of $12.
Table 5-1
Number of Total output
workers
1 8
2 18
3 30
4 41
5 50
6 55
7 59
8 61
9 62
11. Refer to Table 5-1. What is the total revenue that accrues to the firm when it employs 4
workers?
a) $36
b) $112
c) $100
d) $60
e) $82
ANSWER: e
12. Refer to Table 5-1. Diminishing returns occurs beyond:

a) 2 workers.
b) 3 workers.
c) 4 workers.
d) 5 workers.
e) 6 workers.
ANSWER: b
13. Refer to Table 5-1. What is the marginal revenue product of the 4th worker?
a) $82
b) $20.50
5-5
Production
c) $22
d) $18
e) None of these answers is correct.
ANSWER: d
14. Refer to Table 5-1. What is the marginal revenue product of the 2nd worker?
a) $36
b) $24
c) $22
d) $20
e) 0
ANSWER: d
15. Refer to Table 5-1. What is the marginal profit of the 2nd worker?
a) $24
b) $20
c) $12
d) $8
e) $0
ANSWER: d
DIFFICULTY LEVEL: Hard
16. Refer to Table 5-1. How many workers should the firm employ in order to maximize profit?
a) 7
b) 6
c) 5
d) 4
e) 3
ANSWER: c
5-6
Chapter 5
17. A profit-maximizing firm will hire the variable input, labor, until the point where:
a) marginal product of labor is equal to the marginal revenue product of capital.
b) marginal revenue from each unit of output is equal to the wage rate.
c) marginal revenue product of labor is equal to the marginal cost of labor.
d) marginal revenue product of labor is equal to zero.
e) marginal product of labor equals the marginal revenue from each unit of output.
ANSWER: c
18. Firm X sells output at a price of $8 per unit and pays labor a wage of $20 per hour. The
marginal product of labor is given by: MPL = 12 – .1L. To maximize profit, the firm should
utilize _____ hours of labor.
a) 75
b) 80
c) 85
d) 90
e) 95
ANSWER: e
19. When a firm faces constant returns to scale, a proportionate increase in all inputs:
a) will keep output constant.
b) will increase output by the same proportion as the increase in inputs.
c) will lead to a decline in the cost of production.
c) will result in a higher-than-proportionate increase in output.
e) will not change the total costs of production.
ANSWER: b
SECTION REFERENCE: Production in the Long Run
LO: Discuss how to choose the best mix of inputs in the long run.
5-7
Production
20. Which of the following is true of a firm that faces increasing returns to scale?
a) An increase in the quantity of one input will increase output by a greater proportion.
b) As the quantity of all inputs are increased, the average cost of production will increase.
c) A given increase in the quantity of all inputs will increase output by a greater proportion.
d) As the quantity of one input is increased, its marginal product will increase at an
increasing rate.
e) As the quantity of one input is increased, the marginal cost of production will decline.
ANSWER: c
21. Output elasticity is the percentage change in output that results from a 1 percent increase
_____.
a) in all the inputs
b) in the price of an input
c) in the price of the final product
d) in the marginal revenue product of a variable input
e) in the marginal product of an input
ANSWER: a
22. If there is a change in input prices, what is the most likely impact on production isoquants?
a) They will shift leftward toward the origin.
b) The curvature of the isoquant will change.
c) They will remain unchanged.
d) They will shift outward away from the origin.
e) Uncertain, depends on which input prices change.
ANSWER: c
23. Which of the following correctly describes a production isoquant?

a) An isoquant is a curve that shows all possible combinations of inputs that can produce a
given level of output.
5-8
Chapter 5
b) An isoquant is a curve that shows the least-cost combinations of inputs that can produce a
given level of output.
c) An isoquant is a curve that shows all possible combinations of inputs that are used to
produce various levels of output.
d) An isoquant is a curve that shows all possible levels of output that can be produced in the
short-run using one variable input.
e) An isoquant is a curve that shows all possible levels of output that can be produced at
various input price levels.
ANSWER: a
24. The slope of an isocost line shows:

a) the ratio of the marginal revenue product of the inputs.
b) the ratio of marginal product of the inputs.
c) the marginal rate of technical substitution.
d) the ratio of the input prices.
e) the output elasticity of production.
ANSWER: d
25. Which of the following identifies the optimal usage of inputs by a profit-maximizing firm?
a) Marginal product of labor = marginal product of capital = 0
b) Marginal product of labor/price of labor = marginal product of capital/price of capital
c) Marginal revenue product of labor = marginal revenue product of capital
d) Marginal cost of labor = marginal cost of capital
e) Marginal product of labor/marginal product of capital = price of capital/price of labor
ANSWER: b
26. If a production function is expressed in a linear form, the inputs used in the production
process:
a) are perfect complements.
b) are perfect substitutes.
5-9
Production
c) have to be increased in the same proportion.

d) have fixed marginal costs.
e) have equal marginal productivity.
ANSWER: b
SECTION REFERENCE: Measuring Production Functions
LO: Understand how to estimate and measure various types of production functions.
27. Which of the following is true of fixed-proportions production?

a) The inputs used in production have constant marginal products.
b) An increase in the price of an input will lead the firm to substitute away from it.
c) The inputs used in production display diminishing marginal returns.
d) The inputs used in production are perfect complements.
e) The marginal cost of the inputs used in production is fixed.
ANSWER: d
28. Which of the following production functions displays decreasing returns to scale?
a) Q = aL + bK2
b) Q = aL + bK
c) Q = bLK
d) Q = cL.2K.5
e) Q = cL2K5
ANSWER: d
29. If the sum of the exponents of a Cobb-Douglas production function is equal to 1.2, the
production function exhibits:
a) increasing returns to scale.
b) constant returns to scale.
c) diminishing marginal returns.
d) declining productivity.
e) increasing average costs.
ANSWER: a
5-10
Chapter 5

30. When a profit-maximizing firm undertakes production in more than one plant, it will
allocate a fixed level of inputs such that _____ is equal across plants.
a) the total product
b) the marginal cost of production
c) the marginal product
d) the average product
e) Answers the marginal product and the average product are both correct.
ANSWER: c
SECTION REFERENCE: Other Production Decisions
LO: Describe additional production decisions involving the allocation of inputs.
31. A factory produces product A according to the production function QA = 100XA, where XA
denotes the amount of input and QA is the quantity produced. It also produces product B
according to the production function QB = 200XB - XB2, where XB denotes the amount of
input and QB is the quantity produced. The total available amount of input X is 100 units.
The firm’s profit-maximizing allocation of input X is:
a) XA = 60 and XB = 40.
b) XA = 50 and XB = 50.
c) XA = 0 and XB = 100.
d) XA = 100 and XB = 0.
e) XA = 30 and XB = 70.
ANSWER: b
SHORT ANSWERS
32. Carefully define the term production function, and explain its importance.
ANSWER: A firm's production function is a quantitative relationship that indicates the

maximum level of output the firm can produce for any combination of inputs. A production
function is a guide to management for efficient production of a good or service, efficiency
implying the production of a given level of output at the lowest possible cost using the
available technology.
5-11
Production
SECTION REFERENCE: Basic Production Concepts

LO: Explain the production function.
33. Suppose that management increases the size of its plant. What is the most likely impact on
total and marginal products of the other inputs? How will this affect usage of the variable
inputs?
ANSWER: The most likely impact is an increase in total product and marginal product for a
given amount of labor. Graphically, the total product and marginal product curves would
shift upward, and the peaks of the curves would occur at greater input levels than originally.
Typically, this will result in increased usage of the variable input.
34. Carefully explain why the marginal product of labor first rises and then falls as the use of
labor increases. In which portion of the marginal product of labor curve will the firm
typically produce?
ANSWER: The marginal product of labor increases because increase in labor employment
allows for specialization of labor. In addition, any underutilized fixed factor can be used
more intensively. Marginal product of labor then decreases as opportunities for
specialization are exhausted, and more and more labor is applied to a fixed amount of
machines and production capacity. The typical firm will produce at an input level for which
the marginal product of labor is falling.
SECTION REFERENCE: Production in the Short Run
35. Will a profit-maximizing firm seek to maximize output from a variable input? Explain.
ANSWER: No. Assume the variable input is labor. A firm will maximize profit when it
equates the marginal revenue product of labor (MRPL) and the marginal cost of labor (MCL).
If the firm maximizes output from an input, then MPL = 0, and MRPL = 0. Because MCL is
positive (i.e., there is a cost of hiring additional labor hours), the firm will not maximize
profit in this case. Instead the firm will maximize profit by using less labor, so that MPL is
still positive.
5-12
Chapter 5
36. Explain how the optimal usage of the variable input, labor, will change in response to the
following changes in the short-run:
(a) A drop in the price of the good or service that the firm sells
ANSWER: The firm’s optimal use of its variable input (here, labor) is governed by the rule:
MRPL = MCL. The key is to trace the effect of each change on the factors entering into this
rule. A drop in the good’s price reduces the firm’s marginal revenue product causing it to
use less labor and to lower its output level.
(b) A drop in the hourly wage
ANSWER: A drop in the hourly wage makes the use of labor more attractive as the marginal
cost of labor declines. Labor use and output both increase.
(c) A decline in the productive efficiency of labor
ANSWER: A decline in labor’s marginal product causes MRPL to fall, so labor usage and
output both decrease.
37. Dirt Diggers (DD) is a firm that excavates roadside ditches to lay drainpipe. Its output
follows the production function: Q = 10L – .1L2, where Q denotes the length of the ditch in
meters. The firm hires labor at a wage of $12 per hour. DD has received an offer to excavate
250 meters for a price of $500. Should it accept the offer? Suppose DD is offered as much or
as little excavation work as it desires at a price of $2.00 per meter, what is the optimal
quantity that it should choose to excavate?
ANSWER: From the production function, it can be seen that excavating 250 meters requires
50 labor hours. For this much labor, the total wage cost is ($12)(50) = $600. Clearly, DD
should reject the $500 price.
To determine a profit-maximizing quantity (of digging), DD should set MRPL =
(MR)(MPL) = MCL. We know that MPL = dQ/dL = 10 – .2L. Thus, we have: ($2)(10 – .2L)
= $12, implying L = 20 labor hours. In turn, Q = 200 – 40 = 160 meters, and DD's profit is
($2)(160) – ($12)(20) = $320 – $240 = $80.
5-13
Production
38. Carefully define returns to scale, and explain how this differs from marginal returns.
ANSWER: Returns to scale refer to the impact on output if all inputs are changed in the
same proportion. For example, if a firm faces constant returns to scale and all inputs increase
by 5%, then output will increase by 5%. Marginal returns refer to the impact on output if one
input is changed while all other inputs are held fixed. Typically, it is expected that as use of
the input increases, the firm will experience diminishing marginal returns. This will be true
regardless of returns to scale. Marginal returns to an input applies to the short-run and
returns to scale applies in the long-run as all inputs can be varied simultaneously only in the
long-run.
39. Carefully define marginal rate of technical substitution. What are the assumptions on the
basis of which it is calculated?
ANSWER: The marginal rate of technical substitution, MRTS, denotes the rate at which one
input substitutes for another in production. When using isoquants, it can be measured as:
(–MPL/MPK), where MPL and MPK refer to the marginal products of labor and capital
respectively. While calculating MRTS, it is assumed that Q or output is constant; that is,
inputs are substituted along the same isoquant.
40. For the Cobb-Douglass production function: Q = cLαKβ derive the marginal rate of technical
substitution?
ANSWER: The marginal rate of technical substitution [MRTS] is the ratio of the marginal
product of labor [MPL] to the marginal product of capital [MPK]. MPL = ∂Q/∂L = cαLα-1Kβ
and MPK = cβLαKβ-1. Therefore, MRTS = MPL/ MPK = (α/β)(K/L).
5-14
Chapter 5
41. Carefully explain the condition that the firm should follow if it wishes to produce at least
cost in the long run.
ANSWER: In the long run, the firm produces at least cost when the ratios of marginal
products to input costs are equal across all inputs. This requires that the firm hire inputs so
that: MPK/PK = MPL/PL = ... = MPi/Pi for all inputs. If a firm follows this rule, then the extra
output per dollar of input will be the same for all inputs. No possible rearrangement of
inputs will decrease cost for that level of output, or increase output for that level of
expenditure on inputs.
42. Specialty Steel has carefully measured production in its new plant to determine whether it is
technically efficient in production. It has found that, for its two inputs K and L, it has the
following marginal products: MPK = 15 units and MPL = 22 units. The inputs are hired in
perfectly competitive markets, and the firm faces input costs of PK = $7.50 and PL = $10 per
unit. You have been hired as a consultant to assist Specialty in increasing profitability. What
do you recommend about production planning? Explain.
ANSWER: In the long run, the firm produces at least cost when the ratios of marginal
products to input costs are equal across all inputs. This requires that MPK/PK = MPL/PL.
Here, the respective ratios are 15/7.50 and 22/10 and are not equal. Therefore, the firm is not
maximizing profit. It can increase efficiency and profit by hiring more labor and/or less
capital to bring this ratio into equality. As more L is used, MPL will decline; as less K is
used, MPK will increase.
43. A firm has carefully estimated its production function to be: Q = K.55L.45. What is output
elasticity in this case? What sort of returns to scale does the firm face? Explain.
ANSWER: Output elasticity is given by the sum of the exponents 0.55 + 0.45 = 1. In
addition, because the exponents add up to one, the firm faces constant returns to scale.
ESSAYS
5-15
Production
44. Standale Plastics produces plastic dustpans, using a semi-automated system of five machines
to produce pans. The amount of labor to tend the machines, repair, adjust input flows, and
remove completed pans, is variable, and output tends to follow the formula: Q = 300L.6,
where Q = units of output produced per day and L = number of daily workers.
(a) Compute the total product per day and the marginal product of labor for the first five
workers.
ANSWER: The last row of the accompanying table lists the total product Q produced per
day and marginal product of labor, MPL, for 5 workers, according to the equations: Q =
300L.6 and MPL = Q/L = (0.6)(300)(L)-.4.
L Q MPL
1 300 180
2 455 136.4
3 580 116
4 689 103.4
5 788 94.7
(b) Standale sells the dustpans to retailers at a price of $1 each, and can hire labor at a wage
of $125 per day. What is the optimal amount of labor to hire? What is the optimal output of
dustpans?
ANSWER: Optimal use of an input requires that the marginal revenue product of labor
equals the marginal cost of labor: MRPL = (MR)(MPL) = MCL. Given that MRPL = $1 and
MCL = $125, it follows that MPL = $125. The firm should use two workers because the
marginal product of a third worker falls short of the threshold value of $125. Total output is
455 units.
(c) Suppose that the price of the dustpans increases to $1.25. What is the new optimal
amount of labor?
ANSWER: The new threshold value for MPL becomes: ($1.25) × (MPL) = $125 or MPL =
100 units. The increase in price prompts the firm to increase its labor to four workers.
45. A firm produces a good in two factories: one in Tucson and one in Phoenix. Historically, the
plants’ long-run average costs have been comparable. Engineers have found that output
elasticity at the Tucson plant is 1.1, while at Phoenix it is .93. A senior production manager
5-16
Chapter 5
has recommended expanding the scale of production in Tucson over the next few years and
cutting production in Phoenix. Examine the validity of this proposal.
ANSWER: This proposal is valid. Tucson’s facility exhibits increasing returns to scale while
Phoenix’s facility has decreasing returns to scale. The plants are starting from roughly the
same average cost per unit. Increasing the scale of production in Tucson will lower its long
run average cost. Conversely, because in Phoenix average costs are rising with output, the
best thing to do is reduce the scale of operation and downsize toward lower average costs.
By shifting output from Phoenix to Tucson, the firm can produce the same total amount of
output and lower the average cost per unit in both plants.
46. A firm produces according to the following production function: Q = K.25L.75. The price of K
is $4 per unit, and the price of L is $6 per unit. What is the optimal capital/labor ratio?
ANSWER: The firm employs inputs in an optimal ratio when MPK/PK = MPL/PL
MPK = .25K-.75L.75 and MPL = .75K.25L-.25. By substitution, (.25K-.75L.75)/4 = (.75K.25L-.25)/6
Cross multiplying leads to: 6(.25K-.75L.75) = 4(.75K.25L-.25) or 1.5K-.75L.75 = 3K.25L-.25
This simplifies to 1.5L = 3K, or L = 2K. The firm should use twice as many units of labor as
units of capital or the optimal capital/labor ratio is 1:2.
47. Assume that a firm employs labor and capital by paying $40 per unit of labor employed and
$200 per hour to rent a unit of capital. Given that the production function is given by: Q =
10L – L2 + 60K –1.5K2, where Q is total output, L is labor, and K is capital, what is the
firm’s optimal combination of capital and labor?
ANSWER: The optimal combination of inputs is the least-cost combination that can be used
to produce a certain level of output. The marginal product of labor is given by: ∂Q/∂L = 10 –
2L. The marginal product of capital is given by: ∂Q/∂K = 60 – 3K. The firm’s least-cost mix
of inputs must satisfy MPL/PL = MPK/PK. Therefore, (10 – 2L)/40 = (60 – 3K)/200. The
solution is: L = .3K – 1. This is the combination of inputs that will produce the efficient
level of output.
48. Ranger Construction is preparing to repair potholes, under contract to the local county road
repair agency. Based on past experience, Ranger has found that output can be described by:
5-17
Production
Q = K.5L.5, where Q = pot holes filled, K = units of capital, and L = units of labor. Ranger
can hire labor at $12 per hour, and the cost of capital is $8 per unit. Capacity limitations
require that Ranger accepts no more than $96,000 worth of filling this season. What is the
optimal mix of inputs for Ranger? How many potholes should Ranger agree to fill? Use the
method of Lagrange multipliers to find the solution.
ANSWER: Ranger's objective is: Maximize Q = K.5L.5 subject to 8K + 12L = 96,000.

The Lagrange multiplier is: G = K.5L.5 + (8K + 12L - 96,000). The three partial derivatives
need to be computed and set equal to zero:
(1) G/K = .5K-.5L.5+ 8 = 0.
(2) G/L = .5K.5L-.5 + 12 = 0.
(3) G/ = 8K + 12L - 96,000 = 0.
Multiply (1) by 1.5: .75K-.5L.5 + 12 = 0 and equate this expression with (2) to get:
.75K-.5L.5 + 12 = .5K.5L-.5 + 12. Cancel 12, and then combine terms and simplify:
.75L = .5K, or K = 1.5L. Substitute this last expression into (3): 8(1.5L) + 12L – 96,000 = 0,
or 24L = 96,000. Thus, L = 4,000 units and K = (1.5)(4,000) = 6,000 units. The firm’s level
of output is: Q = (6,000).5(4,000).5 = 4,899 potholes. Ranger should hire 4,000 units of labor,
6,000 units of capital, and agree to fill 4,899 potholes.
49. Crew Brew produces a popular brand of beer in its mini-brewery located on a small river in
Wisconsin. It uses a special formula, combined with the fresh water from the local stream, to
produce a drink popular with local folks and tourists who visit during the summer fishing
season, and autumn deer hunting season. Crew’s production function is: Q = 50K + 50L,
where Q = barrels of beer, K = units of capital, and L = units of labor.
(a) Suppose that capital can be purchased for $8 per unit, and labor costs $6 per unit. What is
the optimal combination of inputs for the firm to employ?
ANSWER: The marginal products for the inputs are: MPK = Q/K = 50 and MPL = Q/L
= 50. Because the marginal products are identical, and labor is the cheaper input, Crew Brew
should employ only labor to produce its product. Note that MPL/PL is always greater than
MPK/PK.
(b) Suppose that the cost of inputs changes to $7 for a unit of capital, and $9 for a unit of
labor. What is the new optimal combination of inputs?
ANSWER: Now MPK/PK > MPL/PL, so the firm should use only capital.
5-18
Chapter 5
(c) Explain the context in which a firm may use inputs in the combination described above.
ANSWER: This unusual result is obtained when the inputs are perfect substitutes. When
inputs are perfect substitutes, graphically, isoquants are straight lines. The optimal solution
is on one of the axes; use only labor or capital, depending on the input price ratio.
50. Enpar manufactures engine parts for an automotive manufacturer. It operates two plants, A
and B, which have the following production functions: QA = 30SA – .25SA2 and QB = 40SB –
.5SB2, where QA and QB denote the outputs of engine parts from each plant and SA and SB
denote the amounts of steel used in each plant. Suppose that total steel availability is 40
units. What is the optimal allocation of steel between the two plants?
ANSWER: Enpar maximizes profit when the marginal product for steel is equal at the two
plants. The marginal product of steel at plant A is given by: MPA = 30 – .5SA. The marginal
product of steel at plant B is: MPB = 40 – SB. Equating MPA and MPB gives: 30 – .5SA = 40
– SB. In addition, the availability constraint is: SA + SB = 40, so that SB = 40 – SA.
Substituting this last equation into MPA = MPB yields the single equation: 30 - .5SA = 40 –
(40 – SA), so 30 = 1.5SA. Thus, SA = 20 and SB = 20.
51. Sleak Teak builds yard furniture, using domestic hardwoods and (in a smaller shop)
handcrafted knick-knacks from the same sort of wood. Although hardwoods were readily
available in the past, recently they have been much more difficult to obtain. Consultation
with the plant managers of the two lines has resulted in the following production functions
for hardwood usage in the two products. For yard furniture: Y = 2TY – .001TY2, while for
Knick-knack: K = 20TK – .01TK2. Here Y and K denote units of the two types of products
and TY and TK denote teak used in yard furniture and knick-knacks respectively. Yard
furniture can be sold at a profit of $100 per unit, and knick-knacks can be sold at a profit of
$25 each. Sleak Teak has 1,300 units of teak available. How should it be allocated across the
two products? Explain.
ANSWER: The marginal products of teak in the two goods are: MPY = 2 – .002TY and MPK
= 20 – .02TK. The marginal profits of the two activities are: MY = (100)MPY = 200 – .2TY,
and MK = (25)MPK = 500 – .5TK. Equating the two marginal profits: 200 – .2TY = 500 –
.5TK. In addition, TY + TK = 1,300. Therefore, 200 – .2TY = 500 – .5(1,300 – TY), or 350 =
.7TY. Thus, TY = 500 units. In turn, TK = 800 units. From the production functions: Y = 750
units and K = 9,600 units.
5-19
Production
5-20

Managerial Economics 8th Edition Samuelson Test Bank 1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Managerial Economics 8th Edition Samuelson Test Bank 1

Uploaded by

Copyright:

Available Formats

Managerial Economics 8th Edition

Samuelson Solutions Manual

Solution Manual: https://testbankpack.com/p/solution-manual-for-

Test Bank: https://testbankpack.com/p/test-bank-for-managerial-

1. A firm’s production function shows:

2. The short-run is best defined as the time period in which:

3. Which of the following is true in the long-run?

5. Refer to Table 5-1. Diminishing returns to labor occurs beyond:

6. Which of the following correctly defines the marginal product of labor?

8. What does the law of diminishing marginal returns state?

12. Refer to Table 5-1. Diminishing returns occurs beyond:

23. Which of the following correctly describes a production isoquant?

24. The slope of an isocost line shows:

c) have to be increased in the same proportion.

27. Which of the following is true of fixed-proportions production?

SECTION REFERENCE: Measuring Production Functions

ANSWER: A firm's production function is a quantitative relationship that indicates the

SECTION REFERENCE: Basic Production Concepts

DIFFICULTY LEVEL: Medium

(b) A drop in the hourly wage

(c) A decline in the productive efficiency of labor

ANSWER: Ranger's objective is: Maximize Q = K.5L.5 subject to 8K + 12L = 96,000.

DIFFICULTY LEVEL: Hard

You might also like