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.

Joe owns a small coffee shop, and his production function is q = 3KL where q is
total output in cups per hour, K is the number of coffee machines (capital), and L
is the number of employees hired per hour (labor). If Joe's capital is currently
fixed at K=3 machines, what is his short-run production function?
A) q = 3L
B) q = 3L2
C) q = 9L
D) q = 3K2
• A bakery operating in the short run has found that when the level of employment in
its baking room was increased from 4 to 10, in increments of one, its corresponding
levels of production of bread were 110, 115, 122, 127, 130, 132, and 133.
 
a. Calculate the marginal product of labor.
b. Explain whether this production function exhibits diminishing marginal productivity of
labor
• Do the following functions exhibit increasing, constant, or decreasing returns to
scale? 1
q  4 L2  4 K

Wheat is produced according to the production function q = 100(K0.8L0.2).

a. Beginning with a capital input of 4 and a labor input of 49, show that the
marginal product of labor and the marginal product of capital are both
decreasing.
b. If we increased use of labor hours and machines by 100%, how much would his
production increase? IRS , CRS or DRS??
Leann's Telecommunication firm production function is given by y(K, L) = 200 ( KL) 2/3

where K is the number of internet servers and L is the number of labor hours she uses.
Does this production function exhibit increasing, constant or decreasing returns to scale?
The production function for the personal computers of DISK, Inc., is given by q =
10K0.5L0.5, where q is the number of computers produced per day, K is hours of machine
time, and L is hours of labor input. DISK’s competitor, FLOPPY, Inc., is using the
production function
q = 10K0.6L0.4.
a) If both companies use the same amounts of capital and labor as one another, which
will generate more output?
( Assume for each firm, no of machines = no of laborer used).
• A firm pays its accountant an annual retainer of $10,000. Is this an economic cost?

• The owner of a small retail store does her own accounting work. How would you measure the opportunity
cost of her work?

• If the owner of a business pays himself no salary, then the accounting cost is zero, but the economic cost is
positive. True or False

• A firm that has positive accounting profit does not necessarily have positive economic profit. True or False

• Suppose that labor is the only variable input to the production process. If the marginal cost of production is
diminishing as more units of output are produced, what can you say about the marginal product of labor?

• The cost of flying a passenger plane from point A to point B is $50,000. The airline flies this route four times
per day at 7 AM, 10 AM, 1 PM, and 4 PM. The first and last flights are filled to capacity with 240 people. The
second and third flights are only half full. Find the average cost per passenger for each flight. Suppose the
airline hires you as a marketing consultant and wants to know which type of customer it should try to attract
—the off-peak customer (the middle two flights) or the rush-hour customer (the first and last flights). What
advice would you offer?
Output Total Cost Variable Fixed Cost Marginal
Cost Cost
0 60
1 10
2 90
3 20
4 80
5 180
6 50
 Total Variable Fixed Marginal Average Avg. Var. Avg. Fixed
Output Cost Cost Cost Cost Cost Cost Cost
0 30
1 35
2 60
3 110
4 200
5 320
6 600
Which of the following is NOT a reason for average costs to fall according to the learning curve?
A) Workers accomplish tasks more quickly after doing the task a few times.
B) Managers schedule more efficiently over time.
C) Engineers determine more accurately what tolerances can be used.
D) Suppliers may become better able to produce the exact inputs the firm needs.
E) Competing firms leave the industry as the learning firm becomes more efficient.