Page 108 - DECO405_MANAGERIAL_ECONOMICS

Unit 6: Production Theory

6.10 Review Questions Notes

1. Which of the following statements best describes the general form of a production function
and why?

(a) It is a purely technological relationship between quantities of input and quantities
of output.
(b) It represents the technology of an organisation, sector of an economy.
(c) Prices of inputs or of the output do not enter into the production function.

(d) It is a flow concept describing the transformation of inputs into output per unit of
time.
2. A firm has a production function of the following form Q = K + 2L Where Q is output, K is
the capital input and L is the labour input per time period. The wage rate and the rental
rate on capital is 50 per unit. Find out the cost minimising output.

3. A firm faces the following long run cost function:
3
2
TC = q – 40q + 450q
Calculate the quantity (q) and the average cost (AC), when the latter will be at its minimum.
4. From the information given below calculate the average and marginal product of labour.
Land (acres) 5 5 5 5 5 5 5 5
Labour (number of men) 0 1 2 3 4 5 6 7
Total product (kg.) 0 3 8 12 15 17 17 16

5. If a firm moves from one point on a production isoquant to another, which of the following
will not happen and why?
(a) A change in the ratio in which the inputs are combined.
(b) A change in the marginal products of the inputs.

(c) A change in the rate of technical substitution.
(d) A change in the level of output.
6. “The marginal rate of technical substitution is numerically equal to the negative of the
slope of an isoquant.” Comment.
7. Can Isoquants be drawn in different shapes? Examine their characteristics.

8. Calculate the total cost of production, if only two inputs are used- labour and capital.
Consider the following data: Cost of labour= 50/unit, price of capital= 500, number of
labour used= 35 and capital used 45.
9. Show that the different relative input prices would define an isocost line with a different
slope.
10. Show that the ratio of marginal products is equal to the ratio of price.

Answers: Self Assessment

1. Transformation 2. Inputs
3. Variable Inputs 4. Short Run

5. Q = f(X , X ……………X ) 6. output
1 2 k

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