Tag: production and costs

Questions Related to production and costs

In the long run _________. 

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. all inputs, such as labour, equipment and offices or factories can be varied, and so total variable cost is equal to total cost since fixed cost is equal to zero

  2. all inputs except labour can be varied, and so total variable cost remains unchanged but fixed cost is equal to zero

  3. all inputs, such as labour, equipment and offices or factories can be varied, and so average fixed cost is lower

  4. All inputs such as labour, equipment and offices or factories can be varied, and so total variable and fixed cost are lower

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Correct Option: A
Explanation:
In the long run all factors are varied. The proportion of inputs are scaled up or down in order to produce at the minimum efficiency scale (long run minimum average cost). Thus, in the long run the total cost is the total variable cost as there is no fixed cost involved.

Which of the following is an assumption in the Law of Variable Proportions?

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. The Fixed Factor of production is scarce

  2. There are no perfect substitutes for the Fixed Factor

  3. Factors of Production can be used in any proportion

  4. All of the above

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Correct Option: D

Law of Returns to Scale indicates the responsiveness of total product when all inputs ________________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Remain same

  2. Are changed drastically

  3. Are changed marginally

  4. Are changed proportionately

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Correct Option: D

In a small scale rubber plant, factors of production like labour, material and capital are increased by 10% and output increases. It implies that the Firm is experiencing  ________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. Constant Returns to Scale

  2. Decreasing Returns to Scale

  3. Increasing Returns to Scale

  4. Increasing as well as decreasing

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Correct Option: C

A short-run production function is one which has ___________.

economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. at least one fixed factor

  2. all fixed factors

  3. all variable factors

  4. at least one variable factor

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Correct Option: A
A firm can quit the industry in the short run.
economics laws of returns - returns to a factor and returns to scale production and costs production function producer behaviour and supply total product, average product and marginal product production and law of variable proportions production return to scale and cobb douglas function land land,labour, capital and entrepreneur how does production take place?

  1. True

  2. False

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Correct Option: B
Explanation:

Quitting is not possible in the short run because short run, by definition, is a period of time which is too short for the existing firms to quit the industry or for any new firms to enter the industry. Therefore, a firm can quit the industry only in the long run.

Returns to scale means ________________.

economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

  1. the behaviour of production or return when all the production factors are increased or decreased simultaneously in the same ration

  2. the behaviour of production where one or two factors of production are fixed while the others are variable

  3. the marginal returns goes on increasing as more labour is invested in industry.

  4. the behaviour of production, when changes are made in factor proportions, keeping on or some factors fixed

Show answer
Correct Option: A
Explanation:

In the long run all factors are varied, the proportion of inputs while kept same is scaled up or down in order to produce at the minimum efficiency scale (long run minimum average cost) . Thus as the entire scale of production is changing, this phenomenon is know as returns to scale. 

The Cobb-douglas production function $Q= K^{1/2} L^{1/3}$ exhibits __________. 

economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

  1. constant returns to scale

  2. increasing returns to scale

  3. decreasing returns to scale

  4. none of the above

Show answer
Correct Option: C
Explanation:

The terms in the equation are raised to coefficients less than 1, this implies for every one unit increase in input the output will increase by less than 1. Thus, this is is a function exhibiting deceasing returns to scale. 

In the standard notation of Cobb Douglas Function, if + = 1,  the production function exhibits _____.

economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

  1. constant returns to scale

  2. increasing returns to scale

  3. decreasing returns to scale

  4. none of the above

Show answer
Correct Option: A

In the standard notation of Cobb Douglas Function, if the terms are raised to coefficients greater than 1, then the production function exhibits _______.

economics production and costs return to scale and cobb douglas function total product, average product and marginal product laws of returns - returns to a factor and returns to scale

  1. CRS

  2. DRS

  3. IRS

  4. None of the above

Show answer
Correct Option: C
Explanation:

In the standard notation of Cobb Douglas Function, if the terms are raised to numbers greater than 1 then for each one unit increase in input the output will increase by more than 1. eg: $Q(K,L)$ = ${K^3}$${L^6}$