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Returns to Scale Quiz

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Questions and Answers

Based on the given information, what happens to the output Y2 when the inputs K1 and L1 are scaled by a factor z?

Y2 = Y1

Y2 > zY1

Y2 < zY1

Y2 = zY1 (correct)

If the inputs K1 and L1 are increased by 25%, what happens to the output Y2?

Y2 > 1.25Y1

Y2 = Y1

Y2 = 1.25Y1 (correct)

Y2 < 1.25Y1

If the output Y2 is greater than zY1, what can be inferred about the returns to scale?

Decreasing returns to scale

Constant returns to scale

No relationship can be inferred

Increasing returns to scale (correct)

According to the model, what determines the distribution of national income?

The prices per unit that firms pay for the factors of production Signup and view all the answers

What does the notation W/P represent?

Real wage (measured in units of output) Signup and view all the answers

According to the model, what is fixed?

Capital and labor supplies Signup and view all the answers

Which one of these is the correct definition of factor prices?

Factor prices are determined by supply and demand in factor markets. Signup and view all the answers

What is the basic idea behind a firm's decision to hire labor?

A firm hires each unit of labor if the benefit exceeds the cost. Signup and view all the answers

What does the marginal product of labor (MPL) represent?

The additional output a firm can produce using an additional unit of labor. Signup and view all the answers

Which of the following production functions exhibits diminishing marginal returns to labor?

c) 2 + 15FK + LK + L Signup and view all the answers

What happens to worker productivity when labor input is increased while holding capital fixed?

b) Worker productivity decreases Signup and view all the answers

What is the relationship between the marginal product of labor and labor input in the context of diminishing marginal returns?

b) The marginal product of labor decreases as labor input increases Signup and view all the answers