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?

<p>The prices per unit that firms pay for the factors of production (A)</p> Signup and view all the answers

What does the notation W/P represent?

<p>Real wage (measured in units of output) (C)</p> Signup and view all the answers

According to the model, what is fixed?

<p>Capital and labor supplies (C)</p> Signup and view all the answers

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

<p>Factor prices are determined by supply and demand in factor markets. (C)</p> Signup and view all the answers

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

<p>A firm hires each unit of labor if the benefit exceeds the cost. (C)</p> Signup and view all the answers

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

<p>The additional output a firm can produce using an additional unit of labor. (D)</p> Signup and view all the answers

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

<p>c) 2 + 15FK + LK + L (C)</p> Signup and view all the answers

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

<p>b) Worker productivity decreases (C)</p> 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?

<p>b) The marginal product of labor decreases as labor input increases (C)</p> Signup and view all the answers

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