Solutions Tutorial Chapter 6 - Production

∗
Guido Pialli

January 26, 2021

∗
guido.pialli@unito.it

1
Multiple choices
1. A production function indicates the maximum output per unit of time that a
rm can produce, for every combination of inputs, with a given:
A. Cost of production.
B. Technology.
C. Prot.
D. Labour input.
E. None of the above.
Correct answer: B

2. The short run is:

A. Less than a year.
B. Three years.
C. However long it takes to produce the planned output.
D. A time period in which at least one input is xed.
Correct answer: D

3. The slope of the total product curve is the:

A. Average product.
B. Slope of a line from the origin to the point.
C. Marginal product.
D. Marginal rate of technical substitution.
E. Marginal cost.
Correct answer: C
4. Joe owns a small coee shop, and his production function is q = 3KL where q
is total output in cups per hour, K is the number of coee machines (capital), and
L is the number of employees hired per hour (labor). If Joe's capital is currently
xed at K = 3 machines, what is his short-run production function?
A. q = 3L.
B. q = 3L2 .
C. q = 9L.
D. q = 3K 2 .
Correct answer: C

5. In the short run, when labour usage is at 12 units, output is 36 units. From
this we may infer that:
A. The marginal product of labour is 3.
B. The production function exhibits decreasing returns to scale.
C. The total product of labour is 1/3.
D. Impossible to say if the level of capital is unknown.
E. The average product of labour is 3.
Correct answer: E

6. Joe owns a coee house and produces coee drinks under the production
function q = 5KL where q is the number of cups generated per hour, K is the
number of coee machines(capital), and L is the number of employees hired per
hour(labour). What is the marginal product of labour?
A. M PL =5.
B. M PL =5K.
C. M PL =5L.
D. M PL =5K/L.
E. M PL =10K.
Correct answer: B

7. An isoquant:
A. Must be linear.
B. Cannot have a negative slope.
C. Is a curve that shows all the combinations of inputs that yield the same total
output.
D. Is a curve that shows the maximum total output as a function of the level of
labor input.
E. Is a curve that shows all possible output levels that can be produced at the
same cost.
Correct answer: C

8. An L-shaped isoquant:
A. Is impossible.
B. Would indicate that the rm could switch from one output to another cost-
lessly.
C. Would indicate that the rm could not switch from one output to another.
D. Would indicate that capital and labor cannot be substituted for each other in
production.
E. Would indicate that capital and labor are perfect substitutes in production.
Correct answer: D
9. The rate at which one input can be reduced per additional unit of the other
input, while holding output constant, is measured by the:
A. Marginal rate of substitution.
B. Marginal rate of technical substitution.
C. Slope of the isocost curve.
D. Average product of the input.
E. Marginal product.
Correct answer: B

10. In a production process, all inputs are increased by 10%; but output increases
less than 10%. This means that the rm experiences:
A. Decreasing returns to scale.
B. Constant returns to scale.
C. Increasing returns to scale.
D. Negative returns to scale.
Correct answer: A
Exercises
Exercise 1
Fill in the gap in the table below:

Quantity Total output Marginal product Average product

of labour output of variable input of variable input
0 0
1 150 150 150
2 400 250 200
3 600 200 200
4 760 160 190
5 910 150 182
6 900 −10 150

Exercise 2
1. The marginal productivity of labour is equal to:
√
∂y(K, L) 1 √ 1 2 K
M PL = = 4 KL− 2 = √
∂L 2 L
The marginal productivity of capital is equal to:
√
∂y(K, L) 1 √ 1 2 L
M PK = = 4 LK − 2 = √
∂K 2 K
 2.

Cheeses K L M PL M PK
8 4 1 4 1
16 4 4 2 2
24 4 9 4
3 3
32 4 16 1 4

3. The marginal products of capital and labour are aected by the change.
The new marginal product of labour becomes:

∂F (K, L) 1 1 4K
M PL = = 8KL− 2 = √
∂L 2 L
The marginal productivity of capital is instead:

∂F (K, L) √
M PK = =8 L
∂K

Exercise 3
The Bridget's Brewery production function exhibits constant returns to scale.
Indeed:
√ √ √
F (λK, λL) = 2 λKλL = 2 λ2 KL = λ2 KL = λF (K, L) ⇒ constant
returns to scale
The marginal product of labour is equal to:
√
∂F (K, L) 1 −0.5 √ K
M PL = =2 L K= √
∂L 2 L
When capital is xed at 4, the marginal product of labour is equal to:

2
M PL = √
L
 Notice that as L increases, the marginal product is downward sloping. Indeed,
let's take two values for L.
Take L = 4, then M PL = 1.
When L = 16, then M PL = 42 = 12 .
The marginal product of labour decreases as labour increases.

Exercise 4
For each of the following production functions, compute the MRTS (Marginal Rate
of Technical Substitution) and say if it exhibits increasing, constant or decreasing
returns to scale:
1. F (K, L) = K 2 L
2. F (K, L) = 10K + 5L
√
3. F (K, L) = KL
Solutions

1. F (K, L) = K 2 L

∂F (K, L)
M PL = = K2
∂L

∂F (K, L)
M PK = = 2KL
∂K

M PL K2 K
M RT S = = =
M PK 2KL 2L
Returns to scale refer to the relationship between output and proportional
increases in all inputs (λ > 1). Therefore, in order to verify which type of re-
turns to scale the function exhibits, it is sucient to check which condition occurs:

F (λK, λL) > λF (K, L) implies increasing returns to scale;

 F (λK, λL) = λF (K, L) implies constant returns to scale;

F (λK, λL) < λF (K, L) implies decreasing returns to scale;

In this case:
F (λK, λL) = (λK)2 (λL) = λ3 K 2 L = λ3 F (K, L) > λF (K, L) ⇒ increasing
returns to scale

2. F (K, L) = 10K + 5L

∂F (K, L)
M PL = =5
∂L

∂F (K, L)
M PK = = 10
∂K

M PL 5 1
M RT S = = =
M PK 10 2
F (λK, λL) = 10λK + 5λL = λ(10K + 5L) = λF (K, L) ⇒ constant returns
to scale
3. F (K, L) = 25L0.6 K 0.4

∂F (K, L) K 0.4
M PL = = 25(0.6)L−0.4 K 0.4 = 15 0.4
∂L L

∂F (K, L) 0.6 −0.6 L0.6

M PK = = 25(0.4)L K = 10 0.6
∂K K
0.4
M PL 15 K
L0.4 K 0.4 L−0.4 K
M RT S = = 0.6 = 1.5 = 1.5
M PK L
10 K 0.6
L0.6 K −0.6 L
F (λK, λL) = 25[(λL)0.6 ][(λK)]0.4 = 25λ0.6+0.4 (L0.6 K 0.4 ) = 25λL0.6 K 0.4 =
λF (K, L) ⇒ constant returns to scale