Question 1

Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing.
II Diminishing returns to all factors of production implies decreasing returns to scale.

Accepted Answer

"Decreasing returns to scale" refers to a situation where increasing all inputs leads to a less than proportional increase in output, while "diminishing returns to a factor of production" refers to a situation where increasing one input while keeping others constant leads to a decrease in the marginal output. These are different concepts. Additionally, diminishing returns to all factors do not necessarily imply decreasing returns to scale.

Question 2

Increasing returns to scale in production means:

Accepted Answer

Increasing returns to scale in production means that as all inputs are increased, output increases at a more than proportional rate. In other words, less than twice as much of all inputs are required to double output, indicating increasing efficiency of production at larger scales.

Question 3

With increasing returns to scale, isoquants for unit increases in output become:

Accepted Answer

With increasing returns to scale, isoquants for unit increases in output become closer and closer together. This means that as output increases, the amount of inputs needed to produce that output decreases. As a result, the isoquants become flatter and closer together as more units of output can be produced with the same increase in inputs.

Question 4

Which scenario below would lead to lower profits as we double the inputs used by the firm?

Accepted Answer

In a scenario where the firm experiences constant returns to scale with rising input prices, doubling inputs would lead to higher costs and therefore lower profits. This is because the increase in costs would not be offset by an increase in output. In the other scenarios, an increase in inputs would lead to a proportionate increase in output, which would enable the firm to generate higher profits.

Question 5

The situation pictured in Figure 6.4.3 above:

Accepted Answer

The situation described as showing diminishing marginal products of labor and capital implies that as more units of labor or capital are added, the additional output produced by each new unit decreases. This is a common occurrence in production processes where, after a certain point, adding more of a factor of production (like labor or capital) results in smaller increases in output, reflecting diminishing marginal productivity.

Question 6

Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?

Accepted Answer

Since copper mines have increasing returns to scale, reducing inputs by 25 percent will result in a decrease in output by more than 25 percent. The exact amount of decrease in output will depend on the specific production function and the degree of increasing returns to scale.

Question 7

Figure 6.4.3
-Refer to Figure 6.4.3. The situation pictured is one of:

Accepted Answer

A production function exhibits decreasing returns to scale if doubling all inputs results in less than double the amount of output. This is seen in the graph as the slope of the line through the origin is less than one, indicating that increasing inputs by a certain percentage results in less than that same percentage increase in output. The convex shape of the isoquants also supports this conclusion, as it indicates that larger inputs are less efficient in producing output than smaller inputs.

Question 8

Consider the following statements when answering this question: I. If a technology exhibits diminishing returns then it also exhibits decreasing return to scale.
II) If a technology exhibits decreasing returns to scale then it also exhibits diminishing returns.

Accepted Answer

Diminishing returns and decreasing returns to scale are related but distinct concepts. Diminishing returns refer to the short-run phenomenon where adding more of one input (while keeping other inputs constant) leads to a decrease in the marginal output. Decreasing returns to scale, however, refer to the long-run scenario where increasing all inputs proportionally results in a less than proportional increase in output. Thus, one does not necessarily imply the other.

Question 9

If input prices are constant, a firm with increasing returns to scale can expect:

Accepted Answer

With increasing returns to scale, a firm can increase its output more than proportionally to its increase in inputs, resulting in lower costs per unit of output. This means that costs will go up less than double as output doubles.

Question 10

In Example 6.5 in the book, the authors use the observed production data from the U.S. carpet industry to show that small firms likely have constant returns to scale and that large firms likely have increasing returns to scale. Are returns to scale in this industry likely to continue increasing as these firms become even larger?

Accepted Answer

The authors predict that returns to scale in the U.S. carpet industry will likely decline at some point because they argue that the observed increasing returns to scale for large firms are due to market power and not technological advantages. As firms become even larger, the authors speculate that they will face diminishing returns and may even suffer from diseconomies of scale. Therefore, it is unlikely that returns to scale will continue to increase indefinitely.

Question 11

Why do firms tend to experience decreasing returns to scale at high levels of output?

Accepted Answer

At very high levels of output, firms may face problems with coordinating tasks and communications among managers and workers, leading to decreasing returns to scale. This can result in inefficiencies and higher costs, which reduce the overall output and productivity of the firm.

Question 12

Which of the following production functions exhibits constant returns to scale?

Accepted Answer

The production function q = K + L exhibits constant returns to scale because if both inputs are doubled, the output will also double. This can be seen by observing that (2K) + (2L) = 2(K + L), which means that doubling the inputs doubles the output. The other production functions do not exhibit constant returns to scale.

Question 13

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function  This production function exhibits:

Accepted Answer

The answer of A farmer uses M units of machinery...

Question 14

Bridget's Brewery production function is given by  where K is the number of vats she uses and L is the number of labor hours. Does this production process exhibit increasing, constant or decreasing returns to scale? Holding the number of vats constant at 4, is the marginal product of labor increasing, constant or decreasing as more labor is used?

Accepted Answer

The answer of Bridget's Brewery production function is given by...

Question 15

The textbook discusses the carpet industry situated in the southeastern U.S., and the authors indicate that smaller carpet mills have ________ returns to scale while larger mills have ________ returns to scale.

Accepted Answer

The answer of The textbook discusses the carpet industry situated...

Question 16

Figure 6.4.2
-Refer to Figure 6.4.2 above. The situation pictured in Figure 6.4.2:

Accepted Answer

As more workers are added, the increase in output begins to diminish, indicating diminishing marginal product.

Question 17

Use the following statements to answer this question: I. We cannot measure the returns to scale for a fixed-proportion production function.
II) Production functions with inputs that are perfect substitutes always exhibit constant returns to scale.

Accepted Answer

Statement I is false because returns to scale can be measured for a fixed-proportion production function by analyzing how output changes when all inputs are scaled. Statement II is false because production functions with perfect substitutes can exhibit increasing, constant, or decreasing returns to scale depending on the specific functional form and coefficients.

Question 18

Does it make sense to consider the returns to scale of a production function in the short run?

Accepted Answer

Returns to scale refer to the relationship between the scale of production and the output. In the short run, it is not possible to change all inputs and hence, returns to scale cannot be measured accurately. Therefore, option D is the correct choice.

Question 19

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function  This production function exhibits:

Accepted Answer

The answer of A farmer uses M units of machinery...

Question 20

Figure 6.4.2
-Refer to Figure 6.4.2 above. The situation pictured is one of:

Accepted Answer

The answer of  Figure 6.4.2
-Refer to Figure 6.4.2 above....

Quiz 6: Production

Use the following two statements to answer this question: I. "Decreasing returns to scale" and "diminishing returns to a factor of production" are two phrases that mean the same thing. II Diminishing returns to all factors of production implies decreasing returns to scale.

Increasing returns to scale in production means:

With increasing returns to scale, isoquants for unit increases in output become:

Which scenario below would lead to lower profits as we double the inputs used by the firm?

The situation pictured in Figure 6.4.3 above:

Many mining and mineral extraction processes tend to exhibit increasing returns to scale. Suppose copper mines have increasing returns, and the existing copper mines reduce their capital and labor inputs by 25 percent in response to a global recession. What is the expected impact on copper output?

Figure 6.4.3 -Refer to Figure 6.4.3. The situation pictured is one of:

Consider the following statements when answering this question: I. If a technology exhibits diminishing returns then it also exhibits decreasing return to scale. II) If a technology exhibits decreasing returns to scale then it also exhibits diminishing returns.

If input prices are constant, a firm with increasing returns to scale can expect:

Why do firms tend to experience decreasing returns to scale at high levels of output?

Which of the following production functions exhibits constant returns to scale?

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function This production function exhibits:

The textbook discusses the carpet industry situated in the southeastern U.S., and the authors indicate that smaller carpet mills have returns to scale while larger mills have returns to scale.

Figure 6.4.2 -Refer to Figure 6.4.2 above. The situation pictured in Figure 6.4.2:

Use the following statements to answer this question: I. We cannot measure the returns to scale for a fixed-proportion production function. II) Production functions with inputs that are perfect substitutes always exhibit constant returns to scale.

Does it make sense to consider the returns to scale of a production function in the short run?

A farmer uses M units of machinery and L hours of labor to produce C tons of corn, with the following production function This production function exhibits:

Figure 6.4.2 -Refer to Figure 6.4.2 above. The situation pictured is one of: