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Economics 2152A/B Chapter Notes - Chapter 3: Factors Of Production, Production Function, Pearson Education

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orchidgnat204
8 Jan 2019
School
Western University
Department
Economics
Course
Economics 2152A/B
Professor
Ayoub Yousefi

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Document Summary

3. 1 multiple-choice questions: which market determines the real wage and employment, the good market, the money market, the labour market, the capital market. Diff: 1 type: mc page ref: 56: in the production function y = af(k,n), a is, labour productivity, total factor productivity, capital productivity, the marginal productivity of capital. Diff: 1 type: mc page ref: 56: suppose the economy"s production function is y = ak0. 3n0. 7. If k = 1000 and n = 50, then y. What is y if k = 2000 and n = 100: 4000, 3500, 3400, 3000. Explanation: a) note: though the problem seems difficult, you can point out to students that it"s easy once you notice that the cobb-douglas form has constant returns to scale, so doubling the inputs doubles the output. Copyright 2012 pearson canada inc: under certain circumstances, the production function y = af(k. n) can be rewritten as y = In this case, suppose that both k and n double.

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Related Questions

1) Which of the following things would increase the value of Total Factor Productivity (TFP)?

a. A new production method that can produce smaller, more efficient microchips.

b. None of the other answers.

c. A company hires a large amount of workers after building a brand new factory.

d. Foreign investors invest in physical capital.

2) The country of Rupertopia has one factory for all its workers in 2011 and 2012. There were 100 workers in 2011 and 150 workers in 2012. Additionally, there were 200 people living in Rupertopia in 2011 and 1,000 people in 2012. Real GDP was one million dollars in 2011 and two million dollars in 2012. Which of the following statements regarding labor productivity is true:

a. Labor productivity in Rupertopia exhibits constant returns.

b. Labor productivity in Rupertopia exhibits increasing returns.

c. Labor productivity in Rupertopia exhibits diminishing returns.

d. More information is needed to determine whether labor productivity in Rupertopia exhibits diminishing, constant, or increasing returns.

3) Which of the following changes would help to improve a country's productivity level?

a. Improvements in the health of workers

b. None of the other answers.

c. Tuition increases at local Universities

d. A lower birth rate

4) When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly. This statement:

a. is an assertion that capital is subject to increasing returns.

b. is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.

c. represents an unconventional view of the production process.

d. All of the other answers are correct.

5) Economic growth can be influenced by government policies. Which of the following can influence the economy's growth rate?

a. All of the other answers are correct

b. Promoting research and development of technologies

c. Fostering education

d. Maintaining property rights

Consider a firm that produces using capital (K) and labor (N) given a production technology represented with the following production function:

zF (K, N) = zK^αN^(1−α)

The firm has a fixed amount of capital K and can hire labor at a market (given) wage (w) (per unit of labor hired). Then the profits of the firm are:

π = max N zF (K, N) − wN

= max zK^αN^(1−α) − wN

(a) Find the FOC of the firm and interpret it.

(b) Solve for the optimal labor demand of the firm.

(c) Is the labor demand increasing in K? Why?

(d) The elasticity of the labor demand to wages is defined as: ξw =∂ ln N/∂ ln w

Find it and interpret it.

(e) The elasticity with respect to capital and productivity measures how much the demand for labor varies when the amount capital or the productivity vary. We can use our labor demand function to find these elasticities:

ξK =∂ ln N/∂ ln K, ξz =∂ ln N/∂ ln z

Find them and interpret them.

Consider the following Cobb-Douglas production for red bean coffee. q=(l^0.2)*(k^0.5)

a. Intuitively, why are Cobb-Douglas production functions more appropriate representations of reality than, say, linear production functions?

b. Based on the function above, is red bean coffee's business experiencing economies or diseconomies of scale? Explain how you arrived at your answer.

c. If red bean coffee decided to boost labor by 15% and captail by 10%, how much will productivity increase?

d. If red bean coffee wanted to boost productivity by 40% and already knew they were going to increase capital by 20%, how much would they have to increase their labor force to reach this production target?