2. MACRO CH-3

The production function is a mathematical law that

• a. relates factor prices to the amounts of inputs demanded.

• b. relates marginal products of factors of production to factor prices.

• c. relates factors of production to the amount of output produced.

• d. always has constant returns to scale.

The variable that is held constant for a given production function is the

• a. amount of labor input.

• b. amount of output.

• c. amount of capital input.

• d. production technology.

An economy’s aggregate income equals

• a. the total number of dollars earned by workers.

• b. aggregate output.

• c. the number of dollars received by producers as profits.

• d. the total rent collected by the owners of capital.

A competitive firm takes

• the prices of its outputs as given, but not the prices of its inputs.

• the prices of its inputs as given, but not the prices of its outputs.

• the prices of both its inputs and its outputs as given.

• neither the prices of its inputs nor the prices of its outputs as given.

Profit is

• a. total revenue minus total cost.

• b. the price of output minus the price of input.

• c. the amount of money paid by a company to its stockholders as dividends each year.

• d. the amount of money earned by firm managers.

Constant returns to scale occur when

• output doubles when the amounts of all factor inputs double.

• output remains constant over time.

• the marginal productivity of labor equals the marginal productivity of capital.

• the marginal products of capital and labor do not change.

The production function that illustrates the diminishing marginal product of labour is

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• 
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A profit-maximizing firm will hire labor up to the point where

• a. the marginal product of labor equals the marginal product of capital.

• b. the marginal product of labor equals the real wage.

• c. marginal revenue equals zero.

• d. the real wage equals the real rental price of capital.

The FALSE statement below is

• the extra revenue a firm gets from an extra unit of capital equals the marginal product of capital times the price of output.

• the extra revenue a firm gets from an extra unit of labor equals the marginal product of labor times the wage.

• a perfectly competitive firm’s labor demand curve is the MPL schedule.

• constant returns to scale and profit maximization together imply that economic profit is zero.

According to Euler’s theorem, the sum of all factor payments will equal total output if each factor of production is paid its marginal product and if

• a. the production function has constant returns to scale.

• b. the production function displays diminishing marginal productivity.

• c. the amounts of capital and labor employed are equal.

• d. accounting profits equal zero.