Praktikum V

CHAPTER 6

THE BEHAVIOR OF PROFIT MAXIMIZATION’S FIRMS

Matching Question

1. Technology that relies heavily on human labor instead of capital.

2. A mathematical expression of a relationship between inputs and outputs. It shows units of total product as a function of units of inputs.

3. A graph that shows all the combinations of two inputs which are available for a given total cost.

4. The average amount produced by each unit of a variable factor of production.

5. A rate of return on capital that is just sufficient to keep owners and investors satisfied.

6. The additional output that can be produced by adding one more unit of a specific input.

7. A graph that shows all the combination of two inputs that can be used to produce a given amount of output.

8. When additional units of a variable inputs are added to fixed inputs after a certain point, the marginal product of the variable input declines.

9. Technology that relies heavily on capital instead of human labor.

10. The difference between total revenue and total cost.

a. Production

b. Normal rate of return

c. Profit

d. Capital-intensive technology

e. Labor-intensive technology

f. Production function

g. Marginal product

h. Average product

i. Law of diminishing return

j. Isoquants

k. Isocosts

True-False

1. Production is the process by which inputs are combined, transformed, and turned into output.

2. Total cost is the sum of the out-of-pockets cost, a reasonable rate of return on capital, and the opportunity cost of each factor of production.

3. The amount received from the sale of the products (q x P) is the average revenue.

4. An excess return occurs when a firm is earning below-normal rate of return on capital.

5. The firm operates under a fixed scale and firm can neither enter nor exit an industry occurred in the long run.

6. Marginal product is at its maximum at the point of intersection with average product.

7. If marginal product is above the average product, the average product rises.

8. Diminishing return occur when total output decline.

9. The slope of an isocost measures the marginal rate of technical substitution.

Multiple Choices

1. The component/s of total cost :

a. Out of pocket costs

b. Reasonable rate of return on capital

c. Opportunity cost of each factor of production

d. All answers are true

2. The relationship between input and output is expressed mathematically by..

a. Isocost

b. Production function

c. Isoquant

d. Cost function

3. Total revenue minus total costs equal to the positive.

a. Profit

b. Loss

c. Average cost

d. Breakeven point

4. In the short run, an existing firm….

a. Can shutdown and leave the industry

b. Can shutdown but can’t leave the industry

c. Can’t vary its output level

d. Can vary its output level

5. Total output divided by the amount of the input used to produce the output is called

a. Marginal product

b. Marginal cost

c. Average cost

d. Average product

6. If marginal product is less than average product, then…

a. Average product increase

b. Average product decrease

c. Average product constant

d. No one is correct

7. Graph that shows all the combinations of two inputs that can be used to produce a certain output:

a. Isocost

b. Production function

c. Isoquant

d. Cost function

8. Marginal rate of the technical substitution is equal to

a. – MPL/MPK

b. – PL/PK

c. –APL/APK

d. – TPL/TPK

9. The slope of isocost is given by

a. – MPL/MPK

b. – PL/PK

c. –APL/APK

d. – TPL/TPK

10. When diminishing return happened, the total product is….

a. Decreasing at decreasing rate

b. Decreasing at increasing rate

c. Increasing at decreasing rate

d. Increasing at increasing rate

Essay

1. Explain the three decisions which made by firm to maximize profit.

2. Define the total cost. What is the difference between implicit and explicit cost?

3. Distinguish the behavior of firm in the short run and long run.

4. Look at the table below:

a. Describe about labor intensive and capital intensive technology! Which technology is the most labor intensive and which technology is the most capital intensive technique?

b. If price of both labor and capital is $4, which one is the optimal production technology? Why?

5. Explain the relationship between marginal product and average product.

6. What from marginal and average product curves can be derived? Draw the graph.

7.. a. Complete the table

b. Diminishing returns set from……..labors. Draw the graph!

8. Mention about the law of diminishing returns!

9. What are the isocost and isoquant? Explain with graph!

10. Explain the equilibrium condition which minimized cost and draw the graph.