Question

1. In the case of a short-run production function:

		all of the inputs are variable.
		at least one of the inputs is fixed.
		the amount of labor employed is held constant.
		all of the inputs are fixed.

2. In the long-run production function, all of the inputs to the production process are allowed to vary.

True

False

3. In which of the following situations would a firm be more likely to rely on a capital-intensive method of production?

		When labor supply is limited relative to the available amount of capital.
		When capital is relatively expensive.
		When the firm's output cannot be produced using the assembly line method of production.
		When the rate of technological innovation is low.

4. The fact that a firm is using a capital-intensive method of production means that input substitution is not possible.

True

False

5. When calculating the price elasticity of demand, which of the following conditions must be satisfied?

		All other factors that influence demand must be held constant.
		Prices of related goods must be allowed to vary but all other factors must be held constant.
		Prices of related goods must be held constant but all other factors must be allowed to vary.
		All other factors than influence demand must be allowed to vary.

Answer 1

ANS

1. Option B. at least one of the inputs is fixed. In short run production function at least one factor of production is fixed to make alterations in other factors of production. For example when there is changes to be made in labour then capital is kept constant.

2. True . As In the long-run production function, all of the inputs to the production process are kept variable as it is assumed that for all the resources and factors of productions the firm will be able to adjust the cost incurred in those factors.

3. Option A, When labor supply is limited relative to the available amount of capital as in this situation the labour becomes more expensive as compared to capital so capital production technique is said to be more feasible.

4. False, as the substitution is possible even when a firm is using capital factor of production.