ECON 410 TAMU EXAM 1 WITH QUESTIONS AND 100% CORRECT ANSWERS| ALREADY PASSED NEWLY UPDATED 2025.

ECON 410 TAMU EXAM 1 WITH
QUESTIONS AND 100% CORRECT
ANSWERS| ALREADY PASSED NEWLY
UPDATED 2025.
What is a production function?
ANSWER ✔✔ Output is a function of the amount of capital (K) and labor (L)



What is the formula for the production function?
ANSWER ✔✔ Y = F(K, L)



What is constant returns to scale?
ANSWER ✔✔ An increase of an equal percentage in all factors of production causes an increase
in output of the same percentage.



What is the formula for constant returns to scale?
ANSWER ✔✔ (z)Y = F(zK, zL)



What are factor prices?
ANSWER ✔✔ The amounts paid to each unit of the factors of production.



What is profit?
ANSWER ✔✔ Profit = Revenue - Costs



What is the formula for profit?
ANSWER ✔✔ Profit = PY - (WL) - (RK)

, What is MPL (Marginal Product of Labor)?
ANSWER ✔✔ The extra amount of output that the firm gets from one extra unit of labor. It is
the slope of the production function.



What is the formula for MPL?
ANSWER ✔✔ MPL = F(K, L+1) - F(K, L)



What is diminishing marginal product?
ANSWER ✔✔ Holding the amount of capital fixed, the marginal product of labor decreases as
the amount of labor increases.



How do you measure the extra cost of hiring another worker?
ANSWER ✔✔ = (PxMPL) - w



What is real wage?
ANSWER ✔✔ The payment to labor measured in units of output rather than in dollars.



What is the formula for real wage?
ANSWER ✔✔ Real Wage = Wage/Output



What is the marginal product of capital (MPK)?
ANSWER ✔✔ The extra amount of output produced after adding one extra unit of capital.



What is the formula for MPK?
ANSWER ✔✔ MPK = F(K+1, L) - F(K, L)



What is the MPL schedule?
ANSWER ✔✔ The MPL curve slopes downward because MPL declines as L increases. The
firm hires labor up to the point where the real wage W/P equals the MPL.