1. The production function illustrates the relationship between _______ and _______________.

2. With the stock of capital fixed, output increases with labor input, but at a rate that ____________(increases/decreases).

3. A decrease in the stock of capital shifts the production function___________ (upward/downward). Show this with a graph.

4. Increasing returns occur when we increase both labor and capital. (True/False)

5. The Production Function and the Effects of War on the Stock of Capital. During World War II, France lost 30 percent of its capital stock. Draw a graph that illustrates how the production function shifted.

6. The Production Function and the Effects of War on the Labor Force. France lost 550,000 people of 42 million in World War II. Show how this affected output using the graph from Exercise 2.5.

7. Diminishing Returns? An economy increased employment first from 10,000 to 20,000 and then from 20,000 to 30,000. The corresponding increases in output were 15,000 and 20,000, respectively. Nothing else changed during this period. Did this economy exhibit diminishing returns?