Chapter 7 - Practice Problems

Frank's Fajitas can produce 45 fajitas per hour with five workers and one grill. One more worker will increase output by 6 fajitas per hour. If the wage rate is $9 per hour, the marginal cost of increasing fajita production to 51 fajitas per hour at Frank's Fajitas is:

$1.50

A firm has fixed rent cost of $1,000 each month. They spend $2,000 on labor and produce 100 units. If the rent goes up $1,200 how much is the change in the average variable cost?

0

Marginal cost increases by $16 when one more worker is hired. If the wage rate is $10, calculate the marginal product of labor.

0.625

Marginal product of labor is 10 when a firm goes from hiring 2 workers to 3 workers. If the wage rate is $15, what is the marginal cost?

1.5

A firm produces 100 units with 10 people and 121 units with 11 people. The average product of the 11th person is _______ units.

11

Andry produces all-natural tote bags. She currently hires 20 workers who produce 240 bags a day. If she hires another worker, the worker's marginal product will be 33 tote bags a day. What would be the average product per day of 21 workers?

13 tote bags

Marco buys one more forklift for his warehouse. All other inputs remain the same. The number of packages shipped in a day rises from 100 to 121. What is the marginal product of the additional forklift?

21 packages per day

The marginal product curve is maximized at a quantity of 230 and the average product curve is maximized at a quantity of 250. When do the marginal and average product curves intersect?

250

Average cost is 100 when a firm produces 10 units. Average cost is 120 when they produce 11 units. What is the marginal cost?

320

Frank's Fajitas can produce 45 fajitas per hour with five workers and one grill. The average product of labor at Frank's Fajitas is:

9 fajitas per hour

A diminishing marginal product as inputs increase means which of the following?

Average costs will eventually rise

If marginal product is decreasing as more labor is hired, which of the following will be likely?

Average product will decreasing marginal cost will be increasing

If the average cost is always falling, which of the following must be true?

Marginal cost is below the average cost

What is the difference between the short-run and the long-run for making production decisions?

In the short run, a produce r can change only some of the inputs she uses. In the long run, a producer can change all of the inputs she uses

A firm decides to stop hiring more workers when marginal cost starts to rise because the manager says that at diminishing marginal product, output is falling with each additional input. Is the manager correct or incorrect?

Incorrect: Diminishing marginal product does not mean output is falling when additional workers are hired.

Mateo owns an architectural firm. He has a three-year lease on his office space. He can increase or decrease the number of architects who work for him on a daily basis. Which of the following is true?

Mateo's decision about how many architects to hire is a short-run decision and his decision about how much office space to rent is a long-run decision

A firm hires two people and output increases by 20 units. The firm adds one more person and output increase by 15 units. Is the firm experiencing diminishing marginal productivity?

No. Output per additional worker is getting bigger as the number of workers increases.

The law of diminishing marginal returns means that when one uses more and more of an input: (Hint: although output may eventually decrease if too much of an input is used, the important aspects of the law of diminishing marginal returns is that increase in output will get smaller)

Output will eventually increase at a decreasing rate.

If the rent on factory space (a fixed input) increases, at all levels of output: (Hint: a change in fixed costs will influence total costs but not variable or marginal costs)

Total costs will increase, average total costs will increase, average variable costs will remain the same, and marginal costs will remain the same in the short run.

A toxic work environment lowers the productivity of all workers. What happens to the average costs?

average cost increases

There is a cost function such that marginal cost is always less than average cost. What must be true about average cost?

average cost is decreasing

If a working environment becomes "toxic" the productivity of all workers will decline. What will happen to the average costs of production as a result?

average cost will increase

Reem manages an information technology company. The software she purchases represents what type of input?

capital

In the short run, input decisions are __________. In the long run, input decisions are ___________. (Hint: in the short run, variable inputs can be changed, but not fixed inputs. In the long run, all inputs are variable.)

constrained, unconstrained

At output equal to 100 the marginal cost is 20 and the average cost 18. At output equal to 101 the marginal cost is 22. At output equal to 101 average cost will:

rise above 18

A change in technology that (once implemented) makes each unit of labor more productive is likely to ___________ the marginal cost of production at each level of output (assuming all wages remain the same). (Hint: a technological change that increase the productivity of labor will allow each unit of labor to produce more, making changes in output less expensive.)

decrease

A firm with only fixed costs will have which of the following average cost relationships? As production increases, average total cost will:

decrease

As a particular firm adds a few workers, output increases exponentially; however, soon each additional worker adds less and less output. During this time, marginal cost goes from ______ to ______.

decreasing; increasing

If the marginal productivity of labor is rising at a certain level of output (while all other inputs remain unchanged), marginal cost must be:

falling at that level of output

Frank's Fajitas can produce 45 fajitas per hour with five workers and one grill. One more worker will increase output by 6 fajitas per hour. If one more worker is hired, the average variable cost of production at Frank's Fajitas will:

increase

A shock to technology doubles output for every employee hired. What happens to marginal product of labor?

increases

If a firm producing in an area of diminishing marginal returns, in average product must be:

it could be either increasing or decreasing

As an employer hires her first few employees she notices their marginal productivity is increasing. In the short run, what must be true for the average productivity of the first few employees?

it must be rising

A papermill uses the pulp of pine trees to make paper. The pine trees represent what type of input?

land

A firm's marginal product will be at a maximum at which of the following levels of output?

less than the quantity where average cost is a minimum

Firms decide to increase production by increasing all of their inputs. I this a short-run or long-run situation?

long-run

If marginal productivity of labor is falling, by hiring another unit of labor (all else held the same) we know that: (Hint: there is an inverse relationship between marginal productivity and marginal cost)

marginal cost must be rising; is it not correct because we would have to know where marginal productivity to know is average productivity to know is average productivity will rise or fall.

The observation that increases in output get smaller as more of input is added to production is called:

the law of diminishing marginal returns

Consider a graph that depicts the total cost function and the fixed cost. What is the difference between the total and the fixed costs?

variable cost