Production-Study Questions
78. With energy [E] on the horizontal axis and land [L] on the vertical axis, the marginal rate of technical substitution of energy for land (MRTSEL) equals __________ a. MPL/MPE b. -E/L c. -Q/L d. (MPL/E)(L/MPE) Answer:
A Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
52. The law of diminishing marginal returns _____. a. is relevant in the short run. b. assumes all the inputs are fixed c. is applicable to both fixed and variable inputs d. applies when all inputs are increased Answer
A Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
90. Which of the following contributes to the increasing returns to scale in production as a firm expands capacity? a. Specialization of labor b. Increase in average cost and decrease in output c. Increase labor while keeping capital constant d. Increase in marginal utility Answer
A Difficulty Level: Medium Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
102. Linear homogeneous production functions are often used in analysis because ___________________________ a. many real world production processes exhibit constant returns to scale. b. they can be used to exhibit increasing or decreasing returns to scale. c. they can be adapted to suit any industry. d. they apply to any production process. Answer:
A Difficulty Level: Medium Section Reference: The Mathematics behind Production Theory Learning Objective: Describe how production relationships can be estimated and some different potential functional forms for those relationships.
104. A production function that exhibits constant returns to scale is called a(n) _________ a. linear homogeneous production function. b. Cobb-Douglas production function. c. quadratic production function. d. a linear production function. Answer:
A Difficulty Level: Medium Section Reference: The Mathematics behind Production Theory Learning Objective: Describe how production relationships can be estimated and some different potential functional forms for those relationships.
29. When the total product curve with only one variable input is increasing at a decreasing rate a. marginal product is positive but declining. b. marginal product curve is negative and decreasing. c. the slope of the marginal product curve is zero. d. marginal product is positive and increasing. Answer:
A Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
4. A technologically efficient amount of output is____. a. the maximum output possible from the least possible amount of input b. the level of output produced using the most recent technology available c. the cost-minimizing level of output d. the maximum output available from a given set of inputs Answer
A Difficulty Level: Easy Learning Objective: Establish the relationship between inputs and output.
49. The law of diminishing returns holds only _________. a. for goods with inelastic demand. b. when one input is fixed. c. in the long run. d. in a competitive market. Answer:
B Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
8. What is meant by technological efficiency in production? a. Using the latest available technology in production b. Producing the maximum possible output from given inputs c. Using the least number of inputs in production d. Minimizing the cost of production Answer
B Difficulty Level: Easy Section Reference: Relating Output to Inputs Learning Objective: Establish the relationship between inputs and output.
1. Which of the following correctly describes a production function? a. A production function shows the minimum output that can be produced with given inputs. b. A production function relates employment of inputs to output. c. A production function identifies output-cost relationships. d. A production function identifies the profit maximizing level of output. Answer
B Difficulty Level: Easy Learning Objective: Establish the relationship between inputs and output.
59. An isoquant shows _____. a. the different quantities of output that can be produced with different quantities of inputs b. the combination of inputs that can be used to produce a fixed quantity of output c. the different quantities of output that can be produce with fixed quantities of inputs d. the combination of inputs than can be used to produce different quantities of output Answer
B Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
60. Which of the following is constant along an isoquant? a. Productivity of the variable input b. Output c. Cost d. Utility Answer
B Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
66. Which of the following is a feature of an isoquant? a. Isoquants are concave to the origin. b. Isoquants are nonintersecting. c. Isoquants lying farther to the northeast identify lower levels of output. d. Producers prefer higher points on an isoquant. Answer
B Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
11. A carpenter hammers nails each day at work. During the first hour she can hammer 120 nails, the second hour 100 nails, the third hour 90 nails, the fourth hour 60 nails, and the fifth hour 10 nails. The total product of five hours of work is _____ nails. a. 10 b. 380 c. 320 d. 60 Answer
B Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
13. Table 7.1 shows the quantities of labor and capital required to produce various levels of output. Refer to Table 7-1. What is the average product of labor when four units of labor are used? a. 10 b. 14 c. 42 d. 33 Answer
B Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
82. If a firm doubles its usage of all inputs and output less than doubles, the production function is said to exhibit ________________ a. increasing returns to scale. b. decreasing returns to scale. c. constant returns to scale. d. decreasing marginal returns to a fixed factor of production. Answer:
B Difficulty Level: Easy Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
51. The fact that limited use of caffeine can improve mental alertness and help test performance, while excessive use of caffeine can cause anxiety and trembling shows _____. a. that coffee is an inferior good b. the law of diminishing marginal returns with respect to test performance c. the law of returns to scale with respect to test performance d. decreasing returns to scale in coffee production Answer
B Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
83. Which of the following correctly explains increasing returns to scale? a. With small scale operations, management inefficiencies are avoided. b. Increasing the number of workers in a factory allows division and specialization of labor. c. Firms that operate in small industries have higher input procurement costs. d. Communication channels in large organizations tend to be complex. Answer
B Difficulty Level: Medium Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
99. The power associated with an input in a Cobb-Douglas production function implies diminishing returns to that input if the power is _____. a. greater than 1 b. less than 1 c. equal to 1 d. zero Answer
B Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
95. Which of the following may explain why decreasing returns to scale occur? a. Diminishing marginal rate of technical substitution b. The law of diminishing marginal utility c. Managerial inefficiencies d. Division and specialization of labor Answer
C Difficulty Level: Easy Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
97. Which of the following represents a Cobb-Douglas production function? a. Q = a + bL + cK b. Q = a + Lb + Kc c. Q = aLbKc d. Q = L + K Answer
C Difficulty Level: Easy Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
55. Isoquants that are farther away from the origin indicate a. lower cost combinations of inputs. b. technologically inefficient levels of output. c. higher levels of output. d. combinations of inputs that are less preferred. Answer:
C Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
65. Convexity of a curve implies that the (absolute value of the) slope of the curve __________________________ a. is zero. b. is constant. c. diminishes along the curve. d. approaches infinity. Answer:
C Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
33. The slope of a ray from the origin to the total product curve measures _____. a. the marginal rate of technical substitution b. the marginal product of the variable factor c. the average product of the variable factor d. the maximum output Answer
C Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
2. A production function identifies the _____. a. minimum output that a specific combination of inputs can produce b. maximum number of inputs that can be used to produce output c. highest possible output for a given combination of inputs d. least-cost method of producing a given level of output Answer
C Difficulty Level: Easy Learning Objective: Establish the relationship between inputs and output.
63. [OMIT!] One important difference between indifference curves and isoquants is that ______ a. indifference curves are convex while isoquants are concave to the origin. b. indifference curves can never intersect while isoquants can intersect. c. output shown on isoquants is measurable while well-being shown on indifference curves is not. d. indifference curves are likely to be positively sloped while isoquants are mostly negatively sloped. Answer:
C Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
91. The fact that a large-scale operation can take advantage of specialization of labor often gives rise to _____. a. constant marginal rate of substitution b. diseconomies of scale c. increasing returns to scale d. management inefficiencies Answer
C Difficulty Level: Easy Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
84. If a firm doubles its usage of all inputs, and output also doubles, the production function is said to exhibit _____ a. increasing returns to scale. b. decreasing returns to scale. c. constant returns to scale. d. increasing marginal returns to a fixed factor of production. Answer:
C Difficulty Level: Easy Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
72. An isoquant map, with labor on the horizontal axis and capital on the vertical axis, has horizontal isoquants. This implies that the ____________ a. marginal product of capital is zero. b. marginal rate of substitution of capital for labor approaches infinity. c. marginal product of labor is zero. d. marginal rate of substitution of capital for labor is positive. Answer:
C Difficulty Level: Hard Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
14. A carpenter hammers nails each day at work. The average number of nails hammered over the first three hours is 50, and the marginal product of the fourth and fifth hours of work is 40 and 20 nails, respectively. The total output after five hours work is _____ nails. a. 150 b. 110 c. 210 d. 60 Answer
C Difficulty Level: Hard Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
10. A carpenter hammers nails each day at work. During the first hour she can hammer 120 nails, the second hour 100 nails, the third hour 90 nails, the fourth hour 60 nails, and the fifth hour 10 nails. Her marginal product in the third hour is _____ nails. a. 10 b. -10 c. 90 d. -60 Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
19. Table 7-2 shows the combinations of labor and capital that are used to produce various levels of output. Refer to Table 7-2. A rational producer would never operate with _____ units of labor and 2 units of capital. a. 2 b. 1 c. 5 d. 4 Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
28. If the marginal product of a variable input is declining, then a. average product is also declining. b. total product is also declining. c. total product is increasing at a decreasing rate. d. average product is constant. Answer:
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
32. The average product of labor at a particular point can be determined a. by the slope of the total product curve at that point. b. by multiplying the total product by the quantity of labor at that point. c. by the slope of a line from the origin to the particular point on the total product curve. d. by the vertical distance of the average product curve from the marginal product curve. Answer:
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
46. When the marginal and average products of labor are equal a. marginal product must be at its maximum. b. marginal product must be at a minimum. c. average product must be at its maximum. d. average product must be increasing. Answer:
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
35. The slope of the total product curve measures the _____ of the input. a. marginal product b. average product c. total product d. cost Answer
A Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
93. Returns to scale can be evaluated by looking at how output changes along _____. a. a ray from the origin b. the points of intersection of two or more isoquants c. the horizontal axis d. an isoquant. Answer
A Difficulty Level: Easy Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
74. Which of the following statements about the marginal rate of technical substitution is correct? a. The MRTS is equal to the ratio of the marginal productivities of the inputs. b. The MRTS is equal to the slope of the total product curve. c. The MRTS is zero in the long run. d. The MRTS is the rate at which one input can be substituted for the other in production while varying the level of output. Answer
A Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
5. Which of the following is true of fixed costs? a. Fixed costs can ultimately be changed, but it is extremely difficult to do so in a short period of time. b. Fixed costs cannot be changed in the long-run. c. Fixed costs can be changed, but only in the short run. d. Fixed costs cannot be changed in the short-run, because most firms experience constant returns to scale in the short run. Answer
A Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
18. The ratio of the change in total product to the change in total quantity of the input being used is _____. a. equal to marginal product b. constant as employment levels of the input vary c. equal to average product d. equal to the marginal rate of technical substitution Answer
A Difficulty Level: Easy Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
85. If a firm doubles its usage of all inputs, and output more than doubles, the production function is said to exhibit _____ a. increasing returns to scale. b. decreasing returns to scale. c. constant returns to scale. d. increasing marginal returns to a fixed factor of production. Answer:
A Difficulty Level: Easy Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
68. If isoquants are drawn as straight lines, it implies that _______________________________a. the two inputs are perfect substitutes for each other. b. the MRTS is decreasing. c. that the inputs must be used in fixed proportions. d. the MRTS is zero. Answer:
A Difficulty Level: Hard Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
3. Economists use production functions to _____. a. identify the technically efficient amount of production for different possible combinations of inputs b. explain the tradeoff between the use of different inputs in production c. maximize profits for a firm d. define the marginal utilities associated with the goods produced Answer
A Difficulty Level: Medium Learning Objective: Establish the relationship between inputs and output.
92. Graphically, the _____ indicates whether returns to scale are increasing, constant, or decreasing. a. spacing of isoquants along a ray from the origin b. slope of the isoquant c. curvature of the isoquant d. steepness of the isoquant Answer
A Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
94. A production function embodies increasing, constant, and decreasing returns to scale __________________ a. when the proportion of capital to labor used in production is constant. b. at low output levels. c. in the short-run. d. at various points on an isoquant. Answer:
A Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
77. The marginal rate of technical substitution equals the ratio of the _____. a. total product of capital and labor b. marginal products of the inputs c. marginal cost of both inputs d. amount of capital employed to the amount of labor employed Answer
B Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
62. The long-run refers to ____ a. a time period of one year or more. b. the time period in which all inputs are variable. c. the time period in which it is too costly to change the usage of at least one input. d. a time period when marginal returns are diminishing. Answer:
B Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
9. A farmer is growing corn on an acre of land. Output will be 200 bushels if one worker is hired, 500 if two, 700 if three, 850 if four, and 900 if five. The marginal product of the fourth worker is _____ bushels of corn. a. 850 b. 150 c. 212.5 d. 50 Answer
B Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
56. A production isoquant identifies _____. a. the maximum output possible, given a fixed budget b. the different combinations of goods that can be produced, given fixed amounts of inputs c. the different combinations of inputs that can be used to produce a fixed rate of output d. the cost of producing a given output Answer
C Difficulty Level: E Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
103. For the production function Q = Q(L), the average product of labor is given as APL = Q(L)/L. Taking the deriviative with respect to L, we have dAPL/dL = 1/L(dQ/dL - Q/L), implying that ___________________________________ a. when the MPL is equal to the APL, APL is decreasing. b. when the MPL is greater than the APL, APL is decreasing. c. when the MPL is greater than the APL, APL is increasing. d. when the MPL is less than the APL, APL is increasing. Answer:
C Difficulty Level: Hard Section Reference: The Mathematics behind Production Theory Learning Objective: Describe how production relationships can be estimated and some different potential functional forms for those relationships.
67. If isoquants are drawn as right angles, it implies ___a. that the two inputs are perfect substitutes for each other. b. that the MRTS is constant. c. that the inputs must be used in fixed proportions. d. the isoquants can be intersecting. Answer:
C Difficulty Level: Hard Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
101. If the sum of the powers associated with the inputs in a Cobb-Douglas production function exceeds 1, the production function is characterized by __ a. constant returns to scale. b. decreasing returns to scale. c. increasing returns to scale. d. diminishing returns to all inputs. Answer:
C Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
98. A production function of the form Q = aLbKc _____________ a. implies constant marginal products for the inputs. b. implies constant average products for the inputs. c. incorporates the assumption of diminishing returns to the inputs. d. cannot imply diminishing returns to the inputs. Answer:
C Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
64. What can you conclude about an isoquant that is concave to the origin? a. The level of output shown on the isoquant increases along the curve. b. The isoquant represents production in the short run as one input is kept fixed. c. The marginal rate of technical substitution increases along the curve. d. The slope of the isoquant is infinite. Answer
C Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
16. If the average product of labor is 150 bushels of wheat when three workers farm an acre of land and the marginal product of the fourth worker is 75 bushels, then the total output with four workers is _____ bushels. a. 225 b. 50 c. 525 d. 675 Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
17. The ratio of total product to the total quantity of the input being used is _____. a. equal to marginal product b. constant as the levels of the input vary c. equal to average product d. equal to the marginal rate of technical substitution Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
27. If total product is increasing at a decreasing rate, then marginal product is _____. a. below average product at all levels of output b. above average product at all levels of output c. declining faster than average product d. increasing at a decreasing rate Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
31. When marginal product is decreasing a. average product must also be decreasing. b. total product is decreasing. c. total product is increasing at a decreasing rate. d. marginal product must be greater than average product. Answer:
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
86. The production function exhibits increasing returns to scale when a firm can increase production by more than a proportionate increase in _____. a. costs b. one input c. all inputs d. a fixed input Answer
C Difficulty Level: Medium Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
69. The marginal rate of technical substitution _____ a. equals the marginal product of capital times the marginal product of labor. b. measures the rate at which marginal product declines as inputs are increased. c. measures the degree to which one input can be substituted for another, output held constant. d. is the horizontal distance between two isoquants. Answer:
C Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
75. Suppose that at a point on an isoquant, the following information is true _______________________________________ MPL = 3 and MPK = 2. Then if K falls by 5, L must increase by: a. 0.30. b. 0.67. c. 3.33. d. 1.50. Answer:
C Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
61. The short-run refers to ___a. a time period of two years or less. b. the time period in which the usage of all inputs are held constant. c. the time period in which it is too costly to change the usage of at least one input. d. the time period in which the usage of all inputs can be changed. Answer:
C Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
48. According to the law of diminishing marginal returns a. when the amount of some input is increased by equal increments, holding other inputs constant, the resulting increments in output will be negative. b. when all inputs are increased proportionately, output eventually will decrease at a smaller rate. c. when the amount of some input is increased at equal increments, holding other inputs constant, the resulting increments to output will eventually decrease. d. firms will not operate on the portion of the total product curve where marginal product is declining. Answer:
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
57. If the level of technical know-how increases, how would this change the total product curve? a. It would extend horizontally. b. It would become more bowed. c. It would shift upwards. d. It would become flatter. Answer
C Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
7. A firm that is operating in a technologically inefficient way ____ a. is getting the maximum output from its inputs. b. is making zero economic profits. c. is not making as much money as it potentially can. d. should shut down immediately to reduce its losses. Answer:
C Difficulty Level: Medium Section Reference: Relating Output to Inputs Learning Objective: Establish the relationship between inputs and output.es.
89. All of the following give rise to increasing returns to scale, except ____________________ a. specialization and division of labor. b. the use of certain large-scale technologies c. the use of the latest technology. d. diversification of production. Answer:
C Difficulty Level: Medium Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
15. A carpenter hammers nails each day at work. In each of the first three hours 50 nails were hammered and the marginal product of the fourth and fifth hours of work is 40 and 20 nails, respectively. Diminishing returns will be experienced in the _____ hour. a. second b. third c. fourth d. first Answer
C Difficulty: Hard Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
58. In the long run, _____. a. the marginal cost of each input differs by the ratio of their prices b. all inputs to production are fixed c. the marginal cost of each input equals the ratio of their prices d. all inputs to production are variable Answer
D Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
73. Suppose you have capital on the vertical axis and labor on the horizontal axis. The slope of the isoquant measures _ a. the marginal rate of substitution. b. the marginal product of labor. c. the marginal product of capital. d. the marginal rate of technical substitution of capital for labor. Answer:
D Difficulty Level: Easy Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
87. A production function exhibits decreasing returns to scale when _____ increases less than proportionately to input use. a. cost per unit b. average product c. marginal product d. total product Answer
D Difficulty Level: Easy Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
96. Estimation of a production function from the linear equation Q = a + bL + cK, assumes that the law of diminishing returns _____. a. applies to labor only b. applies to capital only c. applies to both capital and labor d. does not apply to either input Answer
D Difficulty Level: Easy Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
54. The duration of the short run varies by industry because _____. a. the total labor demand varies by industry b. some inputs cost more in some industries c. the technology used in production is not the same in all industries d. the time required to change a variable input differs by industry Answer
D Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
71. If the marginal product of labor is 25 and the marginal product of capital 10, what is the marginal rate of technical substitution of labor for capital? a. 0.6 b. 1 c. 1.5 d. 2.5 Answer
D Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
47. Diminishing marginal returns refers to the a. decline in the rate at which extra inputs are employed in production. b. fall in average product associated with a unit increase in the fixed input. c. decline in total product which is less than proportionate to a change in the fixed input. d. decrease in the additional output made possible by an incremental increase in the variable input. Answer:
D Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
88. A factory that manually produces pens employs ten workers. The total output when one worker produces all the parts of a pen himself is 100 pens. When different workers focus on producing different parts of the pen, the output increases to 400 pens. In other words, _____ increases the returns from the same level of inputs. a. increasing the capital-labor ratio/irs b. product diversification c. a piece rate wage system d. specialization of labor Answer
D Difficulty Level: Medium Section Reference: Returns to Scale Learning Objective: Investigate the ability of a firm to vary its output in the long run when all inputs are variable.
100. In a Cobb-Douglas production function, the law of diminishing returns does not apply to a variable input if a. the power associated with the input is less than one. b. the sum of the powers of the other inputs is equal to one. c. the sum of the powers of the other inputs is greater than one. d. the power associated with the input is equal to or greater than unity. Answer:
D Difficulty Level: Medium Section Reference: Functional Forms and Empirical Estimation of Production Functions Learning Objective: Explore returns to scale: how a firm's output response is affected by a proportionate change in all inputs.
76. Suppose that at a point on an isoquant, the following information is true ________________________________________ L increases by 5; K falls by 3; MPL = 4, then MPK must be: a. 3.33. b. 0.67. c. 1.67. d. 6.67. Answer:
D Difficulty Level: Medium Section Reference: Production When All Inputs Are Variable: The Long Run Learning Objective: Define total, average, and marginal product, and explain the law of diminishing marginal returns in the short-run setting when at least some inputs are fixed.
12. A carpenter hammers nails each day at work. During the first hour she can hammer 120 nails, the second hour 100 nails, the third hour 90 nails, the fourth hour 60 nails, and the fifth hour 10 nails. The average product of five hours work is _____ nails. a. 80 b. 380 c. 320 d. 76 Answer
D Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
30. Which of the following statements is true of the relationship between marginal product and average product of labor? a. When the marginal product of labor is decreasing, the average product of labor must also be decreasing. b. When the average product of labor is increasing, the marginal product of labor must also be increasing. c. When the marginal and average products of labor are equal, the marginal product is at its minimum. d. When the average product of labor is decreasing, average product must be greater than marginal product. Answer
D Difficulty Level: Medium Section Reference: Production When Only One Input Is Variable: The Short Run Learning Objective: Distinguish between variable and fixed inputs.
6. A production function for widgets will _____. a. show the relationship between the inputs used in the production of widgets and the cost of acquiring these inputs b. identify the least quantity of inputs that can be used to produce a given level of widgets c. identify the maximum quantity of widgets that can be produced given the budget of the firm d. identify the maximum quantity of widgets that can be produced by each specific combination of inputs Answer
D Difficulty Level: Medium Section Reference: Relating Output to Inputs Learning Objective: Establish the relationship between inputs and output.
