-
1. In the short run, the firm's production curves exhibit all of the following relationships except:
- A. Average product of labor (APL) is at its maximum when marginal product of labor (MPL) is equal to APL.
- B. Total Product of Labor (TPL) is at its maximum when MPL=0.
- C. TPL begins to decrease when APL begins to decrease.
- D. when MPL < APL, APL is decreasing.
- E. MPL reaches a maximum sooner than does either APL or TPL.
2. If we know that capital is fixed and a business firm can produce 36 units of output per day with 3 workers and
44 units of output per day with 4 workers, then we know all of the following except:
- A. the marginal product is below the average product.
- B. the firm has passed the point of diminishing marginal productivity.
- C. the average product of three workers is 12.
- D. the marginal product of the third worker must be greater than 8.
- E. we know all of the above.
3. All of the following describe marginal cost except marginal cost is (does) not:
- A. the change in total cost associated with producing an additional unit of output.
- B. given by: (change in TC) / (change in Q).
- C. given by: (change in TVC) / (change in Q).
- D. positively related to the short-run marginal product of labor (MPL).
- E. reach a minimum at the same time that the MPL reaches a maximum.
4. If average fixed cost is declining, then:
- A. marginal cost (MC) must be declining.
- B. average variable cost (AVC) must be declining.
- C. average total cost (ATC) is declining.
- D. AVC must be increasing.
- E. it is impossible to determine what is happening to MC, AVC, or ATC without more information.
5. Short run cost curves are U-shaped due to:
- A. increasing input prices.
- B. increasing marginal product.
- C. decreasing marginal product.
- D. the returns to specialization of labor that occurs at low production levels and the congestion that
occurs at high production levels.
- E. the returns to specialization of labor that occurs at high production levels and the congestion that
occurs at low production levels.
6. Economists (and Econ 165 students) are primarily interested in the relationship between production and costs
because:
- A. it is an interesting and stimulating mathematical exercise.
- B. all of the assumptions used to derive short-run cost curves (as we did in class) are realistic and
economists are interested in realism.
- C. along with an assumption of profit maximization, this relationship allows us to predict how firms will
act under different circumstances.
- D. U-shaped marginal and average cost curves are observed in the real world and economists explore
production functions to show how these cost curves arise.
7. In the short-run, a profit-maximizing firm will produce additional units of a product as long as:
- A. price at least covers average fixed cost.
- C. total revenue is increasing.
- D. elasticity of demand is infinite.
- E. price at least covers average variable cost.
8. Assuming that labor is the only short-run variable input in the production process, AVC (average variable
cost):
- A. equals the wage rate (w) times labor (L) divided by output (Q) [(wL)/Q.]
- B. equals the average product of labor divided by the wage rate [APL/w.]
- C. varies directly with APL.
- D. varies inversely with the wage rate.
9. When the short-run total product curve (the production function) for a firm:
- A. attains a maximum value, the average product of labor (APL) is zero.
- B. increases but at a diminishing rate, the APL is below the marginal product of labor (MPL).
- C. is neither rising nor falling, then MPL = APL.
- D. increases but at an increasing rate, the MPL is above (greater than) the APL.
- E. decreases, APL must be negative.
10. Short-run average variable costs:
- A. are incurred even when production ceases.
- B. have no bearing whatsoever on rational decision making.
- C. are incurred only in the long-run.
- D. are only at a minimum when the MPL is at a maximum.
- E. are only at a minimum when labor is, on average, most productive.
11. Which of the following does not reflect a short-run decision?
- A. Should production be reduced when sales fall off?
- B. Should a plant be closed down when sales decrease?
- C. Should overtime be expanded when sales increase?
- D. Should a new plant be built if sales increase?
- E. all of the above reflect short-run decisions.
12. Short-run average total costs eventually rise because of:
- A. rising overhead costs.
- B. reduced incentives to work in larger plants.
- C. rising factor or input prices.
- D. diminishing marginal and average productivity of the variable input(s).
- E. technological inefficiency.
13. If the difference between average total cost (ATC) and average variable cost (AVC) at 100 units of output is
$1.00, then at 300 units of output the difference between ATC and AVC must be:
- A. $2.00
- B. $.50
- C. $.33
- D. $1.00
- E. there is not enough information given to be able to tell.
Previous Topic
Next Topic