Deck 14: Production and Costs

Question 1

Which of the following statements describes the presence of diminishing returns. Holding at least one factor constant …....

A)The marginal product of a factor is positive and rising.
B)The marginal product of a factor is positive but falling.
C)The marginal product of a factor is falling and negative.
D)The marginal product of a factor is constant.

Answer 1

The marginal product of a factor is positive but falling.

Question 2

Which of the following statements describes increasing returns to scale:

A)Doubling the inputs used leads to double the output.
B)Increasing the inputs by 50% leads to a 25% increase in output.
C)Increasing inputs by 1/4 leads to an increase in output of 1/3.
D)None of the above.

Answer 2

Increasing inputs by 1/4 leads to an increase in output of 1/3.

Question 3

Economies of scale exist if:

A)As the amount of capital increases, the cost of producing per unit rises
B)As the amount of capital increases, the cost of producing per unit falls
C)As the amount of capital increases, the marginal cost rises
D)As the amount of capital increases, the marginal physical product falls

Answer 3

As the amount of capital increases, the cost of producing per unit falls

Question 4

The total product curve may initially show output increasing at an increasing rate as more labour is hired because of the:

A)Declining quality of the labor force.
B)Principle of comparative advantage.
C)Law of diminishing marginal returns.
D)Increase in marginal physical product.

Question 5

If labour is the only variable resource and its marginal physical product falls as more workers are hired:

A)The law of diminishing marginal returns is at work.
B)Marginal cost is rising.
C)Average cost may still be declining.
D)Average physical product may still be rising.

Question 6

When both average and total product are greater than zero, and marginal product equals average product, then total product:

A)Is at a maximum.
B)Is positive and rising.
C)Is falling.
D)Is negative but rising.

Question 7

Costs incurred only when production occurs are known as:

A)Explicit costs.
B)Fixed costs.
C)Variable costs.
D)Technological expenses.

Question 8

Which of the following is irrelevant for rational decision making?

A)Total variable cost (TVC)
B)Explicit cost.
C)Average fixed cost (AFC).
D)Marginal cost (MC).

Question 9

Diminishing marginal returns are most compatible with:

A)Economies of scale.
B)Advantages from specialization.
C)Positively-sloped marginal cost curves
D)Depreciation of the capital stock.

Question 10

In economic theory the costs of a firm

A)Tend to be less than the everyday use of the term costs would suggest
B)Includes implicit as well as explicit outlays
C)Always decline as more output is produced
D)Are usually defined in such a way that profits will be larger than the

Question 11

The short run as the term is used in connection with the theory of the firm is a period of time:

A)Too short for the firm to vary all its inputs
B)No more than a week
C)Long enough for the firm to vary the quantity of all its inputs
D)In which the fixed costs are zero