Deck 8: Production and Cost

Question 1

Which of the following is (are) correct?

A) Firms are organizations that produce goods and services.
B) Firms seek to maximize profits.
C) Firms seek to utilize factors of production in the most efficient way in order to maximize profits.
D) All of the above are correct.

Answer 1

All of the above are correct.

Question 2

At any one time:

A) a firm must make only short-run or long-run decisions.
B) a firm will be making both short-run and long-run decisions.
C) the firm will find it most efficient to make only short-run decisions.
D) the firm will make only long-run decisions.

Answer 2

a firm will be making both short-run and long-run decisions.

Question 3

If you employ 20 workers in the production of picture frames, the way to determine the quantity of output these workers can produce is through a(n):

A) profit function.
B) indifference curve.
C) budget constraint.
D) total product curve.

Answer 3

total product curve.

Question 4

The short run is defined as a:

A) period of time less than 1 year.
B) period of time less than 6 months.
C) planning period in which some factors of production are considered to be fixed in quantity.
D) time period in which some factors of production are fixed, but it cannot exceed 1 year.

Question 5

A relationship between output and the quantity of a variable factor of production used in a period, given the levels of all other factors of production is a(n):

A) budget constraint.
B) planning curve.
C) indifference curve.
D) total product curve.

Question 6

A variable factor of production is defined in the text as one:

A) that can perform several different functions.
B) that is able to produce more or less during some time period.
C) whose quantity can be changed in a particular time period.
D) a and c are true, but not b.

Question 7

A factor of production whose quantity can be changed during a particular period is a:

A) marginal factor of production.
B) fixed factor of production.
C) incremental factor of production.
D) variable factor of production.

Question 8

In the long run:

A) all inputs are fixed.
B) inputs are neither variable nor fixed.
C) at least one input is variable and one input is fixed.
D) all inputs are variable.

Question 9

Marginal product, mathematically, is the slope of the:

A) total product curve.
B) average product curve.
C) marginal product curve.
D) opportunity product curve.

Question 10

A total product curve indicates the relationship between:

A) variable input and price.
B) variable input and variable cost.
C) variable input and output.
D) output and price.

Question 11

A fixed factor of production is defined in the text as one:

A) that exists in nature and there is only so much of it.
B) that can be used for one thing only.
C) that can never produce more or less in any time period.
D) whose quantity cannot be changed in a particular period.

Question 12

A factor of production whose quantity cannot be changed during a particular period is a:

A) marginal factor of production.
B) fixed factor of production.
C) incremental factor of production.
D) variable factor of production.

Question 13

For a restaurant:

A) labor and food would be variable factors of production.
B) a building would be a fixed factor of production in the short run.
C) fire insurance on a building would be a fixed factor of production.
D) A and B are correct.

Question 14

As defined in the text, the long run is a planning period:

A) over which a firm can consider all factors of production as variable.
B) that is at least 5 years in length.
C) that must be over 6 months in length.
D) that must be between 6 months and 5 years.

Question 15

A curve which shows the quantities of output that can be obtained from different quantities of a variable factor of production, assuming other factors of production are fixed, is called the _______ curve.

A) total input
B) marginal input
C) total product
D) average total quantity

Question 16

The slope of the total product curve is:

A) fixed product.
B) average product.
C) marginal product.
D) implicit product.

Question 17

A planning period during which all of a firm's factors of production are variable is the:

A) long run.
B) fixed run.
C) short run.
D) nominal run.

Question 18

The long run is a period that is:

A) long enough in which to vary the quantities of all factors of production.
B) more than one week.
C) more than one month.
D) at least one year.

Question 19

As compared to consumer choice theory, the marginal decision rule when applied in the theory of the firm is:

A) more directly applicable.
B) less directly applicable.
C) equally applicable.
D) equally irrelevant.

Question 20

The short run is a period that is:

A) less than one week.
B) less than one month.
C) long enough in which to vary output but not plant capacity.
D) long enough in which to make all economic adjustments.

Question 21

The marginal product of labor is:

A) the change in labor divided by the change in total product.
B) the slope of the total product of labor curve.
C) the change in average product divided by the change in the quantity of labor.
D) none of the above.

Question 22

The marginal product of labor is:

A) the change in output resulting from a 1-unit change in labor.
B) the slope of the total product curve.
C) positive at some levels of input and negative at others.
D) described by all of the above.

Question 23

The change in total output resulting from a 1-unit increase in the quantity of a factor of production used, holding the quantities of all other factors of production constant, is:

A) average cost.
B) average product.
C) marginal cost.
D) marginal product.

Question 24

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) Units of labor added after L₁ and up to L₂ are:

A) subject to diminishing marginal returns.
B) adding increasing amounts to total product.
C) adding positive amounts to total product.
D) described in A and C.

Question 25

Marginal product is _______ , and marginal utility is _______ .

A) measurable; measurable
B) not measurable; measurable
C) measurable; not measurable
D) not measurable; not measurable

Question 26

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) Between points A and B the marginal product of labor is:

A) increasing.
B) zero.
C) falling.
D) infinite.

Question 27

The slope of the total product curve is:

A) the change in the variable factor of production divided by the change in output.
B) always negative.
C) always positive.
D) the change in output divided by the change in the variable factor of production.

Question 28

At 150,000 units of output, a firm's marginal cost is $0.87 and its average total cost is $0.48.We can conclude that at this quantity of output the firm's average total cost curve is:

A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Question 29

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) As units of labor are hired between quantities L₁ and L₂, _______ is ________ and _______ is ________.

A) total product; falling; marginal product; positive
B) marginal product; zero; total product; falling
C) total product; rising; marginal product; negative
D) None of the above is a true statement.

Question 30

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) Between points A and B, which of the following is (are) true?

A) Total product is going down.
B) The marginal product of labor is rising.
C) The marginal product of labor is falling.
D) Only A and C are true.

Question 31

At 125,000 units of output, a firm's marginal cost is $0.48 and its average total cost is $0.87.We can conclude that at this quantity of output the firm's average total cost curve is:

A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Question 32

Suppose that the units of variable input in a coal-production process are 1, 2, 3, 4, and 5, and the corresponding total outputs per period are 10, 15, 19, 22, and 24 tons, respectively.The marginal product of the third unit of input is _______ tons per period.

A) 3
B) 4
C) 15
D) 19

Question 33

At 36 units of labor, a firm finds that both average product of labor and marginal product of labor equal 42.We can conclude that the average product curve at 36 units of labor is:

A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Question 34

Assuming that all other factors of production are held constant, marginal product is the change in ________ output resulting from a 1-unit change in _______ .

A) total; a variable input
B) total; a fixed input
C) total; average product
D) per unit; a fixed input

Question 35

A farm can produce 1,000 bushels of wheat per year with 2 workers and 1,300 bushels of wheat per year with 3 workers.The marginal product of the third worker is:

A) 100 bushels.
B) 300 bushels.
C) 1,300 bushels.
D) 2,300 bushels.

Question 36

At 130,000 units of output, a firm's marginal cost and average total cost are both $0.75.We can conclude that at this quantity of output the firm's average total cost curve is:

A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Question 37

At 76 units of labor, a firm finds that average product of labor equals 39.6 and marginal product of labor equals 42.9.We can conclude that the average product curve at 76 units of labor is:

A) upward-sloping.
B) downward-sloping.
C) vertical.
D) horizontal.

Question 38

The slope of the total product curve:

A) shows how output changes in response to a change in the quantity of a variable factor of production.
B) is the average product.
C) is the marginal product.
D) is described by A and C.

Question 39

At 47 units of labor, a firm finds that average product of labor equals 39.6 and marginal product of labor equals 32.9.We can conclude that the average product curve at 47 units of labor is:

A) upward-sloping.
B) horizontal.
C) vertical.
D) downward-sloping.

Question 40

Suppose that the first four units of a variable input generate corresponding total outputs per period of 200, 350, 450, and 500, respectively.The marginal product of the second unit of input is:

A) 50.
B) 100.
C) 150.
D) 200.

Question 41

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) After hiring L₂ units of labor and producing at point B on the total product curve, hiring more units of labor would result in which of the following statements being true?

A) The marginal product of labor is rising.
B) The marginal product of labor is negative.
C) Total product is negative.
D) Average product is negative.

Question 42

Use the following for questions 53-56.

(Exhibit: Production of Bagels) The marginal product of the third worker is:

A) 9,000.
B) 10,000.
C) 12,000.
D) 15,000.

Question 43

Use the following for questions 53-56.

(Exhibit: Production of Bagels) The marginal product of the fifth worker is:

A) 5,000.
B) 9,000.
C) 10,000.
D) 12,000.

Question 44

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) The marginal product of the second worker is:

A) 1.0.
B) 1.5.
C) 2.0.
D) 3.0.

Question 45

Increasing marginal returns for the first four units of a variable input is exhibited by the total product sequence:

A) 50, 50, 50, 50.
B) 50, 40, 30, 20.
C) 50, 110, 180, 260.
D) 50, 100, 150, 200.

Question 46

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) When hiring units of labor between zero and L₁ units of labor, which of the following statements is true?

A) The marginal product of labor is increasing.
B) The marginal product of labor is decreasing.
C) Total product is increasing at a diminishing rate.
D) None of the above statements is true.

Question 47

Use the following for questions 44-50.

Marginal product:

A) can never increase.
B) can only be falling.
C) can be less than zero.
D) never equals average product.

Question 48

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) The marginal product of the 8th worker is ________ units.

A) -0.5
B) 0.0
C) 1.3
D) 7.78

Question 49

Given constant quantities of all other factors of production, when additional units of a variable factor of production add less and less to total output, then the firm is experiencing:

A) constant marginal returns.
B) increasing marginal returns.
C) diminishing marginal returns.
D) negative marginal returns.

Question 50

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) The slope of the total product curve between the 7th and 8th worker is:

A) -0.5.
B) 0.
C) 1.6.
D) 10.5.

Question 51

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) The marginal product of the 4th worker is ________ units:

A) 2.0
B) 2.25
C) 9.0
D) 10.0.

Question 52

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) Diminishing marginal returns begin with the ________ worker.

A) second
B) third
C) fourth
D) fifth

Question 53

Given a constant level of all other factors, if the marginal product of a factor is rising as more of it is used, then the firm is experiencing:

A) constant marginal returns.
B) increasing marginal returns.
C) diminishing marginal returns.
D) negative marginal returns.

Question 54

"Diminishing marginal returns" means that:

A) each additional unit of an input used will decrease output.
B) each additional unit of an input used will increase output, but by smaller and smaller amounts.
C) each additional unit of an input used will increase output by larger and larger amounts.
D) the firm is maximizing profit.

Question 55

Use the following for questions 44-50.

Marginal product _______ over the range of _______ and _______ over the range of _______ .

A) falls; increasing marginal returns; rises; diminishing marginal returns
B) falls; decreasing total returns; rises; increasing total returns
C) rises; increasing marginal returns; rises; decreasing total returns
D) rises; increasing marginal returns; falls; diminishing marginal returns

Question 56

Use the following for questions 37-43.
Exhibit: Total Product

(Exhibit: Total Product) Hiring L₂ units of labor results in total product attaining a _______ and the marginal product of labor _______ .

A) minimum; being equal to zero.
B) maximum; being equal to zero.
C) maximum; being positive
D) minimum; falling, but still being positive.

Question 57

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) The average product of the 4th worker is ________ units.

A) 2.0
B) 2.25
C) 5.0
D) 9.0

Question 58

Use the following for questions 53-56.

(Exhibit: Production of Bagels) Diminishing marginal returns begin with the addition of the ________ worker.

A) third
B) fourth
C) fifth
D) sixth

Question 59

Use the following for questions 44-50.

(Exhibit: Total Product and Marginal Product) Negative marginal returns begin when the ________ worker is added.

A) fifth
B) sixth
C) seventh
D) eighth

Question 60

Use the following for questions 53-56.

(Exhibit: Production of Bagels) Negative marginal returns occur with the addition of the ________ worker.

A) fifth
B) sixth
C) eighth
D) ninth

Question 61

The law of diminishing marginal returns assumes that there:

A) is at least one variable and one fixed factor of production.
B) are no variable factors of production.
C) are no fixed factors of production.
D) are no fixed costs.

Question 62

The law of diminishing marginal returns assumes that:

A) technology is constant.
B) all costs are variable.
C) all inputs are fixed.
D) all costs are fixed.

Question 63

The Case in Point on The Production of Fitness made the point that:

A) when it comes to fitness, more exercise always generates increasing marginal benefits.
B) working out every day is better than taking a day or two off when it comes to building up aerobic capacity.
C) the law of diminishing returns applies to athletic training.
D) the law of diminishing returns doesn't apply to aerobic exercise.

Question 64

The concept of diminishing marginal returns and the idea of negative marginal returns:

A) are essentially the same thing.
B) are not the same thing.
C) are different ways of saying the same thing.
D) are described in A and C.

Question 65

The costs incurred by a firm in its use of variable factors of production are:

A) total costs.
B) marginal costs.
C) variable costs.
D) fixed costs.

Question 66

The law of diminishing marginal returns indicates that marginal returns:

A) always diminish.
B) eventually diminish.
C) always diminish before increasing.
D) never diminish before reaching zero.

Question 67

When an additional unit of a variable factor of production adds less to total product than the previous unit, the firm must be experiencing:

A) increasing returns.
B) diminishing marginal returns.
C) diminishing average returns.
D) both B and C.

Question 68

Fixed costs include:

A) top management salaries.
B) wage rates set by contract.
C) salaries of production workers.
D) costs of electricity used in production.

Question 69

The law of diminishing marginal returns holds that the:

A) marginal product of any variable factor of production will eventually decline, assuming the quantities of other factors of production are given.
B) total product of any variable factor of production will eventually decline, all other things unchanged.
C) total product can only increase so long, because factors of production eventually become tired or wear out.
D) marginal product of any variable factor of production will at some point decline, because it will eventually become burdened with an excess and overwhelming abundance of other factors in the long run.

Question 70

The Case in Point on The Production of Fitness suggested:

A) that the region of diminishing marginal returns to aerobic training began on the fourth day of training.
B) that the region of diminishing marginal returns is irrelevant in the context of aerobic training.
C) that athletes should ignore the law of diminishing marginal returns if they expect to excel in their sport.
D) none of the above.

Question 71

The costs associated with variable factors of production are _______ costs and the costs associated with _______ factors of production are _______ costs.

A) variable; fixed; fixed
B) fixed; fixed; variable
C) variable; fixed; variable
D) fixed; fixed; fixed

Question 72

Diminishing marginal returns for the first four units of a variable input is exhibited by the marginal product sequence:

A) 50, 50, 50, 50.
B) 50, 40, 30, 20.
C) 50, 110, 180, 260.
D) 50, 100, 150, 200.

Question 73

Diminishing marginal returns for the first four units of a variable input is exhibited by the total product sequence:

A) 5, 4, 3, 2.
B) 5, 5, 5, 5.
C) 5, 9, 12, 14.
D) 5, 10, 15, 20.

Question 74

Variable costs include:

A) the cost of raw materials.
B) the salaries of top management.
C) rent on leased buildings.
D) all of the above.

Question 75

Which of the following statements is a "true" statement?

A) The world's food supply could be grown in a flower pot, if the law of diminishing returns did not hold!
B) The law of diminishing returns is another example of the statement, "That's okay in theory but not in practice."
C) No factor of production could ever be employed in such large quantities as to produce a marginal product that is negative.
D) Total product must always go up when a firm hires more inputs.

Question 76

Given constant quantities of all other factors, when additional units of a variable factor of production reduce total output, the firm is experiencing:

A) constant marginal returns.
B) increasing marginal returns.
C) diminishing marginal returns.
D) negative marginal returns.

Question 77

Diminishing marginal returns occur when:

A) each additional unit of a variable factor adds more to total output than the previous unit.
B) an additional variable factor adds less to total output than the previous unit.
C) the marginal product of a variable factor is increasing, but at a decreasing rate.
D) all of the above are true.

Question 78

It is _______ for a factor of production to have _______ .

A) impossible; negative marginal returns
B) possible; negative marginal returns
C) impossible; a marginal product of zero
D) none of the above are correct

Question 79

When a firm experiences diminishing marginal returns:

A) its output is falling.
B) marginal product is falling, yet it is still positive.
C) total product is going up, even though marginal product is falling.
D) B and C are true.

Question 80

The law stating that if the quantity of a variable factor of production is increased, with the quantities of all other factors given, the marginal product of the variable factor will eventually decline is the law of:

A) demand.
B) supply.
C) decreasing average production.
D) diminishing marginal returns.