Question 1

When the marginal product of labor ________ the average product of labor, then the average product is maximized.
A) equals
B) is greater than
C) is less than
D) The average product of labor is never maximized.

Accepted Answer

When the marginal product of labor equals the average product of labor, the average product is maximized. This is because the marginal product of labor represents the additional output from one more unit of labor, and when it equals the average, it indicates that adding more labor will not increase the average productivity, marking its peak.

Question 2

Assume the total product of two workers is 160 and the total product of three workers is 180. The three worker's average product is ________ while the third worker's marginal product is ________.
A) 20; 60
B) 60; 20
C) 20; 26.67
D) 320; 540

Accepted Answer

The average product for three workers is the total product divided by the number of workers, which is 180/3 = 60. The marginal product of the third worker is the change in total product when the third worker is added, which is 180 - 160 = 20.

Question 3

Assume that capital and labor are complementary inputs. If the firm decreases the amount of capital it employs, this would
A) cause the firm to move down along the MP schedule for labor.
B) cause the firm to move up along its MP schedule for labor.
C) shift the firmʹs MP schedule for labor to the left.
D) shift the firmʹs MP schedule for labor to the right.

Accepted Answer

When capital and labor are complementary inputs, reducing the amount of capital employed would decrease the productivity of labor, effectively shifting the marginal product (MP) schedule for labor to the left, not moving along it.

Question 4

Hannah's House of Hotcakes serves 30 customers in an hour when it hires one worker. It serves 60 customers in an hour when it hires two workers. The marginal product of the second worker is ________ customers served per hour.
A) 20
B) 30
C) 50
D) 67.5

Accepted Answer

The marginal product of the second worker is the additional output produced by the second worker, which is calculated by subtracting the total output with one worker (30 customers) from the total output with two workers (60 customers). Therefore, the marginal product of the second worker is 60 - 30 = 30 customers served per hour.

Question 5

Firms have an incentive to substitute capital for labor as the
A) price of labor decreases.
B) price of capital increases.
C) price of labor increases.
D) marginal product of labor increases.

Accepted Answer

Firms are more likely to substitute capital for labor when the price of labor increases because it becomes more cost-effective to use machinery or technology instead of human workers.

Question 6

Assume the total product of two workers is 200 and the total product of three workers is 300. The three workers' average product is ________ while the third worker's marginal product is ________.
A) 80; 40
B) 40; 80
C) 100; 100
D) 300; 200

Accepted Answer

The average product for three workers is the total product divided by the number of workers, which is 300/3 = 100. The marginal product of the third worker is the change in total product when the third worker is added, which is 300 - 200 = 100.

Question 7

The formula Δq/ΔL represents
A) total product.
B) the average product of labor.
C) the capital-to-labor ratio.
D) the marginal product of labor.

Accepted Answer

The formula Δq/ΔL represents the change in output (q) resulting from a change in the amount of labor (L) used, which is the definition of the marginal product of labor.

Question 8

Assume the total product of two workers is 110 and the total product of three workers is 120. The three worker's average product is ________ while the third worker's marginal product is ________.
A) 40; 10
B) 40; 20
C) 50; 10
D) 120; 110

Accepted Answer

The average product for three workers is the total product divided by the number of workers, which is 120/3 = 40. The marginal product of the third worker is the increase in total product from adding the third worker, which is 120 - 110 = 10.

Question 9

A firm produces 15 units of output from the last dollar it spends on labor and 10 units from the last dollar spent on capital. The firm should
A) employ more labor and less capital.
B) employ more capital and less labor.
C) employ more capital and labor.
D) employ less capital and labor.

Accepted Answer

The firm should employ more labor and less capital because the marginal product of labor per dollar (15 units) is higher than the marginal product of capital per dollar (10 units), indicating labor is currently a more efficient use of funds.

Question 10

Assume the prices of labor and capital remain the same, but the average educational level of workers decreases and therefore labor productivity decreases. This would lead a firm to
A) use a more capital-intensive production technology.
B) use a more labor-intensive technology.
C) not change its production technology, but produce fewer units of output.
D) use only capital to produce the product.

Accepted Answer

A decrease in labor productivity makes labor relatively less efficient compared to capital, prompting firms to adopt more capital-intensive production technologies to maintain or enhance productivity.

Question 11

Assume the total product of three workers is 60 and the total product of four workers is 80. The four worker's average product is ________ while the fourth worker's marginal product is ________.
A) 5; 15
B) 15; 5
C) 20; 20
D) 80; 20

Accepted Answer

The answer of Assume the total product of three workers...

Question 12

The specific technology chosen by a profit-maximizing clothing manufacturer depends on
A) input prices.
B) output prices.
C) demand for the output.
D) supply of the output.

Accepted Answer

The choice of technology depends on input prices because the manufacturer aims to minimize costs and maximize profits by selecting the most cost-effective combination of inputs.

Question 13

A firm is operating such that the marginal product of labor is 48 and the marginal product of capital is 12. The firm is minimizing its costs only if
A) the wage is one fourth the rental rate.
B) the rental rate is one fourth the wage.
C) since capital is more productive than labor, the firm must be minimizing cost.
D) Given this information the firm can't be minimizing cost under any circumstances.

Accepted Answer

The answer of A firm is operating such that the...

Question 14

The equation (MP_L/P_L) = (MP_K/P_K)represents A) profit maximization. B) cost minimization. C) the short-run production function. D) diminishing marginal returns.

Accepted Answer

This equation represents the condition for cost minimization in production, where the marginal product per dollar spent on labor (MP_L/P_L) is equal to the marginal product per dollar spent on capital (MP_K/P_K).

Question 15

You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.
A) 12%
B) less than 12%
C) above 12%
D) risk free (the rate on government bonds)

Accepted Answer

The soft drink manufacturing industry is considered less risky than the restaurant industry. Generally, lower risk investments offer lower potential returns. Therefore, if the restaurant industry's normal rate of return is 12%, a less risky industry like soft drink manufacturing would likely offer a rate of return less than 12%.

Question 16

If a company is earning a rate of return less than the return necessary for the business to continue operations in the long run, then
A) total revenue exceeds total costs.
B) total costs are less than a normal rate of return.
C) the firm's normal rate of return is zero.
D) the firm is suffering an economic loss.

Accepted Answer

If a company is earning a rate of return less than the return necessary for the business to continue operations in the long run, it means that the company is not covering its opportunity costs, which is an indication of an economic loss.

Question 17

To minimize costs, a firm should use more labor and less capital if the product derived from the last dollar spent on labor is ________ the product derived from the last dollar spent on capital.
A) less than
B) greater than
C) equal to
D) either greater than or less than

Accepted Answer

To minimize costs, a firm should allocate its resources so that the marginal product per dollar spent is equal across all inputs. If the marginal product per dollar spent on labor is greater than that on capital, it indicates that labor is currently a more efficient use of funds, so the firm should use more labor and less capital until the marginal products per dollar are equalized.

Question 18

If Overstock.com earns a rate of return exactly equal to what is necessary for it to continue operations, then its
A) total revenue exceeds its economic costs.
B) economic costs exceed its total revenue.
C) normal profit is zero.
D) economic profit is zero.

Accepted Answer

When a company earns a rate of return exactly equal to what is necessary to continue operations, it means it is covering all its costs, including opportunity costs, resulting in an economic profit of zero. Economic profit is total revenue minus total costs, where total costs include both explicit and implicit (opportunity) costs.

Question 19

To minimize costs, a firm should use more capital and less labor if the product derived from the last dollar spent on labor is ________ the product derived from the last dollar spent on capital.
A) less than
B) greater than
C) equal to
D) either greater than or less than

Accepted Answer

The principle of minimizing costs involves equating the marginal products per dollar spent on all inputs. If the marginal product per dollar spent on labor is less than that for capital, the firm can reduce costs by substituting capital for labor until the marginal products per dollar are equalized.

Question 20

The formula q/L represents
A) total product.
B) the average product of labor.
C) the capital-to-labor ratio.
D) the marginal product of labor.

Accepted Answer

The formula q/L, where q represents total output (or total product) and L represents the amount of labor used, calculates the average product of labor. This is found by dividing the total output by the number of labor units used, giving the average output per unit of labor.

Quiz 7: The Production Process: the Behavior of Profit-Maximizing Firms

When the marginal product of labor ________ the average product of labor, then the average product is maximized.

Assume the total product of two workers is 160 and the total product of three workers is 180. The three worker's average product is while the third worker's marginal product is .

Assume that capital and labor are complementary inputs. If the firm decreases the amount of capital it employs, this would

Hannah's House of Hotcakes serves 30 customers in an hour when it hires one worker. It serves 60 customers in an hour when it hires two workers. The marginal product of the second worker is ________ customers served per hour.

Firms have an incentive to substitute capital for labor as the

Assume the total product of two workers is 200 and the total product of three workers is 300. The three workers' average product is while the third worker's marginal product is .

The formula Δq/ΔL represents

Assume the total product of two workers is 110 and the total product of three workers is 120. The three worker's average product is while the third worker's marginal product is .

A firm produces 15 units of output from the last dollar it spends on labor and 10 units from the last dollar spent on capital. The firm should

Assume the prices of labor and capital remain the same, but the average educational level of workers decreases and therefore labor productivity decreases. This would lead a firm to

Assume the total product of three workers is 60 and the total product of four workers is 80. The four worker's average product is while the fourth worker's marginal product is .

The specific technology chosen by a profit-maximizing clothing manufacturer depends on

A firm is operating such that the marginal product of labor is 48 and the marginal product of capital is 12. The firm is minimizing its costs only if

The equation (MP_L/P_L) = (MP_K/P_K) represents

You are certain that the restaurant industry's normal rate of return is 12%. You would expect a(n) ________ normal rate of return for a soft drink manufacturing industry that people consider much less risky than the restaurant industry.

If a company is earning a rate of return less than the return necessary for the business to continue operations in the long run, then

To minimize costs, a firm should use more labor and less capital if the product derived from the last dollar spent on labor is ________ the product derived from the last dollar spent on capital.

If Overstock.com earns a rate of return exactly equal to what is necessary for it to continue operations, then its

To minimize costs, a firm should use more capital and less labor if the product derived from the last dollar spent on labor is ________ the product derived from the last dollar spent on capital.

The formula q/L represents